<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------
X Annual Report Pursuant to Section 13 or 15 (d) of the Securities
--- Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1995
Transition Report Pursuant to Section 13 or 15 (d) of the Securities
--- Exchange Act of 1934
[No Fee Required]
Commission File Number 1-8029
THE RYLAND GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
11000 Broken Land Parkway
Columbia, Maryland 21044
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 715-7000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
------------------- ---------------------
Common Stock, (Par Value $1.00) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. X
---
The aggregate market value of the Common Stock of The Ryland Group, Inc., held
by non-affiliates of the registrant (15,537,166 shares) as of March 11, 1996,
was $242,768,219. The number of shares of common stock of The Ryland Group,
Inc., outstanding on March 11, 1996, was 15,767,954.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Name of Document Location in Report
- ---------------- ------------------
Proxy Statement for 1996 Annual Meeting
of Stockholders Parts I, III
Annual Report to Shareholders for the
year ended December 31, 1995 Parts II, IV
Form 8 filed October 25, 1990 Part IV
Form 8-K filed September 12, 1989 Part IV
Form 10-K for the year ended December 31, 1989 Part IV
Registration Statement on Form S-3, Registration 33-28692 Part IV
Form 8-K filed December 31, 1990 Part IV
Form 8-K filed August 6, 1992 Part IV
Form 10-K for the year ended December 31, 1990 Part IV
Form 10-Q for the quarter ended June 30, 1992 Part IV
Registration Statement on Form S-3, Registration 33-48071 Part IV
Form 10-Q for the quarter ended June 30, 1994 Part IV
Form 10-K for the year ended December 31, 1994 Part IV
Form 10-Q for the quarter ended September 30, 1995 Part IV
Form 8-K filed December 19, 1995 Part IV
<PAGE>
THE RYLAND GROUP, INC.
FORM 10-K
INDEX
Page
PART I. Number
------
Item 1. Business 4
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II.
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 13
PART III.
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 15
SIGNATURES 19
INDEX OF EXHIBITS 20
<PAGE>
PART I
Item 1. Business.
The Ryland Group, Inc. (the "Company"), is a leading national homebuilder and
mortgage-related financial services firm. Established in 1967, the Company
builds homes and provides mortgage services in 26 markets in 19 states and is
one of the largest single-family on-site homebuilders in the United States.
The Company's homebuilding segment specializes in the sale and construction of
single-family attached and detached housing. The financial services segment
provides various mortgage-related products and services for retail customers
including loan origination, loan servicing, title and escrow services and also
conducts investment activities.
In June 1995, the Company completed the sale of its institutional mortgage-
securities administration business which included master servicing, securities
administration, investor information services and tax calculation and
reporting. The sale of this business is consistent with the Company's long-
term strategy to focus on its core homebuilding and retail mortgage-finance
operations. Earnings for the financial services segment for the second half
of 1995 were, and future results will continue to be, negatively impacted by
the sale of this business.
HOMEBUILDING
- ------------
MARKETS - The homebuilding segment builds and sells homes that are constructed
on-site in six regions which are comprised of the following areas at December
31, 1995:
Region Major Markets Served
------ --------------------
Mid-Atlantic Baltimore, Delaware Valley/Philadelphia,
Washington, D.C./Northern Virginia
Midwest Chicago, Cincinnati, Columbus, Indianapolis, Minneapolis
Southeast Atlanta, Charlotte, Columbia, Greenville, Orlando, Tampa
Southwest Austin, Dallas, Houston, San Antonio
West Denver, Phoenix, Portland, Salt Lake City
California Los Angeles/Pacific Inland, Sacramento, San Diego,
San Jose Bay Area
Effective January 1996, the Company consolidated the West and California
regions into a new West region. In addition, the Company recently announced
that it will close its operations in Columbus, Ohio by the end of 1996.
The homebuilding segment sells under the name of Larchmont Homes in
Sacramento, California, Brock Homes in Southern California, Scott Felder Homes
in certain Texas markets and Ryland Homes in all other areas.
<PAGE>
The Company's operations in each of its homebuilding markets may differ based
on a number of market-specific factors. These factors include regional
economic conditions and job growth, land availability and the local land
development process, consumer tastes, competition from other builders of new
homes and home resale activity. The Company considers each of these factors
when entering into new markets or determining the extent of its operations in
existing markets. During 1995, the Company expanded its geographic presence
by entering the markets of Minneapolis, Minnesota; Tampa, Florida; San Jose,
California; and Portland, Oregon. The Company also completed its first full
year of operations in Greenville and Columbia, South Carolina and Salt Lake
City, Utah.
The Company offers a range of different home styles in each of its geographic
regions which are tailored to the styles and consumer tastes of the particular
region. The Company's homes vary in size and price range, but are generally
marketed to customers purchasing their first home or their first or second
time move-up home. The Company's average closing price was $164,000 in 1995.
LAND PURCHASES - In the ordinary course of its homebuilding business, the
Company acquires land for use in the sale and construction of homes. The
Company purchases land in various stages of development; however, the Company
generally does not purchase unentitled or unzoned land. The acquisition of
land may be under purchase agreements or through the exercise of purchase
options, depending on which vehicle is deemed more advantageous given the
Company's profit objectives and capital constraints as well as local market
conditions. The land acquisition process is controlled through a formal land
approval committee to help ensure that transactions meet the Company's
standards for financial performance and risk. As of December 31, 1995, the
Company had deposits and letters of credit outstanding of $29.8 million in
connection with option and land purchase contracts having a total purchase
price of $334.5 million. These options and commitments expire at various
dates through 2001.
MATERIALS COSTS - Substantially all materials used in the construction of
homes are available from a number of sources, but may fluctuate in price due
to various factors. To increase purchasing efficiencies, the Company uses
standardized building materials and products in its homes. Prior to 1995, the
Company operated plants in four states that produced and shipped rough lumber
packages and trim materials to building sites in many of its markets. During
1995, the Company sold its plants in Ohio, North Carolina and Texas which
supplied materials to the Midwest, Southeast and Southwest regions,
respectively. The Company decided to sell these plants in order to have
greater flexibility in its method of home construction and to improve its
responsiveness to consumer's desires for new home designs. The Company may
still purchase rough lumber packages from outside suppliers in some of the
markets previously served by the plants. The Company continues to operate its
plant in Maryland which supplies the Baltimore, Maryland and Washington,
D.C./Northern Virginia markets.
SUPPLIERS AND SUBCONTRACTORS - Substantially all on-site construction work is
performed by subcontractors monitored by the Company's production supervisors.
The Company has, on occasion, experienced shortages of skilled labor in
certain markets. If shortages were to occur in the future, such shortages
could result in longer construction times and higher costs than those
experienced in the past.
<PAGE>
MARKETING - Homes are sold by employees and independent real estate brokers.
The Company reports a sale when a customer's sales contract is approved, and
records revenue from a sale upon closing. The Company normally commences
construction of homes when a customer has selected a lot and floor plan and
has received preliminary mortgage approval. However, construction of homes may
begin prior to a sale to satisfy market demand for completed homes and to
facilitate construction scheduling.
FINANCIAL SERVICES
- ------------------
Through its financial services segment, the Company provides various mortgage-
related products and services for retail customers and conducts investment
activities.
RETAIL OPERATIONS
The retail operations provide mortgage loan origination, loan servicing and
title and escrow services for retail customers.
LOAN ORIGINATION - In 1995, the Company's mortgage origination operations
consisted of retail and wholesale loan offices which processed the Company's
builder, spot and wholesale loans. Builder loans are loans that the Company
originates in connection with sales by its homebuilding segment. Spot loans
are mortgage loans that are originated primarily by loan officers through
contacts with realtors and homeowners and are not related to the financing of
homes built by the Company. Wholesale loans are originated by outside
brokers, but underwritten and closed by the
Company.
In February 1996, the Company entered into an agreement to sell its wholesale
mortgage operations. The sale of this business, which was part of the retail
operations of the financial services segment, will likely result in a decline
in mortgage originations in 1996. However, the sale of this business is not
expected to have a significant impact on the future operating results of the
financial services segment.
For the 12 months ended December 31, 1995, the Company originated 15,330
mortgage loans totaling $2.0 billion, of which 35 percent were for purchases
of homes built by the Company and 65 percent were for purchases of homes not
built by the Company or for the refinancing of existing mortgage loans.
The Company arranges various types of mortgage financing including
conventional, Federal Housing Administration (FHA) and Veterans Administration
(VA) mortgages with various fixed- and adjustable-rate features. The
Company's mortgage operations are approved by Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA) and
Government National Mortgage Association (GNMA). The mortgage origination
operation has loan production offices in Arizona, California, Colorado,
Florida, Georgia, Illinois, Indiana, Maryland, New Jersey, North Carolina,
Ohio, Pennsylvania, Texas, Utah, and Virginia.
<PAGE>
LOAN SERVICING - The Company services loans that it originates as well as
loans originated by others. As of December 31, 1995, the Company's loan
servicing portfolio was $6.2 billion. The Company services loans originated
in all 50 states, with the highest concentrations in Arizona, California,
Florida, Maryland and Texas.
TITLE AND ESCROW SERVICES - Cornerstone Title Company, a wholly owned
subsidiary, provides title services primarily to the Company's customers. As
of December 31, 1995, Cornerstone had offices in Delaware, Florida, Georgia,
Illinois, Maryland, New Jersey, Texas and Virginia. The Company also operates
an escrow Company in California that performs escrow and loan closing
functions primarily on homes built by the Company.
DISCONTINUED INSTITUTIONAL OPERATIONS
- -------------------------------------
In the second quarter of 1995, the Company sold its institutional mortgage-
securities administration business which included master servicing, securities
administration, investor information services, and tax calculation and
reporting. The current and prior period results for this business (formerly
reported as institutional financial services), as well as the gain on the sale
of the business, have been reported as discontinued operations in the
consolidated statements of earnings. The Company's future earnings will no
longer benefit from the results of these operations.
INVESTMENT OPERATIONS
The Company's investment operations hold certain assets, primarily mortgage-
backed securities and notes receivable, which were obtained as a result of the
exercise of redemption rights on various mortgage-backed bonds previously
owned by the Company's limited-purpose subsidiaries. The Company earns a net
interest spread on the investment portfolio from the difference between the
interest rates on the mortgage-backed securities and notes receivable and the
related borrowing rates. The Company may periodically realize gains from the
sale of mortgage-backed securities from the portfolio.
LIMITED-PURPOSE SUBSIDIARIES
- ----------------------------
The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities. They do continue to
hold collateral for previously issued mortgage-backed bonds in which the
Company maintains a residual interest. Revenues of the limited-purpose
subsidiaries consist primarily of interest on mortgage collateral subject to
bond indebtedness. Expenses consist primarily of interest on the outstanding
bonds and amortization of deferred costs. Revenues, expenses and portfolio
balances for the limited-purpose subsidiaries continue to decline as the
mortgage collateral pledged to secure the bonds decreases due to scheduled
principal payments, prepayments and exercises of early redemption provisions.
Revenues have approximated expenses for the last three years. The Ryland
Group, Inc., and subsidiaries have not guaranteed the debt of the limited-
purpose subsidiaries.
<PAGE>
ECONOMIC CONDITIONS
- -------------------
The general economic conditions in the United States as well as the levels of
interest rates and consumer confidence affect the Company's business. Higher
interest rates may affect the ability of buyers to qualify for mortgage
financing and decrease demand for new homes. As a result, the Company's home
sales and mortgage originations generally will be negatively impacted by
rising interest rates. Movements in interest rates may also affect the market
value of the Company's investment portfolio. Prepayments, which are higher in
a falling interest rate environment, reduce the value of loan servicing rights
in the Company's loan servicing portfolio. The Company's business is also
affected by local economic conditions, such as employment rates and housing
demand in the markets in which it builds homes.
COMPETITION
- -----------
The homebuilding segment competes with other homebuilders in its markets.
Competition ranges from local builders, who may build only a few homes each
year, to other large national homebuilding companies. In addition, the
Company competes with other housing alternatives including existing homes and
rental housing. Principal competitive factors in homebuilding are home price,
design, quality, reputation, relationship with developers, availability and
location of lots and availability of customer financing.
The financial-services segment competes with other mortgage bankers to arrange
financing for home buyers and refinancing customers. Principal competitive
factors include interest rates and other features of mortgage loan products
available to the consumer. The loan servicing operation of the financial-
services segment competes with other loan servicers for loan servicing rights.
REGULATORY AND ENVIRONMENTAL MATTERS
- ------------------------------------
The homebuilding segment is subject to various local, state and federal
statutes, ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the
number of homes that can be built within the boundaries of a particular
locality. The homebuilding segment may also be subject to periodic delays in
homebuilding projects due to building moratoria in any of the states in which
it operates. Generally, such moratoria relate to insufficient water or sewage
facilities or inadequate roads or local services.
The Company is also subject to various local, state and federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The homebuilding segment is subject to a variety of
environmental conditions that can affect its business and its homebuilding
projects. Environmental laws and conditions may result in delays, may cause
the Company to incur substantial compliance and other costs, and can prohibit
or severely restrict homebuilding activity in certain environmentally
sensitive areas.
<PAGE>
The Company's financial-services segment is subject to the rules and
regulations of FHA, VA, FNMA, FHLMC, and GNMA ("regulatory agencies") with
respect to originating, processing, selling and servicing mortgage loans. In
addition, there are other federal and state statutes and regulations affecting
such activities. These rules and regulations, among other things, prohibit
discrimination and establish underwriting guidelines which include provisions
for inspections and appraisals, require credit reports on prospective
borrowers and fix maximum loan amounts. Moreover, the Company is required to
submit to the regulatory agencies audited financial statements annually, and
each regulatory entity has its own financial requirements. The Company's
affairs are also subject to examination by the regulatory agencies at all
times to assure compliance with the applicable regulations, policies and
procedures. Mortgage origination activities are subject to the Equal Credit
Opportunity Act, Federal Truth-in-Lending Act and Real Estate Settlement
Procedures Act and the regulations promulgated thereunder which prohibit
discrimination and require the disclosure of certain information to mortgagors
concerning credit and settlement costs.
EMPLOYEES
- ---------
At December 31, 1995, the Company employed 2,625 people. The Company
considers its employee relations to be good. No employees are represented by
a collective bargaining agreement.
<PAGE>
ITEM 2. PROPERTIES
The Company leases office space for its corporate headquarters in Columbia,
Maryland. In addition, the Company leases office space in the various markets
in which it operates. The Company operates a building component plant in New
Windsor, Maryland.
ITEM 3. LEGAL PROCEEDINGS
Contingent liabilities may arise from the obligations incurred in the ordinary
course of business, or from the usual obligations of on-site housing producers
for the completion of contracts.
One current and two former officers of Ryland Mortgage Company ("RMC") have
been notified that they are targets of a federal grand jury investigation
concerning alleged misappropriation of funds from the Resolution Trust
Corporation ("RTC"). The Company has been advised that the investigation
relates to alleged overpayments to RMC of approximately $3 million under two
mortgage-servicing contracts with the RTC. The Company is investigating this
matter and, at this time, cannot predict how it will be resolved or whether
the Company or RMC will incur any liability.
The Company is also party to various legal proceedings generally incidental to
its businesses. Based on evaluation of the above matters and discussions with
counsel, management believes that liabilities to the Company arising from
these matters will not have a material adverse effect on the financial
condition of the Company.
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1995.
<PAGE>
<TABLE>
SEPARATE ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>
Name Age Position (date elected to position)
Prior Business Experience
- ------------------------------------------------------------------------------
<S> <C> <C>
R. Chad Dreier 48 Chairman of the Board of the Company
(1994), President and Chief Executive
Officer of the Company (1993).
Executive Vice President and Chief
Financial Officer of Kaufman and
Broad Home Corporation and Chairman of
Kaufman and Broad Mortgage Company
(1986-1993).
Michael C. Brown 38 President of Ryland Mortgage Company
(1996). Chief Operating Officer
of Ryland Mortgage Company (1995).
Senior Vice President of Ryland
Mortgage Company (1987).
J. Sidney Davenport IV 54 Vice President of the Company(1984) and
Executive Vice President of Ryland
Mortgage Company (1993). Senior Vice
President of Ryland Mortgage Company
(1990).
Timothy R. Doyle 45 Senior Vice President of the Company
(1991) and President of Mid-Atlantic
Region (1994). President of Midwest
Region (1991). Vice President
-Operations of the Maryland Region
(1976).
John M. Garrity 49 Senior Vice President of the Company
and President of Southeast Region
(1994).
Division General Manager of Arvida
Homes (1992-1994). Project General
Manager, Weston Residential Projects
(1991-1992).
David Lesser 40 Executive Vice President, General
Counsel and Secretary of the Company
(1995).
Executive Vice President and General
Counsel of Riggs National Corporation
(1987-1995).
Michael D. Mangan 39 Executive Vice President and Chief
Financial Officer of the Company
(1994).
Executive Vice President and Group
Chief Financial Officer of GMAC
Mortgage Corporation (1991-1994).
William R. Rollo 37 Senior Vice President of the Company
and President of Southwest Region
(1994).
Executive Vice President of Scott
Felder L.P. (1990-1994).
Frank J. Scardina 47 Senior Vice President of the Company
(1994), President of West Region (1996)
and President of California Region
(1994). Vice President, Ryland Homes
(1993).
President of Birtcher Real Estate
Ltd.(1991-1992).
Kipling W. Scott 41 Senior Vice President of the Company
and President of Midwest Region (1994).
Midwest Region Director of Land
Resources & Planning (1993).
President of Development Management
Services, Inc. (1989-1993).
All officers are elected by the board of directors.
</TABLE>
<PAGE>
There are no family relationships, arrangements or understandings pursuant to
which any of the officers listed were elected. For a description of
employment and severance arrangements with certain executive officers of the
Company, see page 12 of the Proxy Statement for the 1996 Annual Meeting of
Stockholders.
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The information required by this item is incorporated by reference from the
section entitled "Common Stock Prices and Dividends" appearing on page 48 of
the Annual Report to Shareholders for the year ended December 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference from the
section entitled "Selected Financial Data" appearing on page 21 of the Annual
Report to Shareholders for the year ended December 31, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" appearing on pages 22 through 28 of the
Annual Report to Shareholders for the year ended December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated by reference from the
information appearing on pages 29 through 46 and from the section entitled
"Quarterly Financial Data and Common Stock Prices and Dividends" appearing on
page 48 of the Annual Report to Shareholders for the year ended December 31,
1995.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the fiscal years ended December 31, 1995 and 1994, there were no
disagreements between the Company and its accountants on any matter of
accounting principle or financial statement disclosure.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information as to the Company's Directors is incorporated by reference from
pages 3-4 and 7 of the Company's Proxy Statement for its 1996 Annual Meeting
of Stockholders. Information as to the Company's executive officers is shown
under Part I as a separate item.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from pages
7-13 of the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from pages
5 and 6 of the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no transactions, business relationships or indebtedness required to
be reported by the Company pursuant to this Item.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of
The Ryland Group, Inc., and Subsidiaries, included in the Annual
Report to Shareholders for the year ended
December 31, 1995, are incorporated by reference in Item 8:
Consolidated Statements of Earnings - years ended December 31,
1995, 1994, and 1993.
Consolidated Balance Sheets - December 31, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows - years ended December 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules. (filed herewith) Page No.
Schedule II - Valuation and Qualifying Accounts 18
Schedules not listed above have been omitted because they are either
inapplicable or the required information has been given in the
financial statements or notes thereto.
<PAGE>
(a) 3. Exhibits
Exhibit No.
3.1 Charter of The Ryland Group, Inc., as amended.
(Incorporated by reference from Form 10-K for the year
ended December 31, 1989)
3.2 Bylaws of The Ryland Group, Inc., as amended.
(Filed Herewith)
4.1 Rights Agreement dated as of December 17, 1986, between
The Ryland Group, Inc., and Maryland National Bank as
amended by The First Amendment of Rights Agreement dated as
of October 17, 1990.
(Incorporated by reference from Form 8 filed October
25, 1990)
4.2 Articles Supplementary dated as of August 31, 1989.
(Incorporated by reference from Form 8-K filed September
12, 1989)
4.3 Indenture dated as of November 2, 1989 between The Ryland
Group, Inc., and Manufacturers Hanover Trust Company, as
Trustee.
(Incorporated by reference from Exhibits to Registration
Statement on Form S-3, Registration No. 33-28692)
4.4 First Supplemental Indenture dated as of December 28, 1990,
between The Ryland Group, Inc., and Manufacturers Hanover
Trust Company, as Trustee.
(Incorporated by reference from Form 8-K filed
December 31, 1990)
4.5 Indenture dated as of July 15, 1992, between The Ryland
Group, Inc., and Security Trust Company, N.A., as Trustee.
(Incorporated by reference from Form 8-K filed
August 6, 1992)
4.6 Senior Subordinated Notes dated as of July 23, 1992.
(Incorporated by reference from Form 8-K filed
August 6, 1992)
4.7 Senior Subordinated Notes dated as of November 4, 1993.
(Incorporated by reference from Registration Statement on
Form S-3, Registration No. 33-48071)
10.1 Lease Agreement between Seventy Corporate Center Limited
Partnership and The Ryland Group, Inc., dated
April 17, 1990.
(Incorporated by reference from Form 10-K for the year
ended December 31, 1990)
10.2 (A) 1992 Equity Incentive Plan of The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended June 30, 1992)
10.3 (A) 1992 Non-Employee Director Equity Plan of
The Ryland Group, Inc., as amended.
(Incorporated by reference from Form 10-Q for the quarter
ended June 30, 1994)
(A) Executive Compensation Plan or Arrangement
<PAGE>
(a) 3. Exhibits, continued
Exhibit No.
10.4 Restated Credit Agreement dated as of July 21, 1995,
between The Ryland Group, Inc., and certain banks.
(Filed Herewith)
10.5 Restated Loan and Security Agreement dated as of
June 16, 1995, between Ryland Mortgage Company; Associates
Mortgage Funding Corporation; BankOne, Texas, N.A.; and
certain lenders.
(Filed Herewith)
10.6 (A) Employment Agreement dated as of December 31, 1994, between
R. Chad Dreier and The Ryland Group, Inc.
(Incorporated by reference from Form 10-K for the year
ended December 31, 1994)
10.7 (A) Employment Agreement dated as of September 18, 1995,
between Michael D. Mangan and The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended September 30, 1995)
10.8 (A) Employment Agreement dated as of September 18, 1995,
between David Lesser and The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended September 30, 1995)
11 Statement Re Computation of Per Share Earnings.
(Filed Herewith)
13 Annual Report to Shareholders for the year ended
December 31, 1995.
(Filed Herewith)
21 Subsidiaries of the Registrant.
(Filed Herewith)
23 Consent of Ernst & Young LLP, Independent Auditors.
(Filed Herewith)
24 Power of Attorney.
(Filed Herewith)
27. Financial Data Schedule.
(Filed Herewith)
(A) Executive Compensation Plan or Arrangement
(b) Reports on Form 8-K filed in the fourth quarter of 1995:
Form 8-K was filed with the Securities and Exchange Commission on
December 19, 1995.
<PAGE>
<TABLE>
The Ryland Group, Inc., and Subsidiaries
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(dollar amounts in thousands)
<CAPTION>
Balance at Charged to Charged Deductions Balance at
Beginning Costs and to Other and End of
Description of Period Expenses Accounts Transfers(1) Period (2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation allowance:
Homebuilding inventories
1995 $ 31,853 $ 7,000 $ 0 $(30,550) $ 8,303
1994 53,333 0 0 (21,480) 31,853
1993 20,422 43,000 0 (10,089) 53,333
Valuation allowance:
Investment in and advances
to joint ventures
1995 $ 1,573 $ 7,000 $ 0 $ (640) $ 7,933
1994 1,669 0 0 (96) 1,573
1993 1,180 2,680 0 (2,191) 1,669
<FN>
(1) In 1995, the Company adopted a new accounting standard, Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (FASB 121). As part of
the implementation of FASB 121, the carrying basis of inventories to be held
and used was written down by the remaining amount of valuation reserves
provided under prior accounting rules. Deductions for homebuilding
inventories, prior to the adoption of FASB 121, were generally due to normal
inventory turnover resulting from home closings or land sales.
(2) Balances as of December 31, 1995, represent valuation allowances for
assets to be disposed of.
</FN>
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE RYLAND GROUP, INC.
By: /s/ Michael D. Mangan March 26, 1996
---------------------
Michael D. Mangan
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ R. Chad Dreier March 26, 1996
- ------------------
R. Chad Dreier
Chief Executive Officer
Principal Financial Officer:
/s/ Michael D. Mangan March 26, 1996
- ---------------------
Michael D. Mangan
Chief Financial Officer
Principal Accounting Officer:
/s/ Stephen B. Cook March 26, 1996
- -------------------
Stephen B. Cook
Corporate Controller
The Board of Directors: Andre W. Brewster; James A. Flick, Jr.;
R. Chad Dreier; Robert J. Gaw; Leonard M. Harlan; L. C. Heist;
William L. Jews; William G. Kagler; John H. Mullin, III; Charlotte St. Martin;
John O. Wilson.
By: /s/ R. Chad Dreier March 26, 1996
------------------
R. Chad Dreier
For Himself and as Attorney-in-Fact
<PAGE>
Page Of
Sequentially
Numbered Pages
--------------
INDEX OF EXHIBITS
3.2 Bylaws of The Ryland Group, Inc., as amended 21-31
10.4 Restated Credit Agreement dated as of
July 21, 1995, between The Ryland Group, Inc.,
and certain banks 32-116
10.5 Restated Loan and Security agreement dated
as of June 16, 1995, between Ryland Mortgage
Company; Associates Mortgage Funding Corporation;
BankOne, Texas, N.A.; and certain lenders 117-184
11 Statement Re Computation of Per Share Earnings 185
13 Annual Report to Shareholders for the
year ended December 31, 1995 186-212
21 Subsidiaries of the Registrant 213
23 Consent of Ernst & Young LLP, Independent Auditors 214
24 Power of Attorney 215
27 Financial Data Schedule 216
<PAGE>
EXHIBIT 3.2
THE RYLAND GROUP, INC.
Bylaws
ARTICLE I
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual meeting
of its stockholders to elect directors and transact any other business within
its powers, either at 10:00 a.m. on the third Wednesday of April in each year,
if not a legal holiday, or at such other time on such other day falling on or
before the 30th day thereafter as shall be set by the Board of Directors.
Except as the Charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not
invalidate the Corporation's existence or affect any otherwise valid corporate
acts.
SECTION 1.02. Special Meeting. At any time in the interval between annual
meetings, a special meeting of the stockholders may be called by the Chairman
of the Board or the President or by a majority of the Board of Directors by
vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be held at
such place in the United States as is set, from time to time, by the Board of
Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than 10 nor
more than 90 days before each stockholders' meeting, the Secretary shall give
written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose
of the meeting. Notice is given to a stockholder when it is personally
delivered to him, left at his residence or usual place of business, or mailed
to him at his address as it appears on the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to
notice waives notice if he, before or after the meeting, signs a waiver of the
notice, which is filed with the records of stockholders' meetings, or is
present at the meeting in person or by proxy. A meeting of stockholders
convened on the date for which it was called may be adjourned, from time to
time, without further notice to a date not more than 120 days after the
original record date.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting. In the absence of a quorum, the
stockholders present, in person or by proxy, by majority vote and
<PAGE>
without notice other than by announcement, may adjourn the meeting, from time
to time, until a quorum shall attend. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified. In the event that at
any meeting a quorum exists for the transaction of some business but does not
exist for the transaction of other business, the business as to which a quorum
is present may be transacted by the holders of stock present in person or by
proxy who are entitled to vote thereon.
SECTION 1.06. General Right to Vote; Proxies. Unless the Charter provides
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock, regardless of class, is entitled to
one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by written proxy signed by the stockholder or by
his duly authorized attorney in fact. Unless a proxy provides otherwise, it
is not valid more than 11 months after its date.
SECTION 1.07. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 1.08. Conduct of Voting. At all meetings of stockholders, unless
the voting is conducted by judges, the proxies and ballots shall be received,
and all questions touching the qualification of voters and the validity of
proxies and the acceptance or rejection of votes shall be decided, by the
chairman of the meeting. If demanded by stockholders, present in person or by
proxy, entitled to cast 10 percent of the number of votes entitle to be cast,
or if ordered by the chairman, the vote upon any election or question shall be
taken by ballot and, upon like demand or order, the voting shall be conducted
by two inspectors, in which event the proxies and ballots shall be received,
and all questions touching the qualification of voters and the validity of
proxies and the acceptance or rejection of votes, shall be decided by the
inspectors. Unless so demanded or ordered, no vote need be by ballot, and
voting need not be conducted by inspectors. The stockholders at any meeting
may choose an inspector or inspectors to act at such meeting and, in default
of such election, the chairman of the meeting may appoint an inspector or
inspectors. No candidate for election as a director at a meeting shall serve
as an inspector thereat.
SECTION 1.09. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings a
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent signed by each stockholder entitled to notice of the meeting but
not entitled to vote at it.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or Bylaws.
SECTION 2.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number
of directors may be less than three but not less than one; and, if there is
stock outstanding and so long as there are less than three stockholders, the
number of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
the Charter until changed as herein provided. A majority of the entire Board
of Directors may alter the number of directors set by the Charter to not
exceeding 25 nor less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. At each annual meeting,
the stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify. No director shall
stand for election upon reaching the age of 70.
SECTION 2.04. Removal of Director. The stockholders may remove any
director, with or without cause, by the affirmative vote of a majority of all
the votes entitled to be cast for the election of directors.
SECTION 2.05. Vacancy on Board. The stockholders may elect a successor to
fill a vacancy on the Board of Directors which results from the removal of a
director. A majority of the remaining directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which
results from any cause except an increase in the number of directors, and a
majority of the entire Board of Directors may fill a vacancy which results
from an increase in the number of directors. A director elected by the Board
of Directors to fill a vacancy serves until the next annual meeting of
stockholders and until his successor is elected and qualifies. A director
elected by the stockholders to fill a vacancy which results form the removal
of a director serves for the balance of the term of the removed director.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
which a Board of Directors shall have been elected, the Board of Directors so
elected shall meet as soon as practicable for the purpose of organization and
the transaction of other business; and in the event that no other time is
designated by the stockholders, the Board of Directors shall meet one hour
after the time for such stockholders' meeting or immediately following the
close of such meeting, whichever is later, on the day of such
<PAGE>
meeting. Such first regular meeting shall be held at any place as may be
designated by the stockholders, or in default of such designation, at the
place designated by the Board of Directors for such first regular meeting, or
in default of such designation, at the place of the holding of the
immediately preceding meeting of stockholders. No notice of such first
meeting shall be necessary if held as hereinabove provided. Any other regular
meeting of the Board of Directors shall be held on such date and at any place
as may be designated, from time to time, by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board, the President or by a
majority of the Board of Directors by vote at a meeting, or in writing with or
without a meeting. A special meeting of the Board of Directors shall be held
on such date and at any place in or out of the state of Maryland as may be
designated, from time to time, by the Board of Directors. In the absence of
designation, such meeting shall be held at such place as may be designated in
the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06, the
Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place
of the meeting. Notice is given to a director when it is delivered personally
to him, left at his residence or usual place of business, or sent by telegraph
or telephone at least 24 hours before the time of the meeting or, in the
alternative, by mail to his address as it shall appear on the records of the
Corporation at least 72 hours before the time of the meeting. Unless the
Bylaws or a resolution of the Board of Directors provides otherwise, the
notice need not state the business to be transacted at or the purposes of any
regular or special meeting of the Board of Directors. No notice of any
meeting of the Board of Directors need be given to any director who attends or
to any director who, in writing executed and filed with the records of the
meeting either before or after the holding thereof, waives such notice. Any
meeting of the Board of Directors, regular or special, may adjourn, from time
to time, to reconvene at the same or some other place, and no notice need be
given of any such adjourned meeting other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or the Charter or Bylaws
require a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum, the
directors present, by majority vote and without notice other than by
announcement, may adjourn the meeting, from time to time, until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting, if a
unanimous written consent which sets forth the action is signed by each member
of the Board and filed with the minutes of proceedings of the Board.
<PAGE>
SECTION 2.10. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors, a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
ARTICLE III
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint, from among
its members, an Executive Committee and other committees composed of two or
more directors and delegate to these committees any of the powers of the Board
of Directors, except the power to declare dividends or other distributions on
stock; elect directors; issue stock, other than as provided in the next
sentence; recommend to the stockholders any action which requires stockholder
approval; amend the Bylaws; or approve any merger or share exchange which does
not require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in
accordance with a general formula or method specified by the Board by
resolution or by adoption of a stock option or other plan, may fix the terms
of stock subject to classification or reclassification and the terms on which
any stock may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present at a meeting at which a quorum is present shall be the act of
the committee. The members of a committee present at any meeting, whether or
not they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if a unanimous written consent,
which sets forth the action, is signed by each member of the committee and
filed with the minutes of the committee. The members of a committee may
conduct any meeting thereof by conference telephone in accordance with the
provisions of Section 2.10.
<PAGE>
SECTION 3.03. Emergency. In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Corporation by its directors and officers, as contemplated by the Charter
and the Bylaws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then
incumbent Executive Committee, the available directors shall elect an
Executive Committee consisting of any two members of the Board of Directors,
whether or not they be officers of the Corporation, which two members shall
constitute the Executive Committee for the full conduct and management of the
affairs of the Corporation in accordance with the aforegoing provisions of
this Section. This Section shall be subject to implementation by resolution
of the Board of Directors passed, from time to time, for that purpose; and any
provisions of the Bylaws (other than this Section) and any resolutions which
are contrary to the provisions of this Section or to the provisions of any
such implementary resolutions shall be suspended until it shall be determined
by any interim Executive Committee acting under this Section that it shall be
to the advantage of the Corporation to resume the conduct and management of
its affairs and business under all the other provisions of the Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.01. Executive Officers. The Board of Directors may choose a
Chairman of the Board from among the directors. The Board of Directors shall
choose a President, a Secretary and a Treasurer who need not be directors.
The Board of Directors may choose one or more Senior Vice Presidents, Vice
Presidents, and a Controller, none of whom need be a director. Any two or
more of the above-mentioned offices, except those of President and Vice
Presidents, may be held by the same person; but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument be required by statute, by charter, by the Bylaws or by resolution
of the Board of Directors to be executed, acknowledged or verified by any two
or more officers. Each such officer shall hold office until the first meeting
of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor shall have been duly chosen
and qualified, or until he shall have resigned or shall have been removed.
Any vacancy in any of the above offices may be filled for the unexpired
portion of the term by the Board of Directors at any regular or special
meeting.
The Board of Directors may designate such persons as appointed officers as
they deem necessary or desirable, from time to time.
<PAGE>
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He shall have and may exercise
such powers as are, from time to time, assigned to him by the Board of
Directors.
SECTION 4.03. President. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the stockholders and the Board of
Directors at which he shall be present; he shall have general charge and
supervision of the business of the Corporation; and he may sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, he shall perform all duties as,
from time to time, may be assigned to him by the Board of Directors.
SECTION 4.04. Vice Presidents. The Corporation shall have four (4) classes
of Vice President; namely, Executive Vice Presidents, Senior Vice Presidents,
Vice Presidents and Operational Vice Presidents. Each class of Vice President
shall have such powers and duties as, from time to time, may be assigned to
them by the Board of Directors or the Chairman. Executive Vice Presidents,
Senior Vice Presidents and Vice Presidents shall be executive officers of the
Corporation. They shall have the power and authority, in the ordinary course
of business of the Corporation, to acquire and dispose of real and personal
property of the Corporation and interests therein and to execute and deliver
all such documents as may be necessary or desirable in connection with any
such acquisition or disposition. Operational Vice Presidents shall be deemed
appointed officers of the Corporation. They shall have the power and
authority, in the ordinary course of business of the Corporation, to make
conveyances of real property developed by the Corporation and related personal
property and to execute and deliver all such documents as may be necessary or
desirable in connection with any such conveyance, and to execute land purchase
agreements and related documents in connection with land acquisition
transactions approved by a Senior Vice President of the Corporation.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees
in books provided for this purpose; he shall see that all notices are duly
given in accordance with the provisions of the Bylaws or as required by law;
he shall be custodian of the records of the Corporation; he shall see that the
corporate seal is affixed to all documents, the execution of which, on behalf
of the Corporation, under its seal, is duly authorized and when so affixed,
may attest the same; and, in general, he shall perform all duties incident to
the office of a secretary of a corporation, and such other duties as, from
time to time, may be assigned to him by the Board of Directors or the
President.
<PAGE>
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, and receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of treasurer of a corporation and such other duties as may be assigned
to him by the Board of Directors or the President.
SECTION 4.07. Appointed Officers. Operational Vice Presidents,
Controllers, Assistant Vice Presidents, Assistant Secretaries or Treasurers,
and such additional officers as may be deemed necessary or desirable to
management of the Corporation, shall be deemed appointed officers and shall
not be considered executive officers of the Corporation. Appointed officers
may be appointed by the Board of Directors or the President.
SECTION 4.08. Compensation. The Board of Directors shall have the power to
fix the compensation of all executive and appointed officers of the
Corporation. The President shall have the power to fix the compensation of
appointed officers in the absence of action thereon by the Board of Directors.
SECTION 4.09. Removal. Any officer, employee or agent of the Corporation
may be removed by the Board of Directors whenever, in its judgment, the best
interests of the Corporation will be served thereby; but such removal shall be
without prejudice to the contractual rights, if any, of the person removed.
Any appointed officer, employee or agent of the Corporation may be removed by
the President whenever, in his judgment, the best interests of the Corporation
will be served thereby; but such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.
ARTICLE V
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to
whom it is issued, and the class of stock and number of shares it represents.
It shall be in such form, not inconsistent with law or with the Charter, as
shall be approved by the Board of Directors or any officer or officers
designated for such purpose by resolution of the Board of Directors. Each
stock certificate shall be signed by the Chairman of the Board, the President,
or a Vice President and countersigned by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer. Each certificate may be
sealed with the actual corporate seal or a facsimile of it in any other form,
and the signatures may be either manual or facsimile signatures. A
certificate is
<PAGE>
valid and may be issued whether or not an officer who signed it is still an
officer when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have the power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of the
transfer agent and registrar may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be more than 90 days before the date on
which the action requiring the determination will be taken; the transfer books
may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least 10 days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock ledger
which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger
may be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, within or without the state of Maryland,
or, if none, at the principal office or the principal executive offices of the
Corporation in the state of Maryland.
SECTION 5.05. Certification of Beneficial Owners. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered
in the name of the stock-holder are held for the account of a specified person
other than the stockholder. The resolution shall set forth the class of
stockholders who may certify; the purpose for which the certification may be
made; the form of certification and the information to be contained in it; the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation, if the certification is
with respect to a record date or closing of the stock transfer books; and any
other provisions with respect to the procedure which the Board considers
necessary or desirable. Upon receipt of a certification which complies with
the procedure adopted by the Board in accordance with this Section, the person
specified in the certification is, for the purpose set forth in the
certification, the holder of record of the specified stock in place of the
stockholder who makes the certification.
<PAGE>
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate
in place of one which is alleged to have been lost, stolen, or destroyed, or
the Board of Directors may delegate such power to any officer or officers of
the Corporation. In their discretion, the Board of Directors, or such officer
or officers, may refuse to issue such new certificate save upon the order of
some court having jurisdiction in the premises.
ARTICLE VI
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the President, a Vice President or an
Assistant Vice President and countersigned by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. There shall be prepared
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the
annual meeting of the stockholders and, within 20 days after the meeting,
placed on file at the Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be the
12-month period ending December 31 in each year, unless otherwise provided by
the Board of Directors.
ARTICLE VII
SUNDRY PROVISIONS
SECTION 7.01. Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders, Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction.
SECTION 7.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof.
<PAGE>
SECTION 7.03. Bonds. The Board of Directors may require any officer, agent
or employee of the Corporation to give a bond to the Corporation, conditioned
upon the faithful discharge of his duties, with one or more sureties and in
such amount as may be satisfactory to the Board of Directors.
SECTIONS 7.04. Voting Upon Shares in Other Corporations. Stock of other
corporation or associations, registered in the name of the Corporation, may be
voted by the President, a Vice President or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to
vote such shares upon the production of a certified copy of such resolution.
SECTION 7.05. Mail. Any notice or other document which is required by
these Bylaws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 7.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer.
SECTION 7.07. Amendments. Subject to the special provisions of Section
2.02, (a) any and all provisions of these Bylaws may be altered or repealed,
and new bylaws may be adopted at any annual meeting of the stockholders, or at
any special meeting called for that purpose; and (b) the Board of Directors
shall have the power, at any regular or special meeting thereof, to make and
adopt new bylaws or to amend, alter or repeal any of the Bylaws of the
Corporation.
<PAGE>
EXHIBIT 10.4
EXECUTION COPY
AMENDED AND RESTATED CREDIT AGREEMENT
among
THE RYLAND GROUP, INC.,
CERTAIN LENDERS,
CHEMICAL BANK, NATIONSBANK, N.A. (CAROLINAS),
BANK OF AMERICA ILLINOIS AND
THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY,
as Co-Agents,
CHEMICAL BANK
as Syndication Agent and
Documentation Agent
and
NATIONSBANK, N.A. (CAROLINAS)
as Administrative Agent
Dated as of July 21, 1995
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TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 22
1.3 Accounting Principles 22
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 22
2.1 Revolving Credit Commitments. 22
2.2 Revolving Credit Notes 23
2.3 Procedure for Revolving Credit Borrowing 23
2.4 Short-Term Funding Line Commitments 24
2.5 Fees 26
2.6 Optional Termination and Reduction of Commitments 27
2.7 Optional Prepayments; Mandatory Prepayments 27
2.8 Conversion and Continuation Options 28
2.9 Minimum Amounts of Tranches 29
2.10 Interest Rates and Payment Dates 29
2.11 Repayment of Loans 30
2.12 Computation of Interest and Fees 30
2.13 Inability to Determine Interest Rate 31
2.14 Pro Rata Treatment and Payments 31
2.15 Illegality 32
2.16 Eurocurrency Reserve Costs; Requirements of Law 33
2.17 Taxes 35
2.18 Indemnity 37
SECTION 3. LETTERS OF CREDIT 37
3.1 L/C Commitment 37
3.2 Procedure for Issuance of Letters of Credit 38
3.3 Fees, Commissions and Other Charges 38
3.4 L/C Participations 39
3.5 Reimbursement Obligation of the Company 40
3.6 Obligations Absolute 41
3.7 Letter of Credit Payments 41
3.8 Application 41
SECTION 4. REPRESENTATIONS AND WARRANTIES 41
4.1 Financial Condition 42
4.2 No Change 42
4.3 Corporate Existence; Compliance with Law 42
4.4 Corporate Power; Authorization; Enforceable Obligations 43
4.5 No Legal Bar 43
4.6 No Material Litigation 43
4.7 No Default 44
4.8 Ownership of Property; Liens 44
4.9 Intellectual Property 44
4.10 Taxes 44
4.11 Federal Regulations 44
4.12 ERISA 45
4.13 Investment Company Act; Other Regulations 45
4.14 Subsidiaries 45
4.15 Accuracy and Completeness of Information 45
4.16 Environmental Matters 46
4.17 Status of the Notes 47
4.18 Purpose of Loans 47
SECTION 5. CONDITIONS PRECEDENT 47
5.1 Conditions to Initial Extensions of Credit 47
5.2 Conditions to Each Extension of Credit 49
SECTION 6. AFFIRMATIVE COVENANTS 50
6.1 Financial Statements 50
6.2 Certificates; Other Information 50
6.3 Payment of Obligations 52
6.4 Conduct of Business and Maintenance of Existence 52
6.5 Maintenance of Property; Insurance 52
6.6 Inspection of Property; Books and Records; Discussions 52
6.7 Notices 53
6.8 Environmental Laws 54
6.9 Guarantees from Future Subsidiaries 54
SECTION 7. NEGATIVE COVENANTS 54
7.1 Financial Condition Covenants 55
7.2 Limitation on Indebtedness 56
7.3 Limitation on Liens 58
7.4 Limitation on Guarantee Obligations 59
7.5 Limitations of Fundamental Changes 60
7.6 Limitation on Sale of Assets 61
7.7 Limitation on Dividends 62
7.8 Limitation on Investments 62
7.9 Limitation on Optional Payments and Modification of Debt
Instruments 64
7.10 Transactions with Affiliates 64
7.11 Limitation on Inventory 65
7.12 Fiscal Year 65
7.13 Compliance with ERISA 65
7.14 Preferred Stock 65
7.15 Limitation on Indebtedness of New Subsidiaries. 65
SECTION 8. EVENTS OF DEFAULT 66
SECTION 9. THE AGENTS 69
9.1 Appointment 69
9.2 Delegation of Duties 69
9.3 Exculpatory Provisions 70
9.4 Reliance by Agents 70
9.5 Notice of Default 70
9.6 Non-Reliance on Agents and Other Lenders 71
9.7 Indemnification 71
9.8 Agents in Individual Capacity 72
9.9 Successor Administrative Agent 72
9.10 Successor Documentation Agent 72
9.11 The Co-Agents and the Syndication Agent. 73
SECTION 10. MISCELLANEOUS 73
10.1 Amendments and Waivers 73
10.2 Notices 73
10.3 No Waiver; Cumulative Remedies 74
10.4 Survival of Representations and Warranties 74
10.5 Payment of Expenses and Taxes 75
10.6 Successors and Assigns; Participations and Assignments 76
10.7 Adjustments; Set-off 78
10.8 Counterparts 79
10.9 Severability 79
10.10 Integration 79
10.11 GOVERNING LAW 79
10.12 Submission To Jurisdiction 79
10.13 WAIVER OF JURY TRIAL 80
10.14 Confidentiality 80
ANNEXES AND SCHEDULES
Annex I Significant Homebuilding Subsidiaries
Schedule 1.1 Lenders, Addresses and Commitments
Schedule 3.1 Existing Letters of Credit
Schedule 4.6 Litigation
Schedule 4.14 List of Subsidiaries
Schedule 6.2(g) Financial Information
Schedule 7.2(f) Existing IRB Indebtedness
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EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Short-Term Funding Line Note
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Guaranty
Exhibit E-1 Form of Legal Opinion of Corporate Counsel to the Company
Exhibit E-2 Form of Legal Opinion of Piper & Marbury L.L.P., counsel for
the Company and the Guarantors
Exhibit F Form of Assignment and Acceptance
Exhibit G Form of Compliance Certificate
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AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 21, 1995, among
THE RYLAND GROUP, INC., a Maryland corporation (the "Company"), the several
lenders from time to time parties to this Agreement (the "Lenders"), CHEMICAL
BANK, NATIONSBANK, N.A. (CAROLINAS), BANK OF AMERICA ILLINOIS, and THE
INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as Co-Agents (in such capacity, the
("Co-Agents"), CHEMICAL BANK, a New York banking corporation ("Chemical"), as
Documentation Agent and Syndication Agent (in such respective capacities, the
"Documentation Agent" and the "Syndication Agent") and NATIONSBANK, N.A.
(CAROLINAS), a national banking association ("NationsBank"), as Administrative
Agent (in such capacity, the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, the Company and certain of the Lenders and Co-Agents are
parties to the Existing Credit Agreement, and desire to amend and restate the
Existing Credit Agreement;
WHEREAS, the Company has requested the Lenders to make certain
extensions of credit to it; and
WHEREAS, the Lenders are willing to make such extensions of credit on
the terms and conditions contained herein;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree that the Existing Credit
Agreement is amended and restated in its entirety as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/100 of 1%) equal to the greater of (a) the Prime Rate in
effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean
the rate of interest per annum publicly announced from time to time by
NationsBank as its prime rate in effect at its principal office in
Charlotte, North Carolina (the Prime Rate not being intended to be the
lowest rate of interest charged by NationsBank in connection with
extensions of credit to debtors); and "Federal Funds Effective Rate"
shall mean, for any day, the rate set forth for such date opposite the
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caption "Federal Funds (Effective)" in the weekly statistical release
designated "H.15 (510)", or any successor publication, published by the
Board of Governors of the Federal Reserve System, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of recognized
standing selected by it. If for any reason the Administrative Agent
shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds
Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with
the terms thereof, the ABR shall be determined without regard to clause
(b) of the first sentence of this definition until the circumstances
giving rise to such inability no longer exist. Any change in the ABR
due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective as of the opening of business on the effective day of
such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"ABR Loans": Revolving Credit Loans the rate of interest applicable to
which is based upon the ABR.
"Adjusted Consolidated Net Income": with respect to a Person for any
period, the Consolidated Net Income of such Person and its Subsidiaries
for such period plus, to the extent reflected as a charge in the
statement of such Consolidated Net Income, total income tax expense
minus any extraordinary income or gains, determined in accordance with
GAAP.
"Adjusted Consolidated Tangible Net Worth": with respect to the Company
at any date, Consolidated Net Worth of the Company as at such date,
less, without duplication, (a) Consolidated Intangibles, (b) the amount
of such Consolidated Net Worth attributable to the Ryland Financial
Division and (c) the amount of such Consolidated Net Worth attributable
to equity investments in and Advances to any unconsolidated joint
venture the Indebtedness of which (excluding Advances from the Company
or any Subsidiary to such joint venture) exceeds 25% of its total
assets, determined in accordance with GAAP.
"Advance": means any advance, loan or extension of credit to any Person
or the purchase of any bonds, notes, debentures or other debt securities
of any Person.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control"
of a Person means the power, directly or indirectly, either to (i) vote
10% or more of the securities having ordinary voting power for the
election of directors of such Person or (ii) direct or cause the
direction of the management and policies of such Person whether by
contract or otherwise.
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"Agents": the collective reference to the Documentation Agent, the
Syndication Agent, the Co-Agents and the Administrative Agent;
individually, an "Agent".
"Aggregate Outstanding Revolving Extensions of Credit": on any date, an
amount equal to the sum of (a) the aggregate principal amount of all
Revolving Credit Loans and Short-Term Funding Loans then outstanding and
(b) the L/C Obligations then outstanding.
"Agreement": this Amended and Restated Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": for each Type of Revolving Credit Loan, the rate
per annum set forth under the relevant column heading below:
Eurodollar C/D
ABR Loans Loans Rate Loans
--------- ----- ----------
0% 1.375% 1.525%
provided, that (i) on the effective date of any Rating Improvement
occurring after the date of this Agreement, each of the Applicable
Margins then in effect for Eurodollar Loans and C/D Rate Loans shall
decrease by .125% (but not below 1.00% for Eurodollar Loans or 1.150%
for C/D Rate Loans) and (ii) on the effective date of any Rating
Reduction occurring after the date of this Agreement, each of the
Applicable Margins then in effect for Eurodollar Loans and C/D Rate
Loans shall increase by .125%.
"Application": an application, in such form as the Issuing Bank may
specify from time to time, requesting the Issuing Bank to open a Letter
of Credit.
"Assignee": as defined in subsection 10.6(c).
"Associates Mortgage Funding Corporation": Associates Mortgage Funding
Corporation, a Delaware corporation.
"Available Commitments": on any date, the excess, if any, of (a) the
amount of the aggregate Revolving Credit Commitments on such date over
(b) (i) the Aggregate Outstanding Revolving Extensions of Credit on such
date less (ii) for the purposes of calculating the commitment fee
pursuant to subsection 2.5(a) for the Lenders other than the Short-Term
Funding Lenders only, the aggregate principal amount of Short-Term
Funding Loans outstanding on such day.
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"Borrowing Base": as of any date of determination, an amount equal to
the sum of (i) 25% of Unsold Land Under Development, (ii) 70% of Unsold
Housing Inventory, (iii) 90% of Sold Housing Inventory and (iv) Working
Capital (if greater than zero). The Borrowing Base shall be determined
as of the last Business Day of each calendar month and shall be
certified pursuant to Borrowing Base Certificates delivered pursuant to
subsection 6.2(f); the Borrowing Base set forth in any such Borrowing
Base Certificate shall be in effect from the date of delivery of such
Borrowing Base Certificate until the date of delivery of the Borrowing
Base Certificate for the succeeding calendar month.
"Borrowing Base Certificate": a certificate substantially in the form
of Exhibit C, with such changes as the Documentation Agent may from time
to time reasonably request for the purpose of monitoring the Borrowing
Base.
"Borrowing Date": any day specified in a notice pursuant to subsection
2.3 or 2.4 as a date on which the Company requests that Loans be made
hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in Charlotte, North Carolina or New York, New
York, are authorized or required by law to close; provided, however,
that when used in connection with a Eurodollar Loan, the term "Business
Day" shall also exclude any day on which commercial banks are not open
for dealings in Dollar deposits in the London interbank market.
"Cash Equivalents": (a) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than 90 days from
the date of acquisition, (b) time deposits and certificates of deposit
of any of the Lenders, or of any domestic or foreign commercial bank
which has capital and surplus in excess of $500,000,000 or which has a
commercial paper rating meeting the requirements specified in clause (d)
below, having maturities of not more than 90 days from the date of
acquisition, (c) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clauses (a) and
(b) entered into with any bank meeting the qualifications specified in
clause (b) above and (d) commercial paper of any Person rated at least
A-2 or the equivalent thereof by S&P or P-2 or the equivalent thereof by
Moody's and in either case maturing within 90 days after the date of
acquisition.
"C/D Assessment Rate": for any day as applied to any C/D Rate Loan, the
annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment
risk classification) within the meaning of 12 C.F.R. Sec. 327.3(d) (or any
successor provision) to the Federal Deposit Insurance Corporation (or
any successor) for such Corporation's (or such successor's) insuring
time deposits at offices of such institution in the United States.
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"C/D Base Rate": with respect to each day during each Interest Period
pertaining to a C/D Rate Loan, the rate of interest per annum determined
by the Administrative Agent to be the arithmetic average (rounded upward
to the nearest 1/100th of 1%) of the respective rates notified to the
Administrative Agent by each of the Reference Lenders as the average
rate bid at 10:00 A.M., Charlotte, North Carolina time, or as soon
thereafter as practicable, on the first day of such Interest Period by a
total of three certificate of deposit dealers of recognized standing
selected by such Reference Lender for the purchase at face value from
such Reference Lender of its certificates of deposit in an amount
comparable to the C/D Rate Loan of such Reference Lender to which such
Interest Period applies and having a maturity comparable to such
Interest Period.
"C/D Rate": with respect to each day during each Interest Period
pertaining to a C/D Rate Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
C/D Base Rate + C/D Assessment Rate
------------------------------
1.00 - C/D Reserve Percentage
"C/D Rate Loans": Revolving Credit Loans the rate of interest
applicable to which is based upon the C/D Rate.
"C/D Reserve Percentage": for any day as applied to any C/D Rate Loan,
that percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) (the "Board"), for determining the maximum reserve
requirement for a Depositary Institution (as defined in Regulation D of
the Board) in respect of new non-personal time deposits in Dollars
having a maturity comparable to the Interest Period for such C/D Rate
Loan.
"Closing Date": the date on which the conditions specified in Section 5
are satisfied in full and the initial Loans are made hereunder.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Combined Net Income": with respect to a Person or segment for any
period, the combined net income (or loss) of such Person and its
Subsidiaries and Consolidated Joint Ventures or such segment for such
period (taken as a cumulative whole), determined on a combined basis in
accordance with GAAP.
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"Combined Total Liabilities": with respect to a Person or segment at a
particular date, all amounts which would, in conformity with GAAP, be
included under total liabilities on a combined balance sheet of such
Person and its Subsidiaries and Consolidated Joint Ventures or such
segment as at such date.
"Commitment Fee Rate": (a) at any time when the Rating of Moody's is at
least Baa3 or the Rating of S&P is at least BBB-, .15% and (b) at all
other times, .375%.
"Commitment Percentage": as to any Lender at any time, the percentage
of the aggregate Revolving Credit Commitments then constituted by the
sum of such Lender's Revolving Credit Commitment.
"Commitment Period": the period from and including the date hereof to
but not including the Termination Date or such earlier date on which the
Revolving Credit Commitments shall terminate as provided herein.
"Commitments": the Revolving Credit Commitments, the Short-Term Funding
Line Commitments and the L/C Commitment.
"Common Stock": the Company's Common Stock, par value $1.00 per share,
as the same exists on the date hereof or any other class of stock of the
Company the right of which to share in distributions of earnings or
assets of the Company is without limit as to amount or percentage.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Company within the meaning of
Section 4001 of ERISA or is part of a group which includes the Company
and which is treated as a single employer under Section 414 of the Code.
"Consolidated Adjusted Net Worth": at a particular date, (a)
Consolidated Net Worth of the Financial Services Segment at such date
plus (b) the amount of long-term subordinated debt of the Financial
Services Segment the maturity of which is no less than two years after
December 31, 1994 plus (c) an amount equal to 1% of the Financial
Services Segment's Servicing Portfolio, if any, minus (d) the amount of
Servicing Rights that are capitalized on the combined balance sheets of
the Financial Services Segment, minus (e) the book value of any other
assets reflected on the then-most-current combined balance sheets of the
Financial Services Segment that should be properly treated under GAAP as
intangible assets, including, without limitation, goodwill, trademarks,
trade names, service marks, copyrights, patents, licenses, rights with
respect to the foregoing, and the excess of the purchase price over the
net assets of businesses acquired by entities in the Financial Services
Segment.
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"Consolidated Intangibles": with respect to any Person at any date, all
amounts, determined in accordance with GAAP, included in the
Consolidated Net Worth of such Person and attributable to (a) goodwill,
including any amounts (however designated on the balance sheet)
representing the cost of acquisitions of Subsidiaries in excess of
underlying tangible assets or (b) patents, trademarks and copyrights.
"Consolidated Joint Ventures": at any time, real estate joint ventures
in which the Company or any of its Subsidiaries has an investment at
such time and which are being consolidated in the Company's consolidated
financial statements.
"Consolidated Net Income": with respect to a Person for any period, the
consolidated net income (or loss) of such Person and its Subsidiaries
and Consolidated Joint Ventures for such period (taken as a cumulative
whole), determined in accordance with GAAP.
"Consolidated Net Worth": with respect to any Person at any date, all
amounts which would, in conformity with GAAP, be included under
shareholders' equity on a consolidated balance sheet of such Person and
its consolidated Subsidiaries and Consolidated Joint Ventures at such
date.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Current Market Price": with respect to shares of Common Stock or any
other class of capital stock or other security of the Company or any
other issuer, the last reported sales price, regular way, or, in the
event that no sale takes place on such day, the average of the reported
closing bid and asked prices, regular way, in either case as reported on
the New York Stock Exchange Composite Tape or, if such security is not
listed or admitted to trading on the New York Stock Exchange, on the
principal national securities exchange on which such security is listed
or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, by NASDAQ National Market System or, if
such security is not quoted on such National Market System, the average
of the closing bid and asked prices on each such day in the over-the-
counter market as reported by NASDAQ or, if bid and asked prices for
such security on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices on such day as furnished
by any New York Stock Exchange member firm regularly making a market in
such security selected for such purpose by the Board of Directors of the
Company or a committee thereof, in each case, on each trading day during
the applicable period.
"Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
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"Designated Event": the occurrence of any of the following: (i)
whether or not approved by the Board of Directors of the Company, any person,
entity or "group" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act is or becomes the beneficial owner, directly or indirectly, of
securities having 30% or more of the voting power of the Voting Stock; (ii)
the Company shall engage in a Stock Repurchase or Stock Distribution where the
sum of the aggregate Fair Market Value of such Stock Repurchase and Stock
Distribution and all other such Stock Repurchases and Stock Distributions
effected during the 12-month period ending on the date on which such Stock
Repurchase or Stock Distribution is effected exceeds 20% of the Fair Market
Value of the Common Stock of the Company as of the date such Stock Repurchase
or Stock Distribution is effected; (iii) there shall occur any consolidation
of the Company with, or merger of the Company into, any other entity, any
merger of another entity into the Company, or any sale or transfer of all or
substantially all of the assets of the Company (other than any such sale or
transfer to one or more wholly-owned Subsidiaries of the Company), in one
transaction or a series of related transactions, to one or more persons or
entities (other than (w) a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock of the
Company, or (x) a merger which is effected solely to change the
jurisdiction of incorporation of the Company, or (y) the sale or
transfer of any of the stock or assets of the Limited-Purpose
Subsidiaries, or (z) a merger pursuant to which the holders of Voting
Stock of the Company prior to the effective date of such merger hold
immediately after such effective date 70% or more of the class of stock
of the surviving entity or its parent corporation that is entitled to
vote generally for the election of directors); or (iv) during any period
of two consecutive years, individuals who at the beginning of such
period constitute the Company's Board of Directors (together with any
new director whose election by the Company's Board of Directors or whose
nomination for election by the Company's stockholders was approved by a
vote of at least a majority of the directors then still in office who
either were directors of the Company at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the directors of the
Company then in office.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Domestic Dollar Loans": the collective reference to C/D Rate Loans and
ABR Loans.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning pollution or
protection of the environment, as now or may at any time hereafter be in
effect.
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"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Loans": Revolving Credit Loans the rate of interest
applicable to which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate per annum equal to the average
(rounded upward to the nearest 1/16th of 1%) of the respective rates
notified to the Administrative Agent by each of the Reference Lenders as
the rate at which such Reference Lender is offered Dollar deposits at or
about 10:00 A.M., Charlotte, North Carolina time, two Business Days
prior to the beginning of such Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Eurodollar Loans are then being conducted
for delivery on the first day of such Interest Period for the number of
days comprised therein and in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"Event of Default": any of the events specified in Section 8, provided
that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Exchange Act": the Securities Exchange Act of 1934, as amended.
"Existing Credit Agreement": the Credit Agreement, dated as of July 29,
1993, as amended, among the Company, the Lenders, Co-Agents and Co-
Manager parties thereto, and Chemical Bank, as Administrative Agent.
"Existing Letters of Credit": as defined in subsection 3.1(a).
"Fair Market Value": with respect to shares of Common Stock or any
other class of capital stock or securities of the Company which are
publicly traded, the average of the Current Market Prices of such shares
or securities for the five (5) consecutive trading days ending with the
fifth (5th) Business Day preceding the date on which the Stock
Repurchase or Stock Distribution is effected. Fair Market Value of any
security not publicly traded or any other property constituting a part
of a Stock Repurchase or Stock Distribution shall be the value thereof
as determined in good faith by the Board of Directors of the Company or
any designated committee of the Board of Directors of the Company after
giving consideration to such market prices, opinions and valuations as
such Board of Directors or committee may deem necessary or appropriate.
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"FHLMC Securities": participation certificates representing undivided
interests in mortgage loans purchased by the Federal Home Loan Mortgage
Corporation or its successor pursuant to the Emergency Home Finance Act
of 1970, as amended.
"Financial Services Segment": the business segment of the Company and
its Subsidiaries engaged in the mortgage banking (including the title
and escrow businesses), mortgage servicing, securities issuance, bond
administration and management services and related activities, which
segment on the date of this Agreement consists principally of the
activities of Ryland Mortgage Company and its Subsidiaries but excludes
the Limited-Purpose Subsidiaries.
"Financial Services Segment Combined Total Liabilities": at any time,
all amounts which would, in accordance with GAAP, be included as
liabilities on a combined balance sheet of the Financial Services
Segment as at such date; provided, that reverse repurchase agreements
secured by FHLMC Securities, FNMA Securities GNMA Securities and other
mortgage-backed securities, whether such securities are issued in
certificated form or book entry form, arising from the call of bonds
issued by Affiliates of Ryland Mortgage Company may be excluded from
those liabilities so long as (a) the underlying collateral value is at
least 100.5% of the obligations of Ryland Mortgage Company and/or
Associates Mortgage Funding Corporation under those agreements or (b)
the underlying collateral is subject to a hedging agreement.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Fixed Charge Coverage": for any fiscal period of the Company, the
ratio of (a) the sum for such fiscal period of the following items: (i)
Combined Net Income of the Homebuilding Segment, plus (ii) income taxes,
depreciation and amortization deducted from combined revenues in determining
such Combined Net Income, plus (iii) interest expense deducted from combined
revenues in determining such Combined Net Income, including, without
duplication, previously capitalized interest expense which would be included
in "Cost of Goods Sold" and deducted from combined revenues in determining
such Combined Net Income on a combined balance sheet of the Homebuilding
Segment determined in accordance with GAAP, plus (iv) the greater of (A) cash
dividends received by the Company from the Financial Services Segment,
determined in accordance with GAAP, and (B) 50% of Combined Net Income of the
Financial Services Segment plus income tax expense deducted in determining
such net income, determined in accordance with GAAP, plus (v) cash
distributions received by the Company from all unconsolidated joint ventures
in which the Company or any of its Subsidiaries within the Homebuilding
Segment is a participant, less (vi) the amount of the Company's equity
interest in
<PAGE>
the earnings of such joint ventures, determined in accordance with GAAP,
to (b) the amount of cash interest expense deducted from combined
revenues in determining such Combined Net Income, and including, without
duplication, such cash interest expense constituting capitalized
interest for such period determined in accordance with GAAP.
"FNMA Securities": modified pass-through mortgage-backed certificates
guaranteed by the Federal National Mortgage Association or its successor
pursuant to the National Housing Act, as amended.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"GNMA Securities": modified pass-through mortgage-backed certificates
guaranteed by the Government National Mortgage Association or its
successor pursuant to Section 306(g) of the National Housing Act, as
amended.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty": each Guaranty executed and delivered by one or more of the
Guarantors, substantially in the form of Exhibit D, as the same may from
time to time be amended or otherwise modified.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to induce
the creation of which the guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other obligations
(the "primary obligations") of any other third Person (the "primary obligor")
in any manner, whether directly or indirectly, including, without limitation,
any obligation of the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for the
purchase or payment of any such primary obligation or (2) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment
of such primary obligation or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course
of business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
<PAGE>
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of
such Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Company in good faith.
"Guarantors": at any time, each of the Subsidiaries of the Company
which (i) has assets with an aggregate book value equal to or greater
than $1,000,000 and (ii) is included in the Homebuilding Segment,
including, without limitation, the Subsidiaries listed on Annex I
hereto.
"Hazardous Materials": any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances, petroleum
products (including crude oil or any fraction thereof), defined or
regulated as such in or under any Environmental Law.
"Homebuilding Segment": the business segment of the Company and its
Subsidiaries and Consolidated Joint Ventures engaged in the construction
and sale of single family attached and unattached dwellings and related
activities, which segment on the date of this Agreement consists
principally of the activities of the Ryland Homes Division of the
Company and M. J. Brock & Sons, Inc.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than trade liabilities and accrued expenses
incurred in the ordinary course of business and payable in accordance
with customary practices), (b) any other indebtedness of such Person
which is evidenced by a note, bond, debenture or similar instrument, (c)
all obligations of such Person under Financing Leases, (d) all
obligations of such Person in respect of acceptances issued or created
for the account of such Person and (e) all liabilities secured by any
Lien on any property owned by such Person even though such Person has
not assumed or otherwise become liable for the payment thereof.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intercreditor Agreement": the Intercreditor Agreement, dated as of
September 22, 1994, among the Company and the other parties thereto, as
supplemented by joinder agreements executed by all Lenders not initially
parties thereto and as amended or otherwise modified from time to time.
<PAGE>
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
March, June, September and December to occur while such Loan is
outstanding, (b) as to any Eurodollar Loan having an Interest Period of
three months or less and any C/D Rate Loan having an Interest Period of
90 days or less, the last day of such Interest Period, (c) as to any
Eurodollar Loan or C/D Rate Loan having an Interest Period longer than
three months or 90 days, respectively, each day which is three months or
90 days, respectively, or a whole multiple thereof, after the first day
of such Interest Period and the last day of such Interest Period and (d)
as to any Short-Term Funding Loan, the date which is the last day of
each calendar quarter.
"Interest Period": (a) with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three or six months
thereafter (or such other period (not to exceed six months) agreed
upon by the Administrative Agent and the Company), as selected by
the Company in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan
and ending one, two, three or six months thereafter (or such other
period (not to exceed six months) agreed upon by the
Administrative Agent and the Company), as selected by the Company
by irrevocable notice to the Administrative Agent not less than
three Business Days prior to the last day of the then current
Interest Period with respect thereto;
and (b) with respect to any C/D Rate Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such C/D Rate
Loan and ending 30, 60, 90 or 180 days thereafter (or such other
period (not to exceed 180 days) agreed upon by the Administrative
Agent and the Company), as selected by the Company in its notice
of borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such C/D Rate Loan
and ending 30, 60, 90 or 180 days thereafter (or such other period
(not to exceed 180 days) agreed upon by the Administrative Agent
and the Company), as selected by the Company by irrevocable notice
to the Administrative Agent not less than two Business Days prior
to the last day of the then current Interest Period with respect
thereto;
<PAGE>
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day
unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business
Day;
(2) if any Interest Period pertaining to a C/D Rate Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day;
(3) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date;
(4) any Interest Period pertaining to a Eurodollar Loan that begins
on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(5) the Company shall select Interest Periods so as not to require a
payment or prepayment of any Eurodollar Loan or C/D Rate Loan
during an Interest Period for such Loan.
"Investments": any Advance to, or any contribution to or purchase of
stock or other equity securities of, or any purchase of assets
constituting a business unit of, any Person, excluding investments in
stock or other equity securities existing on the date of this Agreement
and any investment representing any interest of the Company or any
Subsidiary in the retained or undistributed earnings of any Person.
"Issuing Bank": (i) with respect to the Existing Letters of Credit,
Chemical Bank or the affiliate thereof which issued such Existing
Letters of Credit, as set forth in Schedule 3.1, and (ii) with respect
to any Letter of Credit issued after the Closing Date, NationsBank, or
such other Lender as the Documentation Agent, the Company and such other
Lender shall agree upon.
"L/C Commitment": $50,000,000.
"L/C Fee Payment Date": the last day of each March, June, September
and December.
<PAGE>
"L/C Fee Rate": 1.25% per annum; provided, that (i) on the effective
date of any Rating Improvement occurring after the date of this
Agreement, the L/C Fee Rate then in effect shall decrease by .125% (but
not below .875%) and (ii) on the effective date of any Rating Reduction
occurring after the date of this Agreement, the L/C Fee Rate then in
effect shall increase by .125%.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters
of Credit which have not then been reimbursed pursuant to subsection
3.5.
"L/C Participants": in respect of any Letter of Credit, the collective
reference to all the Lenders other than the Issuing Bank in respect of
such Letter of Credit.
"Letters of Credit": as defined in subsection 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any Financing Lease
having substantially the same economic effect as any of the foregoing,
and the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction in respect of any of the
foregoing).
"Limited-Purpose Subsidiaries": Subsidiaries included within the
Limited-Purpose Subsidiaries Segment.
"Limited-Purpose Subsidiaries Segment": the business segment of the
Company and its Subsidiaries which facilitates, through special-purpose
entities created or existing solely for such purpose, the financing of
mortgage loans and mortgage backed securities and the securitization of
mortgage loans and other related activities.
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes, the Applications, the
Intercreditor Agreement and the Guaranty.
"Material Adverse Effect": a material adverse effect on (a) the
financial condition of the Company and its Restricted Subsidiaries taken
as a whole, (b) the ability of the Company to perform its obligations
under this Agreement or the Notes, or (c) the validity or enforceability
of this Agreement or any of the Notes or the rights or remedies of the
Agents or the Lenders hereunder or thereunder.
<PAGE>
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or
regulated as such in or under any Environmental Law, including, without
limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Moody's": Moody's Investors Services, Inc.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"1992 Subordinated Debt Indenture": the Indenture, dated as of July 15,
1992, between the Company and Security Trust Company, N.A., or its
successor, as Trustee, pursuant to which the Company's 10-1/2% Senior
Subordinated Notes due July 15, 2002, and the Company's 9-5/8% Senior
Subordinated Notes due June, 2004 were issued.
"Non-Excluded Taxes": as defined in subsection 2.17.
"Notes": the collective reference to the Revolving Credit Notes and the
Short-Term Funding Line Notes.
"Participants": as defined in subsection 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Permitted IRB Letters of Credit": letters of credit and other credit
enhancement instruments issued for the account of the Company or any of
its Subsidiaries which at any time support industrial revenue bonds
issued for the benefit of the Company or any of its Subsidiaries, which
are outstanding on the date of this Agreement and are shown on Schedule
7.2(f).
"Permitted Senior Indebtedness": at any date, the aggregate unpaid
principal amount of Indebtedness outstanding on such date permitted
under, without duplication, (i) subsection 7.2(c) (other than
Indebtedness of unconsolidated joint ventures permitted thereunder),
(e), (f), (h), (k) and (p), (ii) subsection 7.2(g), other than such
Indebtedness permitted thereunder by reference to subsection 7.4(c),
(iii) subsection 7.2(i), other than such Indebtedness permitted
thereunder in connection with acquisitions or mergers by any Subsidiary
in the Ryland Financial Division and (iv) subsection 7.2(j), but only
such Indebtedness permitted thereunder relating to refinancings of
Indebtedness included in this definition of Permitted Senior
Indebtedness pursuant to clauses (i), (ii) and (iii) above.
<PAGE>
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Rating": each rating (actual or implied) by a Rating Agency of the
Company's senior, long-term, unsecured, non credit-enhanced debt.
"Rating Agency": each of Moody's and S&P.
"Rating Improvement": each increase by either Rating Agency of the
Rating of such Rating Agency by one incremental level (e.g. an increase
by Moody's of its Rating from Ba1 to Baa3 or by S&P of its Rating from
BB+ to BBB-). For purposes of this Agreement, the effective date of any
Rating Improvement will be the date of announcement by the relevant
Rating Agency of the increase in its Rating giving rise to such Rating
Improvement.
"Rating Reduction": each reduction by either Rating Agency of the
Rating of such Rating Agency by one incremental level (e.g. a reduction
by Moody's of its Rating from Baa3 to Ba1 or by S&P of its Rating from
BBB- to BB+). For purposes of this Agreement, the effective date of any
Rating Reduction will be the date of announcement by the relevant Rating
Agency of the reduction in its Rating giving rise to such Rating
Reduction.
"Reference Lenders": Chemical and NationsBank.
"Register": as defined in subsection 10.6(d).
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System.
"Reimbursement Obligation": the obligation of the Company to reimburse
the Issuing Bank pursuant to subsection 3.5 for amounts drawn under
Letters of Credit.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241
of ERISA.
<PAGE>
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period
is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Sec. 2615.
"Required Lenders": at any time, Lenders the Commitment Percentages of
which aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the Charter and By-Laws or
other organizational or governing documents of such Person, and any law,
treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any
of its property is subject.
"Responsible Officer": the chief executive officer and the president of
the Company or, with respect to financial matters, the chief financial
officer, the chief accounting officer or the treasurer of the Company.
"Restricted Subsidiary": any Subsidiary of the Company other than the
Limited-Purpose Subsidiaries and any Subsidiary that the Required
Lenders agree in writing is not to be treated hereunder as a Restricted
Subsidiary.
"Revolving Credit Commitment": as to any Lender, the amount set forth
opposite such Lender's name on Schedule 1.1 under the caption "Revolving
Credit Commitments".
"Revolving Credit Commitment Percentage": as to any Lender at any time,
the percentage which such Lender's Revolving Credit Commitment then
constitutes of the aggregate Revolving Credit Commitments (or, at any
time after the Commitments shall have expired or terminated, the
percentage which the aggregate principal amount of such Lender's Loans
then outstanding constitutes of the aggregate principal amount of the
Loans then outstanding).
"Revolving Credit Loans": as defined in subsection 2.1.
"Revolving Credit Note": as defined in subsection 2.2.
"Ryland Financial Division": all subsidiaries and operations of the
Company and its Subsidiaries other than the Homebuilding Segment.
"Ryland Mortgage Company": Ryland Mortgage Company, an Ohio corporation.
"Servicing Portfolio": for Ryland Mortgage Company, at any time, an
amount equal to the aggregate unpaid principal amount of all loans with
respect to which Ryland Mortgage Company or its Subsidiaries owns
Servicing Rights, other than loans serviced on behalf of the Resolution
Trust Corporation.
<PAGE>
"Servicing Rights": all of Ryland Mortgage Company's right, title and
interest in agreements between Ryland Mortgage Company and Persons other
than Ryland Mortgage Company and Associates Mortgage Funding Corporation
pursuant to which Ryland Mortgage Company undertakes to service one-to-
four family and multifamily dwelling mortgage loans and pools of one-to-
four family and multifamily dwelling mortgage loans for such Persons.
"Short-Term Funding Lenders": Initially, Chemical Bank, NationsBank,
N.A. (Carolinas), Bank of America Illinois and The Industrial Bank of
Japan Trust Company, and, in the event that any of such Lenders is no
longer a Lender, such other Lender as shall be mutually agreed upon by
such other Lender, the Company, the Documentation Agent and the
Administrative Agent to replace such Short-Term Funding Lender.
"Short-Term Funding Line Commitment": as to any Lender, the amount set
forth opposite such Lender's name on Schedule 1.1 under the caption
"Short-Term Funding Line Commitments." It is understood that each
Lender's Short-Term Funding Line Commitment is included in, and not in
addition to, such Lender's Revolving Credit Commitment.
"Short-Term Funding Loan": as defined in subsection 2.4.
"Short-Term Funding Line Margin": 1.375%; provided, that (i) on the
effective date of any Rating Improvement occurring after the date of
this Agreement, the Short-Term Funding Line Margin then in effect shall
decrease by .125% (but not below 1%) and (ii) on the effective date of
any Rating Reduction occurring after the date of this Agreement, the
Short-Term Funding Line Margin then in effect shall increase by .125%.
"Short-Term Funding Line Note": as defined in subsection 2.4.
"Significant Subsidiary": a Subsidiary satisfying the requirements of
Rule 1-02(v) of Regulation S-X as adopted by the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the
Exchange Act as in force on the date of this Agreement.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"Sold Housing Inventory": at any date, an amount equal to the aggregate
capitalized cost, determined in accordance with GAAP consistently
applied, with respect to homes and lots under construction for which
final contracts of sale have been entered into on or prior to such date,
and are still in effect on such date, but with respect to which
settlement under such contracts has not occurred.
<PAGE>
"Specified Debt": the Company's Senior Debt Securities issued pursuant
to the Company's Registration Statement on Form S-3 (Registration No.
33-28692) or any successor registration statement and outstanding on the
Closing Date.
"S&P": Standard & Poor's Ratings Group.
"Stock Distribution": any dividend or other distribution to holders of
Common Stock of cash, property or securities (excluding however any
dividends or distributions of Common Stock or rights to purchase Common
Stock).
"Stock Repurchase": any purchase of shares of Common Stock by the
Company or any Subsidiary, whether for cash, shares of capital stock of
the Company, other securities of the Company, evidences of indebtedness
of the Company or any other person or any other property (including
shares of a Subsidiary of the Company), or any combination thereof.
"Subordinated Debt": (i) Indebtedness of the Company outstanding on the
date hereof issued pursuant to the 1992 Subordinated Debt Indenture and
(ii) any other unsecured Indebtedness of the Company no part of the
principal of which is required to be paid (whether by way of mandatory
sinking fund, mandatory redemption, mandatory prepayment or otherwise)
prior to December 31, 1998, and the payment of the principal of and
interest on which and other obligations of the Company in respect
thereof are subordinated to the prior payment in full of the principal
of and interest (including post-petition interest) on the Notes and all
other obligations and liabilities of the Company to the Agents and the
Lenders hereunder on terms and conditions identical to such provisions
under the 1992 Subordinated Debt Indenture except to the extent of any
differences therefrom that are not substantive, provided that any
different provisions thereof that are less favorable to the Lenders than
the provisions under the 1992 Subordinated Debt Indenture, are adverse
to the interests of the Lenders in any way or are otherwise substantive
shall be subject to prior approval in writing by the Required Lenders.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of
a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned directly or indirectly through one or more intermediaries, or
both, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company and shall exclude any real
estate joint venture which the Company or any Subsidiary within the
Homebuilding Segment either directly or indirectly participates in or
controls.
<PAGE>
"Termination Date": July 30, 1998.
"Total Housing Inventory": at any date, the amount which would be
included under "Housing inventories" on a combined balance sheet of the
Homebuilding Segment determined on a combined basis in accordance with
GAAP as at such date.
"Tranche": the collective reference to Eurodollar Loans or C/D Rate
Loans the Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such Loans
shall originally have been made on the same day); Tranches may be
identified as "Eurodollar Tranches" or "C/D Rate Tranches", as
applicable.
"Type": as to any Revolving Credit Loan, its nature as an ABR Loan, a
Eurodollar Loan or a C/D Rate Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500, as the same may be amended from time to time.
"Unsold Housing Inventory": at any date, an amount equal to (i) the
amount which would be included under "Housing inventories: Unsold" less
(ii) the amounts which would be included under the definitions of
"Unsold Land Held" and "Unsold Land Under Development" in this
Agreement, determined on a combined basis in accordance with GAAP as at
such date.
"Unsold Land Held": at any date, the amount which would be included
under "Housing inventories: Unsold: Land held for future development
or resale" on a combined balance sheet of the Homebuilding Segment
determined on a combined basis in accordance with GAAP as at such date.
"Unsold Land Under Development": at any date, an amount equal to (i)
the amount which would be included under "Housing inventories: Unsold:
Homes and lots under construction" on a combined balance sheet of the
Homebuilding Segment determined on a combined basis in accordance with
GAAP as at such date less (ii) the portion of such amount attributable
to lots on which construction of a foundation or slab has been
commenced, determined on a combined basis in accordance with GAAP as at
such date less.
"Voting Stock": shares of stock of the Company entitling the holder
thereof to vote generally for the election of directors of the Company.
"Working Capital": at any date, an amount equal to (i) cash and Cash
Equivalents plus (ii) accounts and notes receivable plus (iii) prepaid
expenses and deposits (iv) less accounts payable less (v) accrued
expenses less (vi) customer deposits, in each case as such amounts would
be determined with respect to the Homebuilding Segment on a consolidated
basis in accordance with GAAP as at such date.
<PAGE>
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Company and its Subsidiaries not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1, to the extent not defined, shall have
the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
1.3 Accounting Principles. Unless otherwise defined or specified
herein, all accounting terms used in this Agreement shall be construed herein,
and all accounting determinations hereunder shall be made, in accordance with
GAAP, applied on a basis consistent with the most recent audited consolidated
financial statements of the Company and its Subsidiaries delivered to the
Lenders; provided, however, that if there shall occur any change after the
date hereof in GAAP and such change affects the method of calculating any of
the factors that go into any component of the financial covenants and ratios
set forth in this Agreement, the Required Lenders will, upon request of the
Company, and the Company will, upon request of the Required Lenders, make
adjustments to such covenants and ratios as reasonably required so that they
are consistent with the financial covenants and ratios made as of the date
hereof, notwithstanding such change.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
("Revolving Credit Loans") to the Company from time to time during the
Commitment Period in an aggregate principal amount at any one time outstanding
not to exceed such Lender's Revolving Credit Commitment; provided, that no
Revolving Credit Loan may be made if, after giving effect thereto, the then
Aggregate Outstanding Revolving Extensions of Credit would exceed the lesser
of (i) the Revolving Credit Commitments then in effect and (ii) the excess of
the Borrowing Base then in effect over Permitted Senior Indebtedness then
outstanding. During the Commitment Period the Company may use the Revolving
Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole
or in part, and reborrowing, all in accordance with the terms and conditions
hereof.
<PAGE>
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans, (iii) C/D Rate Loans or (iv) a combination thereof, as
determined by the Company and notified to the Administrative Agent in
accordance with subsections 2.3 and 2.8, provided that no Revolving Credit
Loan shall be made as a Eurodollar Loan or a C/D Rate Loan if the last day of
any Interest Period in respect thereof would be after the Termination Date.
2.2 Revolving Credit Notes. The Revolving Credit Loans made by each
Lender shall be evidenced by a promissory note of the Company, substantially
in the form of Exhibit A, with appropriate insertions as to payee, date and
principal amount (a "Revolving Credit Note"), payable to the order of such
Lender and in a principal amount equal to the lesser of (a) the amount of the
Revolving Credit Commitment of such Lender and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Lender. Each
Lender is hereby authorized to record the date, Type and amount of each
Revolving Credit Loan made by such Lender, each continuation thereof, each
conversion of all or a portion thereof to another Type, the date and amount of
each payment or prepayment of principal thereof and, in the case of Eurodollar
Loans and C/D Rate Loans, the length of each Interest Period with respect
thereto, in its records in accordance with its usual practice, and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. Each Revolving Credit Note shall (x) be dated the
date hereof, (y) be stated to mature on the Termination Date and (z) provide
for the payment of interest in accordance with subsection 2.10.
2.3 Procedure for Revolving Credit Borrowing. The Company may borrow
under the Revolving Credit Commitments during the Commitment Period on any
Business Day, provided that the Company shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
prior to 10:30 A.M., Charlotte, North Carolina time, (a) three Business Days
prior to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans, (b) two Business
Days prior to the requested Borrowing Date, if all or any part of the
requested Revolving Credit Loans are to be initially C/D Rate Loans, or (c) on
the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans, C/D Rate Loans or a combination thereof and
(iv) if the borrowing is to be entirely or partly of Eurodollar Loans or C/D
Rate Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Periods therefor. Each borrowing
under the Revolving Credit Commitments shall be in an amount equal to (x) in
the case of ABR Loans, $10,000,000 or a whole multiple of $1,000,000 in excess
thereof (or, if the then Available Commitments are less than $10,000,000, such
lesser amount) and (y) in the case of Eurodollar Loans or C/D Rate Loans,
$10,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt
<PAGE>
of any such notice from the Company, the Administrative Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Administrative Agent for the account
of the Company at the office of the Administrative Agent specified in
subsection 10.2 prior to 12:00 noon, Charlotte, North Carolina time, on the
Borrowing Date requested by the Company in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Company by the Administrative Agent crediting the account of the Company on
the books of such office with the aggregate of the amounts made available to
the Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
2.4 Short-Term Funding Line Commitments. (a) Subject to the terms and
conditions hereof, each Short-Term Funding Lender severally agrees to make
short-term funding loans ("Short-Term Funding Loans") to the Company from time
to time during the Commitment Period in an aggregate principal amount at any
one time outstanding not to exceed such Lender's Short-Term Funding Line
Commitment; provided, that no Short-Term Funding Loans may be made if, after
giving effect thereto, the then Aggregate Outstanding Revolving Extensions of
Credit would exceed the lesser of (i) the amount of the Revolving Credit
Commitments then in effect and (ii) the excess of the Borrowing Base then in
effect over Permitted Senior Indebtedness then outstanding. During the
Commitment Period the Company may use the Short-Term Funding Line Commitments
by borrowing, prepaying the Short-Term Funding Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
(b) The Short-Term Funding Loans made by each Short-Term Funding Lender
shall be evidenced by a promissory note of the Company, substantially in the
form of Exhibit B, with appropriate insertions as to payee, date and principal
amount (a "Short-Term Funding Line Note"), payable to the order of such Lender
and in a principal amount equal to the lesser of (a) the amount of the Short-
Term Funding Line Commitment of such Short-Term Funding Lender and (b) the
aggregate unpaid principal amount of all Short-Term Funding Loans made by such
Short-Term Funding Lender. Each Lender is hereby authorized to record the
date and amount of each Short-Term Funding Loan made by such Short-Term
Funding Lender and the date and amount of each payment or prepayment of
principal thereof, in its records in accordance with its usual practice, and
any such recordation shall constitute prima facie evidence of the accuracy of
the information so recorded. Each Short-Term Funding Line Note shall (x) be
dated the date hereof, (y) be stated to mature as to each Short-Term Funding
Loan issued thereby on the date which is five Business Days after the
Borrowing Date of such Short-Term Funding Loan, and in any event on the
Termination Date and (z) provide for the payment of interest in accordance
with subsection 2.10.
(c) The Company may borrow under the Short-Term Funding Line
Commitments during the Commitment Period on any Business Day, provided that
the Company shall give the Administrative Agent irrevocable notice (which
notice must be received by the Administrative Agent prior to 2:00 P.M.,
Charlotte, North Carolina time, on the requested Borrowing Date, specifying
<PAGE>
the amount to be borrowed. Each borrowing under the Short-Term Funding Line
Commitments shall be in an amount equal to 500,000 or a whole multiple of
$500,000 in excess thereof. Upon receipt of any such notice from the Company,
the Administrative Agent shall promptly notify each Short-Term Funding Lender
thereof. Each Short-Term Funding Lender will make the amount of its pro rata
share of each borrowing available to the Administrative Agent for the account
of the Company at the office of the Administrative Agent specified in
subsection 10.2 prior to 4:30 P.M., Charlotte, North Carolina time, on the
Borrowing Date requested by the Company in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Company by the Administrative Agent crediting the account of the Company on
the books of such office with the aggregate of the amounts made available to
the Administrative Agent by the Short-Term Funding Lenders and in like funds
as received by the Administrative Agent.
(d) The Administrative Agent may at any time in its sole and absolute
discretion, and, with respect to each Short-Term Funding Loan which has not
been repaid by the Company in immediately available funds prior to 10:30 A.M.
on the day which is the fifth Business Day after the Borrowing Date with
respect to such Short-Term Funding Loan shall, on behalf of the Company (which
hereby irrevocably directs the Short-Term Funding Lender to act on its behalf)
request prior to 12:00 Noon (New York City time) each Lender on such fifth
Business Day after the Borrowing Date with respect to such Short-Term Funding
Loan to make a Revolving Credit Loan in an amount equal to such Lender's
Revolving Credit Commitment Percentage of the amount of the Short-Term Funding
Loan (the "Refunded Short-Term Funding Loans") outstanding on the date such
notice is given. Unless any of the events described in paragraph (f) of
Section 8 shall have occurred (in which event the procedures of paragraph (e)
of this subsection 2.4 shall apply) each Lender shall make the proceeds of its
Revolving Credit Loan available to the Administrative Agent for the account of
the Short-Term Funding Lenders at the office of the Administrative Agent
specified in subsection 10.2 prior to 2:00 P.M. (New York City time) in funds
immediately available on the date such notice is given. The proceeds of such
Revolving Credit Loans shall be immediately applied to repay the Refunded
Short-Term Funding Loans. Each Revolving Credit Loan made pursuant to this
subsection 2.4(d) shall be an ABR Loan.
(e) If prior to the making of a Revolving Credit Loan pursuant to
paragraph (d) of this subsection 2.4 one of the events described in paragraph
(f) of Section 8 shall have occurred, each Lender will on the date such
Revolving Credit Loan was to have been made, purchase an undivided
participating interest in the Refunded Short-Term Funding Loan in an amount
equal to its Revolving Credit Commitment Percentage of such Refunded Short-
Term Funding Loan. Each Lender will immediately transfer to the
Administrative Agent, in immediately available funds, the amount of its
participation and upon receipt thereof (i) the Administrative Agent will make
such funds available to each Short-Term Funding Lender based pro rata on their
respective portion of such Short-Term Funding Loan and (ii) each such Short-
Term Funding Lender deliver to the Administrative Agent, and the
Administrative Agent will in turn promptly deliver to each such Lender, a
Short-Term Funding Loan participation certificate dated the date of receipt of
such funds and in such amount.
<PAGE>
(f) Whenever, at any time after the Administrative Agent has received
from any Lender such Lender's participating interest in a Refunded Short-Term
Funding Loan, the Administrative Agent receives any payment on account
thereof, the Administrative Agent will distribute to such Lender its
participating interest in such amount (appropriately adjusted in the case of
interest payments, to reflect the period of time during which such Lender's
participating interest was outstanding and funded); provided, however, that in
the event that such payment received by the Administrative Agent is required
to be returned, such Lender will return to the Administrative Agent any
portion thereof previously distributed by the Administrative Agent to it.
(g) Each Lender's obligation to purchase participating interests
pursuant to this subsection 2.4 shall be absolute and unconditional and shall
not be affected by any circumstance, including, without limitation, (i) any
set-off, counterclaim, recoupment, defense or other right which such Lender or
the Company may have against the Administrative Agent or any Short-Term
Funding Lender, the Company or anyone else for any reason whatsoever; (ii) the
occurrence or continuance of an Event of Default; (iii) any adverse change in
the financial condition of the Company; (iv) any breach of this Agreement by
the Company or any other Lender; or (v) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
2.5 Fees. (a) The Company agrees to pay to the Administrative Agent
for the account of each Lender a commitment fee for the period from and
including the Closing Date to the Termination Date, computed at the Commitment
Fee Rate on such Lender's Revolving Credit Commitment Percentage of the
average daily amount of the Available Commitments during the period for which
payment is made, payable quarterly in arrears on the last day of each March,
June, September and December and on the Termination Date or such earlier date
on which the Commitments shall terminate as provided herein, commencing on the
first of such dates to occur after the Closing Date.
(b) The Company agrees to pay to the Administrative Agent on the
Closing Date for the account of each Lender a facility fee equal to (i) in the
case of any Lender having an initial commitment notified to the Syndication
Agent during syndication of less than $25,000,000, .10% of such amount, (ii)
in the case of any Lender having an initial commitment notified to the
Syndication Agent during syndication of $25,000,000 or greater but less than
$50,000,000, .15% of such amount and (iii) in the case of any Lender having an
initial commitment notified to the Syndication Agent during syndication of at
least $50,000,000, .25% of such Lender's Revolving Credit Commitment on the
Closing Date.
(c) The Company agrees to pay to the Administrative Agent and the
Documentation Agent the fees in the amounts and on the dates agreed by the
Company in writing with the Administrative Agent and the Documentation Agent,
respectively.
<PAGE>
2.6 Optional Termination and Reduction of Commitments. The Company
shall have the right, upon not less than five Business Days' notice to the
Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments,
provided that no such termination or reduction shall be permitted if, after
giving effect thereto and to any prepayments or repayments of the Revolving
Credit Loans and the Short-Term Funding Loans made on the effective date
thereof, the Aggregate Outstanding Revolving Extensions of Credit would exceed
the Revolving Credit Commitments then in effect. Any such reduction shall be
in an amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess
thereof and shall reduce permanently the Revolving Credit Commitments then in
effect. The Revolving Credit Commitments may not be reduced to an amount less
than the amount of the Short-Term Funding Line Commitments after giving effect
to any simultaneous reduction of the Short-Term Funding Line Commitments.
2.7 Optional Prepayments; Mandatory Prepayments. (a) The Company may
on the last day of any Interest Period with respect thereto, in the case of
Eurodollar Loans or C/D Rate Loans, or at any time and from time to time, in
the case of ABR Loans and Short-Term Funding Loans, prepay the Revolving
Credit Loans and the Short-Term Funding Loans, in whole or in part, without
premium or penalty, upon (i) at least three Business Days' irrevocable notice,
which must be received prior to 10:30 A.M. on the day of such notice, to the
Administrative Agent with respect to Eurodollar Loans or C/D Rate Loans, and
(ii) upon irrevocable notice received prior to 10:30 A.M., in the case of ABR
Loans, and 2:00 P.M., in the case of Short-Term Funding Loans, on the date of
such prepayment with respect to ABR Loans, in each case specifying the date
and amount of prepayment and whether the prepayment is of Eurodollar Loans,
C/D Rate Loans, ABR Loans or a combination thereof, and, if of a combination
thereof, the amount allocable to each. Upon receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable
on the date specified therein. Partial prepayments shall be in an aggregate
principal amount of $10,000,000 in the case of the Revolving Credit Loans, or
$1,000,000, in the case of the Short-Term Funding Loans, or, in each case, a
whole multiple of $1,000,000 in excess thereof.
(b) If on any date (including any date on which a Borrowing Base
Certificate is delivered pursuant to Section 6.2(f)) (i) the sum of (A) the
Aggregate Outstanding Revolving Extensions of Credit as of such date and (B)
Permitted Senior Indebtedness as of such date exceeds the then applicable
Borrowing Base or (ii) the Aggregate Outstanding Revolving Extensions of
Credit exceeds the aggregate Revolving Credit Commitments then in effect,
then, without notice or demand, the Company shall, on such date, prepay the
Loans in an amount equal to such excess, together with interest on the amount
paid or prepaid accrued to the date of such payment or prepayment and any
amounts payable pursuant to subsection 2.8 in connection therewith; provided,
that if the aggregate principal amount of Loans then outstanding is less than
the amount of such excess (because L/C Obligations constitute a portion
thereof), the Company shall, to the extent of the balance of such excess,
replace outstanding Letters of Credit and/or deposit an amount in cash in a
cash collateral account established with the Administrative Agent for the
benefit of the Lenders. The Company may, subject to the terms and conditions
of this Agreement, reborrow the amount of any prepayment made under this
subsection 2.7.
<PAGE>
2.8 Conversion and Continuation Options. (a) The Company may elect
from time to time to convert Eurodollar Loans or C/D Rate Loans to ABR Loans,
and/or to convert Eurodollar Loans or ABR Loans to C/D Rate Loans, by giving
the Administrative Agent at least two Business Days' prior irrevocable notice
of such election, provided that any such conversion of Eurodollar Loans or C/D
Rate Loans may only be made on the last day of an Interest Period with respect
thereto. The Company may elect from time to time to convert ABR Loans or C/D
Rate Loans to Eurodollar Loans by giving the Administrative Agent at least
three Business Days' prior irrevocable notice of such election, provided that
any such conversion of C/D Rate Loans may, subject to the third succeeding
sentence, only be made on the last day of an Interest Period with respect
thereto. Any such notice of conversion to Eurodollar Loans or C/D Rate Loans
shall specify the length of the initial Interest Period or Interest Periods
therefor.
<PAGE>
Upon receipt of any such notice the Administrative Agent shall promptly notify
each Lender thereof. If the last day of the then current Interest Period with
respect to C/D Rate Loans that are to be converted to Eurodollar Loans is not
a Business Day, such conversion shall be made on the next succeeding Business
Day, and during the period from such last day to such succeeding Business Day
such Loans shall bear interest as if they were ABR Loans. All or any part of
outstanding Eurodollar Loans, ABR Loans and C/D Rate Loans may be converted as
provided herein, provided that (i) no Loan may be converted into a Eurodollar
Loan or a C/D Rate Loan when any Event of Default has occurred and is
continuing and the Documentation Agent and the Administrative Agent have or
the Required Lenders have determined that such a conversion is not appropriate
and (ii) no Loan may be converted into a Eurodollar Loan or a C/D Rate Loan if
the last day of any Interest Period in respect thereof would be after the
Termination Date.
(b) Any Eurodollar Loans or C/D Rate Loans may be continued as such
upon the expiration of the then current Interest Period with respect thereto
by the Company giving notice to the Administrative Agent, in accordance with
the applicable provisions of the term "Interest Period" set forth in
subsection 1.1, of the length of the next Interest Period to be applicable to
such Loans, provided that no Eurodollar Loan or C/D Rate Loan may be continued
as such (i) when any Event of Default has occurred and is continuing and the
Agents have or the Required Lenders have determined that such a continuation
is not appropriate or (ii) if the last day of any Interest Period in respect
thereof would be after the Termination Date; and provided, further, that if
the Company shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso such Loans shall be automatically converted to ABR Loans on the last
day of such then expiring Interest Period.
<PAGE>
2.9 Minimum Amounts of Tranches. All borrowings, conversions and
continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of the Loans
comprising (i) each Eurodollar Tranche shall be equal to $10,000,000 or a
whole multiple of $1,000,000 in excess thereof and (ii) each C/D Rate Tranche
shall be equal to $10,000,000 or a whole multiple of $1,000,000 in excess
thereof.
2.10 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at
a rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) Each C/D Rate Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the C/D Rate
determined for such day plus the Applicable Margin.
(d) Each Short-Term Funding Loan made by a Short-Term Funding Lender
shall bear interest for each day during which such Short-Term Funding Loan is
outstanding at the rate per annum equal to the average determined by the
Administrative Agent to be the arithmetic average (rounded upward to the
nearest 1/100th of 1%) of the respective rates notified to the Administrative
Agent by each of the Reference Lenders as the rate at which such Reference
Lender is able to obtain funds for such day in the federal funds market in
which such Lender customarily acquires federal funds, plus the Short-Term
Funding Line Margin. The Administrative Agent shall, upon request, quote to
the Company the interest rate in effect for Short-Term Funding Loans on the
date of quotation.
(e) If all or a portion of (i) the principal amount of any Revolving
Credit Loan or Short-Term Funding Loan, (ii) any interest payable thereon or
(iii) any other amount payable hereunder shall not be paid when due (whether
at the stated maturity, by acceleration or otherwise), such overdue amount
shall bear interest at a rate per annum which is (x) in the case of overdue
principal, 2% above the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this subsection until the earlier of
the date such amount is paid in full or the last day of the Interest Period
applicable to such overdue amount, and then 2% above the rate described in
paragraph (b) of this subsection or (y) in the case of overdue interest and
any other amount payable hereunder, 2% above the rate described in paragraph
(b) of this subsection, in each case from the date of such non-payment up to
but not including the date of actual payment in full (as well after as before
judgment).
<PAGE>
(f) Interest on Revolving Credit Loans and Short-Term Funding Loans
shall be payable in arrears on each Interest Payment Date, provided that
interest accruing pursuant to paragraph (e) of this subsection shall be
payable on demand.
2.11 Repayment of Loans. (a) On the Termination Date, the Company
will pay to the Administrative Agent for the account of each Lender the unpaid
principal amount of each Revolving Credit Loan made by such Lender.
(b) The Company will pay to the Administrative Agent for the account of
each Lender the unpaid principal amount of each Short-Term Funding Loan in
accordance with subsection 2.4(b), and in any event not later than the
Termination Date.
2.12 Computation of Interest and Fees. (a) Commitment fees and,
whenever it is calculated on the basis of the Prime Rate, interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for
the actual days elapsed; and, otherwise, interest shall be calculated on the
basis of a 360-day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Company and the Lenders of each
determination of a Eurodollar Rate or of a C/D Rate. Any change in the
interest rate on a Loan resulting from a change in the ABR, the eurocurrency
reserve costs (described in subsection 2.16), the C/D Assessment Rate or the
C/D Reserve Percentage shall become effective as of the opening of business on
the day on which such change becomes effective. The Administrative Agent
shall as soon as practicable notify the Company and the Lenders of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Company and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Company, deliver to the
Company a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to this subsection 2.12.
(c) If any Reference Lender shall for any reason no longer have a
Revolving Credit Commitment or any Loans outstanding, such Reference Lender
shall thereupon cease to be a Reference Lender, and if, as a result, there
shall only be one Reference Lender remaining, the Documentation Agent and the
Administrative Agent (after consultation with the Company and with the consent
of the Required Lenders) shall, by notice to the Company and the Lenders,
designate another Lender as a Reference Lender so that there shall at all
times be at least two Reference Lenders.
(d) Each Reference Lender shall use its best efforts to furnish
quotations of rates to the Administrative Agent as contemplated hereby. If
any of the Reference Lenders shall be unable or shall otherwise fail to supply
such rates to the Administrative Agent upon its request, the rate of interest
shall, subject to the provisions of subsection 2.13, be determined on the
basis of the quotations of the remaining Reference Lenders or Reference
Lender.
<PAGE>
2.13 Inability to Determine Interest Rate. If prior to the first day
of any Interest Period:
(a) the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Company) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate or the C/D Rate
for such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Required Lenders that the Eurodollar Rate or the C/D Rate determined or
to be determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to
the Company and the Lenders as soon as practicable thereafter. If such notice
is given (x) any Eurodollar Loans or C/D Rate Loans, as the case may be,
requested to be made on the first day of such Interest Period shall be made as
ABR Loans, (y) any Loans that were to have been converted on the first day of
such Interest Period to Eurodollar Loans or C/D Rate Loans, as the case may
be, shall be converted to or continued as ABR Loans and (z) any outstanding
Eurodollar Loans or C/D Rate Loans, as the case may be, shall be converted, on
the first day following the last day of the then current Interest Period with
respect thereto, to ABR Loans. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans or C/D Rate Loans, as the
case may be, shall be made or continued as such, nor shall the Company have
the right to convert Loans to Eurodollar Loans or C/D Rate Loans, as the case
may be.
2.14 Pro Rata Treatment and Payments. (a) Each borrowing by the
Company from the Lenders hereunder, each payment by the Company on account of
any commitment fee hereunder and any reduction of the Revolving Credit
Commitments of the Lenders shall be made pro rata according to the respective
Revolving Credit Commitment Percentages of the Lenders. Each payment
(including each prepayment) by the Company on account of the principal of and
interest on the Revolving Credit Loans shall be made pro rata according to the
respective outstanding principal of the Revolving Credit Loans, respectively,
then held by the Lenders. Notwithstanding any other provision of this
Agreement that requires payments hereunder to be allocated to any particular
category of obligations hereunder, if at any time (i) the Administrative Agent
shall have received insufficient funds to pay all amounts then due and payable
hereunder or (ii) the Documentation Agent shall have received written notice
from the Company or any Lender than an Event of Default has occurred and is
continuing, the amount of funds received shall be applied first to the payment
of commitment fees and other amounts then due and payable hereunder other than
fees in respect of Letters of Credit, principal and interest, and
Reimbursement Obligations, pro rata in respect of all such amounts owing to
each Lender, second to the payment of fees in respect of Letters of Credit and
<PAGE>
interest then due and payable hereunder, pro rata in respect of all such
amounts owing to each Lender, and then to the payment of Reimbursement
Obligations and all principal amounts then outstanding (whether of not due and
payable) hereunder, pro rata in respect of all such amounts owing to each
Lender. All payments (including prepayments) to be made by the Company
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without set off or counterclaim and shall be made
prior to 12:30 P.M., Charlotte, North Carolina time, on the due date thereof
to the Administrative Agent, for the account of the Lenders, at the
Administrative Agent's office specified in subsection 10.2, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If
any payment hereunder (other than payments on the Eurodollar Loans) becomes
due and payable on a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate
during such extension. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in
which event such payment shall be made on the immediately preceding Business
Day.
(b) Unless the Administrative Agent shall have been notified in writing
by any Lender prior to a borrowing that such Lender will not make the amount
that would constitute its Commitment Percentage of such borrowing available to
the Administrative Agent, the Administrative Agent may assume that such Lender
is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Company a corresponding amount. If such amount is not made available to
the Administrative Agent by the required time on the Borrowing Date therefor,
such Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available
to the Administrative Agent. A certificate of the Administrative Agent
submitted to any Lender with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error. If such
Lender's Commitment Percentage of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days of such
Borrowing Date, the Administrative Agent shall also be entitled to recover
such amount with interest thereon at the rate per annum applicable to ABR
Loans hereunder, on demand, from the Company. Nothing contained in this
subsection 2.14(b) shall relieve any Lender that has failed to make available
its Commitment Percentage of any borrowing hereunder from its obligation to do
so in accordance with the terms hereof.
<PAGE>
2.15 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for any Lender to make or
maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert Domestic Dollar Loans to Eurodollar Loans
shall forthwith be cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the
respective last days of the then current Interest Periods with respect to such
Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of
the then current Interest Period with respect thereto, the Company shall pay
to such Lender such amounts, if any, as may be required pursuant to subsection
2.18.
2.16 Eurocurrency Reserve Costs; Requirements of Law. (a) The Company
agrees to pay to each Lender which requests compensation under this subsection
2.16(a) (by notice to the Company), on the last day of each Interest Period
with respect to any Eurodollar Loan made by such Lender, so long as such
Lender shall be required to maintain reserves against "Eurocurrency
liabilities" under Regulation D of the Board of Governors of the Federal
Reserve System (or, so long as such Lender may be required by such Board of
Governors or by any other Governmental Authority to maintain reserves against
any other category of liabilities which includes deposits by reference to
which the interest rate on Eurodollar Loans is determined as provided in this
Agreement or against any category of extensions of credit or other assets of
such Lender which includes any Eurodollar Loans), an additional amount
(determined by such Lender and notified to the Company) representing such
Lender's calculation or, if an accurate calculation is impracticable,
reasonable estimate (using such reasonable means of allocation as such Lender
shall determine) of the actual costs, if any, incurred by such Lender during
such Interest Period as a result of the applicability of the foregoing
reserves to such Eurodollar Loans, which amount in any event shall not exceed
the product of the following for each day of such Interest Period:
(i) the principal amount of the Eurodollar Loans made by such Lender
to which such Interest Period relates outstanding on such day; and
(ii) the difference between (x) a fraction the numerator of which
is the Eurodollar Rate (expressed as a decimal) applicable to such
Eurodollar Loan and the denominator of which is one minus the maximum
rate (expressed as a decimal) at which such reserve requirements are
imposed by such Board of Governors or other Governmental Authority on
such date minus (y) such numerator; and
(iii) a fraction the numerator of which is one and the denominator
of which is 360.
(b) If the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof or compliance by any Lender
with any request or directive (whether or not having the force of law)
from any central bank or other Governmental Authority made subsequent to
the date hereof:
<PAGE>
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note, any Letter of Credit,
any Application or any Eurodollar Loan or C/D Rate Loan made by
it, or change the basis of taxation of payments to such Lender in
respect thereof (except for Non-Excluded Taxes covered by
subsection 2.17 and changes in the rate of tax on the overall net
income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or
any other acquisition of funds by, any office of such Lender which
is not otherwise included in the determination of eurocurrency
reserve costs pursuant to paragraph (a) above or the C/D Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such
Lender, by an amount which such Lender in good faith deems to be
material, of making, converting into, continuing or maintaining
Eurodollar Loans or C/D Rate Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in
respect thereof, then, in any such case, the Company shall promptly pay
such Lender, upon its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount
receivable. If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the
Company, through the Documentation Agent, of the event by reason of
which it has become so entitled. This covenant shall survive the
termination of this Agreement and the payment of the Notes and all other
amounts payable hereunder.
(c) If any Lender shall have determined that the adoption of or
any change in any Requirement of Law regarding capital adequacy or in
the interpretation or application thereof or compliance by such Lender
or any corporation controlling such Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from
any Governmental Authority made subsequent to the date hereof does or
shall have the effect of reducing the rate of return on such Lender's or
such corporation's capital as a consequence of its obligations hereunder
or under any Letter of Credit to a level below that which such Lender or
such corporation could have achieved but for such change or compliance
(taking into consideration such Lender's or such corporation's policies
with respect to capital adequacy) by an amount deemed by such Lender in
good faith to be material, then from time to time, after submission by
such Lender to the Company (with a copy to the Documentation Agent) of a
written request therefore, the Company shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such
reduction.
<PAGE>
(d) A certificate of each Lender setting forth such amount or
amounts as shall be necessary to compensate such Lender as specified in
paragraph (a), (b) or (c) of this subsection 2.16, as the case may be,
shall be delivered to the Company and shall, if submitted in good faith,
be conclusive absent manifest error; provided that any certificate
delivered by a Lender pursuant to this subsection 2.16(d) shall (i) in
the case of a certificate in respect of amounts payable pursuant to
paragraph (a) or (b) of this subsection 2.16, set forth in reasonable
detail the basis for and the calculation of such amounts, and (ii) in
the case of a certificate in respect of amounts payable pursuant to
paragraph (c) of this subsection 2.16, (A) set forth at least the same
amount of detail in respect of the calculation of such amount as such
Lender provides in similar circumstances to other similarly situated
borrowers from such Lender, and (B) include a statement by such Lender
that it has allocated to its Revolving Credit Commitment or outstanding
Loans no greater than a proportionately equal amount of any reduction of
the rate of return on such Lender's capital due to the adoption or
change in any Requirement of Law regarding capital adequacy as it has
allocated to each of its other commitments to lend or other outstanding
loans to similarly situated borrowers that are affected similarly by
such adoption or change.
2.17 Taxes. (a) All payments made by the Company under this Agreement
and the Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on any Agent or any Lender as a
result of a present or former connection between such Agent or such Lender and
the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or the Notes). If any such non-excluded
taxes, levies, imposts, duties, charges, fees deductions or withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts payable to
the Administrative Agent or any Lender hereunder or under the Notes, the
amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes, provided, however, that the Company shall not be
required to increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state thereof if
(i) such Lender fails to comply with the requirements of paragraph (b) of this
subsection or (ii) either of the certifications made by such Lender as set
forth in such paragraph is not true and correct with respect to such Lender.
<PAGE>
Whenever any Non-Excluded Taxes are payable by the Company, as promptly as
possible thereafter the Company shall send to the Administrative Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Company showing payment
thereof. If the Company fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Company shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or
any Lender as a result of any such failure. The agreements in this subsection
shall survive the termination of this Agreement and the payment of the Notes
and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Company and the Administrative Agent (with a copy
to the Documentation Agent) (A) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or successor
applicable form, as the case may be, and (B) an Internal Revenue Service
Form W-8 or W-9, or successor applicable form, as the case may be;
(ii) deliver to the Company and the Administrative Agent (with a
copy to the Documentation Agent) two further copies of any such form or
certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously delivered by it to
the Company; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Company or
the Documentation Agent and the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any
such form with respect to it and such Lender so advises the Company, the
Administrative Agent and the Documentation Agent. Such Lender shall certify
(i) in the case of a Form 1001 or 4224, that it is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it
is entitled to an exemption from United States backup withholding tax. Each
Person that shall become a Lender or a Participant pursuant to subsection 10.6
shall, upon the effectiveness of the related transfer, be required to provide
all of the forms and statements required pursuant to this subsection, provided
that in the case of a Participant such Participant shall furnish all such
required forms and statements to the Lender from which the related
participation shall have been purchased.
<PAGE>
2.18 Indemnity. The Company agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Company in making a
borrowing of, conversion into or continuation of Eurodollar Loans or C/D Rate
Loans after the Company has given a notice requesting the same in accordance
with the provisions of this Agreement, (b) default by the Company in making
any prepayment after the Company has given a notice thereof in accordance with
the provisions of this Agreement or (c) the making of a prepayment of
Eurodollar Loans or C/D Rate Loans on a day which is not the last day of an
Interest Period with respect thereto. Such indemnification may include an
amount equal to the excess, if any, of (i) the amount of interest which would
have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of such Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Loans provided for herein (excluding,
however, the Applicable Margin included therein, if any) over (ii) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to such Lender on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market. This
covenant shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder. A certificate of any
Lender setting forth any amount or amounts which such Lender is entitled to
receive pursuant to this Section shall be delivered to the Company and shall
be conclusive absent manifest error.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Prior to the Closing Date, Chemical or an
affiliate thereof as specified on Schedule 3.1, as Issuing Bank, issued the
letters of credit described in Schedule 3.1 (the "Existing Letters of
Credit"). Subject to the terms and conditions hereof, NationsBank or an
Affiliate, as Issuing Bank, agrees, and other Lenders designated by the
Company with the consent of the Documentation Agent and the Administrative
Agent may agree, in each case in reliance on the agreements of the other
Lenders set forth in subsection 3.4(a), to issue letters of credit (together
with the Existing Letters of Credit, "Letters of Credit") for the account of
the Company on any Business Day during the Commitment Period in such form as
may be approved from time to time by the Issuing Bank; provided that the
Issuing Bank shall have no obligation to issue any Letter of Credit if, after
giving effect to such issuance, (i) the L/C Obligations would exceed the L/C
Commitment or (ii) the Aggregate Outstanding Revolving Extensions of Credit
would exceed the lesser of (A) the aggregate Revolving Credit Commitments then
in effect and (B) the excess of the Borrowing Base then in effect over
Permitted Senior Indebtedness. Each Letter of Credit shall (i) be denominated
in Dollars and shall be either (x) a standby letter of credit issued to
support obligations of the Company and its Subsidiaries, contingent or
otherwise, arising in the ordinary course of business or (y) a documentary
letter of credit in respect of the purchase of goods or services by the
Company and its Subsidiaries in the ordinary course of business and (ii)
expire no later than the Termination Date.
<PAGE>
(b) Each Letter of Credit shall be subject to the Uniform Customs and,
to the extent not inconsistent therewith, the laws of the State of New York.
(c) The Issuing Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The Company may
from time to time request that the Issuing Bank issue a Letter of Credit by
delivering to the Issuing Bank at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Bank, and
such other certificates, documents and other papers and information as the
Issuing Bank may reasonably request in accordance with its customary
procedures (with a copy to the Administrative Agent). Upon receipt of any
Application, the Issuing Bank will process such Application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall
promptly issue the Letter of Credit requested thereby (but in no event shall
the Issuing Bank be required to issue any Letter of Credit earlier than three
Business Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as
otherwise may be agreed by the Issuing Bank and the Company. The Issuing Bank
shall furnish a copy of such Letter of Credit to the Company promptly
following the issuance thereof.
3.3 Fees, Commissions and Other Charges.
(a) The Company shall pay (i) to the Administrative Agent, for the
account of the Issuing Bank and the L/C Participants in accordance with their
respective Revolving Credit Commitment Percentages, a letter of credit
commission with respect to each Letter of Credit, computed for the period from
the Closing Date (in the case of the first such payment) or the date on which
the last such payment was due (in all other cases) to the date upon which such
payment is due hereunder at the L/C Fee Rate on the average daily aggregate
amount available to be drawn under such Letter of Credit and (ii) to the
Issuing Bank for its own account, a letter of credit commission with respect
to each Letter of Credit, computed for the period from the Closing Date (in
the case of the first such payment) or the date on which the last such payment
was due (in all other cases) to the date upon which such payment is due
hereunder at the rate of 1/8% per annum of the average daily aggregate amount
available to be drawn under such Letter of Credit during the period for which
such fee is calculated. Such commissions shall be payable in arrears on each
L/C Fee Payment Date and shall be nonrefundable.
<PAGE>
(b) In addition to the foregoing fees and commissions, the Company
shall pay or reimburse the Issuing Bank for such reasonable and customary
costs and expenses as are incurred or charged by the Issuing Bank in issuing,
effecting payment under, amending or otherwise administering any Letter of
Credit.
(c) The Administrative Agent shall, promptly following its receipt
thereof, distribute to the Issuing Bank and the L/C Participants all fees and
commissions received by the Administrative Agent for their respective accounts
pursuant to this subsection.
3.4 L/C Participations. (a) The Issuing Bank irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the
Issuing Bank, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Commitment Percentage in the Issuing Bank's obligations and
rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Bank thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Bank that, if a draft
is paid under any Letter of Credit for which the Issuing Bank is not
reimbursed in full by the Company in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at
the Issuing Bank's address for notices specified herein an amount equal to
such L/C Participant's Commitment Percentage of the amount of such draft, or
any part thereof, which is not so reimbursed; provided, that no L/C
Participant shall be obligated to make such payment to the extent that, after
giving effect to such payment, the sum of (i) such payment, (ii) such Lender's
Commitment Percentage of the L/C Obligations on the date of such payment other
than that with respect to which such payment would be made and (iii) such
Lender's Commitment Percentage of the Aggregate Outstanding Revolving
Extensions of Credit on such date other than the L/C Obligations exceeds such
Lender's Revolving Credit Commitment. Each L/C Participant's obligation to
purchase its participating interest in each Letter of Credit pursuant to this
subsection 3.4(a) shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or
other right which such L/C Participant may have against the Issuing Bank, the
Company, any direct or indirect beneficiary of any Letter of Credit, the
Administrative Agent or any other Person whatsoever, (ii) the occurrence or
continuance of a Default or an Event of Default; (iii) any adverse change in
the condition (financial or otherwise) of the Company; (iv) any breach of this
Agreement by the Company, the Administrative Agent or any other Lender; or (v)
any other circumstance, happening or event whatsoever, whether or not similar
to any of the foregoing; and such obligation shall continue to be effective,
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any reimbursement obligation of the Company is rescinded or must
otherwise be restored or returned by the Issuing Bank upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or upon
or as a result of the appointment of a receiver, intervenor or conservator of,
or trustee or similar officer for, the Company or any substantial part of its
property, or otherwise, all as though such payment had not been made.
<PAGE>
(b) If any amount required to be paid by any L/C Participant to the
Issuing Bank pursuant to subsection 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Letter of Credit is
paid to the Issuing Bank within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Bank on demand
an amount equal to the product of (i) such amount, times (ii) the daily
average federal funds rate, as quoted by the Issuing Bank, during the period
from and including the date such payment is required to the date on which such
payment is immediately available to the Issuing Bank, times (iii) a fraction
the numerator of which is the number of days that elapse during such period
and the denominator of which is 360.If any such amount required to be paid by
any L/C Participant pursuant to subsection 3.4(a) is not in fact made
available to the Issuing Bank by such L/C Participant within three Business
Days after the date such payment is due, the Issuing Bank shall be entitled to
recover from such L/C Participant, on demand, such amount with interest
thereon calculated from such due date at the rate per annum applicable to ABR
Loans hereunder. A certificate of the Issuing Bank submitted to any L/C
Participant with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Bank has made payment under
any Letter of Credit and has received from any L/C Participant its pro rata
share of such payment in accordance with subsection 3.4(a), the Issuing Bank
receives any payment related to such Letter of Credit (whether directly from
the Company or otherwise, including proceeds of collateral applied thereto by
the Issuing Bank), or any payment of interest on account thereof, the Issuing
Bank will distribute to such L/C Participant its pro rata share thereof;
provided, however, that in the event that any such payment received by the
Issuing Bank shall be required to be returned by the Issuing Bank, such L/C
Participant shall return to the Issuing Bank the portion thereof previously
distributed by the Issuing Bank to it.
3.5 Reimbursement Obligation of the Company. The Company agrees to
reimburse the Issuing Bank on each date on which the Issuing Bank notifies the
Company of the date and amount of a draft presented under any Letter of Credit
and paid by the Issuing Bank for the amount of (a) such draft so paid and (b)
any taxes, fees, charges or other costs or expenses incurred by the Issuing
Bank in connection with such payment, provided, that the failure of the
Company to so reimburse the Issuing Bank on such date shall not be deemed to
be an Event of Default if (i) the Company receives notice of such draft after
1:30 P.M. on such date and (ii) the Company makes such reimbursement in full
no later than the first Business Day following such date. Each such payment
shall be made to the Issuing Bank at its address for notices specified herein
in lawful money of the United States of America and in immediately available
funds. Interest shall be payable on any and all amounts remaining unpaid by
the Company under this subsection from the date such amounts become payable
(whether at stated maturity, by acceleration or otherwise) to but not
including the date of payment in full at the rate which would be payable on
any outstanding ABR Loans which were then overdue.
<PAGE>
3.6 Obligations Absolute. The Company's obligations under this
SectionError! Reference source not found. 3 shall be absolute and
unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment which the Company may have or have had
against the Issuing Bank or any beneficiary of a Letter of Credit. The
Company also agrees with the Issuing Bank that the Issuing Bank shall not be
responsible for, and the Company's Reimbursement Obligations under subsection
3.5 shall not be affected by, among other things, the validity or genuineness
of documents or of any endorsements thereon, even though such documents shall
in fact prove to be invalid, fraudulent or forged, or any dispute between or
among the Company and any beneficiary of any Letter of Credit or any other
party to which such Letter of Credit may be transferred or any claims
whatsoever of the Company against any beneficiary of such Letter of Credit or
any such transferee, provided, that payment by the Issuing Bank under such
Letters of Credit against presentation of such documents shall not have been
determined by a final judgement of a court of competent jurisdiction to have
constituted gross negligence or willful misconduct by the Issuing Bank. The
Issuing Bank shall not be liable for any error, omission, interruption or
delay in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions caused by the Issuing Bank's gross negligence or willful misconduct.
The Company agrees that any action taken or omitted by the Issuing Bank under
or in connection with any Letter of Credit or the related drafts or documents,
if done in the absence of gross negligence or willful misconduct and in
accordance with the standards or care specified in the Uniform Commercial Code
of the State of New York and the Uniform Customs, shall be binding on the
Company and shall not result in any liability of the Issuing Bank to the
Company.
3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Bank shall promptly notify the
Company of the date and amount thereof. The responsibility of the Issuing Bank
to the Company in connection with any draft presented for payment under any
Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment appear on their face to be in conformity with
such Letter of Credit.
3.8 Application. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3Error! Reference source not found., the provisions of this Section 3
shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
<PAGE>
To induce the Lenders to enter into this Agreement and to make the Loans
and issue or participate in the Letters of Credit the Company hereby
represents and warrants to the Agents and each Lender that:
4.1 Financial Condition. The consolidated balance sheets of the
Company and its consolidated Subsidiaries as at December 31, 1994 and the
related consolidated statements of income and of cash flows for the fiscal
year ended on such date, reported on by Ernst & Young, copies of which have
heretofore been furnished to each Lender, present fairly the consolidated
financial condition of the Company and its consolidated Subsidiaries as at
such dates, and the consolidated results of their operations and changes in
cash flows for the fiscal year then ended. The unaudited consolidated balance
sheet of the Company and its consolidated Subsidiaries as at March 31, 1995
and the related unaudited consolidated statements of income and of cash flows
for the three-month period ended on such date, certified by a Responsible
Officer, copies of which have heretofore been furnished to each Lender,
present fairly the consolidated financial condition of the Company and its
consolidated Subsidiaries as at such date, and the consolidated results of
their operations and changes in cash flows for the three-month period then
ended (subject to normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants or Responsible Officer, as
the case may be, and as disclosed therein and except the quarterly statements
are unaudited and do not include footnotes as would be required for audited
financial statements). Neither the Company nor any of its Restricted
Subsidiaries had, at the date of the most recent balance sheet referred to
above, any Guarantee Obligation, contingent liability or liability for taxes,
or any long-term lease or any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the foregoing statements or in
the notes thereto and which, in the aggregate, would be material to the
Company and its Subsidiaries taken as a whole, except as set forth on Schedule
4.6.
4.2 No Change. Since December 31, 1994, no development or event has
occurred which has had or could reasonably be expected to have a Material
Adverse Effect except as otherwise disclosed in the Company's audited or
unaudited financial statements including the periodic quarterly reports on
Form 10-Q, in each case delivered to the Lenders prior to the Closing Date.
Between December 31, 1994 and the Closing Date, no dividends or other
distributions have been declared, paid or made upon the capital stock of the
Company nor has any of the capital stock of the Company been redeemed,
retired, purchased or otherwise acquired for value by the Company or any of
its Subsidiaries, except for payment of regular quarterly dividends of not
more than $0.17 per share per quarter, payment of the dividend on the Series A
ESOP Convertible Preferred Stock and except as otherwise disclosed in the
Company's audited or unaudited financial statements including the periodic
quarterly reports on Form 10-Q delivered to the Lenders prior to the Closing
Date.
4.3 Corporate Existence; Compliance with Law. Each of the Company and
its Restricted Subsidiaries (a) is duly organized, validly existing and in
<PAGE>
good standing under the laws of the jurisdiction of its incorporation, (b) has
the corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law, except in the case of the foregoing clauses (c) and (d) to the extent
that the failure to be so qualified or to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. The
Company has the corporate power and authority, and the legal right, to make,
deliver and perform this Agreement and the Notes and to borrow hereunder and
has taken all necessary corporate action to authorize the borrowings on the
terms and conditions of this Agreement and the Notes and to authorize the
execution, delivery and performance of this Agreement and the Notes. No
consent or authorization of, filing with or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Loan Document. This Agreement
has been, and, as of the Closing Date, the Notes will be, duly executed and
delivered on behalf of the Company. This Agreement constitutes, and each
other Loan Document when executed and delivered by the Company for value
received will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the Notes, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or Contractual Obligation of
the Company or of any of its Subsidiaries and will not result in, or require,
the creation or imposition of any Lien on any of its or their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation.
4.6 No Material Litigation. Schedule 4.6 sets forth information with
respect to certain litigation, investigations, or proceedings pending against
the Company and its Subsidiaries. Subject to the matters set forth on such
Schedule, no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or any of its Restricted
Subsidiaries or against any of its or their respective properties or revenues
(a) with respect to this Agreement or the Notes or any of the transactions
contemplated hereby, or (b) which could reasonably be expected to have a
Material Adverse Effect.
<PAGE>
4.7 No Default. Neither the Company nor any of its Restricted
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
4.8 Ownership of Property; Liens. Each of the Company and its
Restricted Subsidiaries has good record and marketable title in fee simple to,
or a valid leasehold interest in, all its real property, and good title to all
its other property, except for defects in title that do not interfere in any
material respect with its ability to conduct its business as currently
conducted or to utilize such properties for their intended purposes, and none
of such property is subject to any Lien except as permitted by subsection 7.3.
4.9 Intellectual Property. The Company and each of its Restricted
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of
its business as currently conducted except for those the failure to own or
license which could not reasonably be expected to have a Material Adverse
Effect (the "Intellectual Property"). No claim has been asserted and is
pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such
Intellectual Property, which could reasonably be expected to have a Material
Adverse Effect nor does the Company know of any valid basis for any such
claim. The use of such Intellectual Property by the Company and its
Restricted Subsidiaries does not infringe on the rights of any Person, except
for such claims and infringements that, in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
4.10 Taxes. Each of the Company and its Restricted Subsidiaries has
filed or caused to be filed all tax returns which, to the knowledge of the
Company, are required to be filed and which if not so filed could reasonably
be expected to have a Material Adverse Effect, and has paid all taxes shown to
be due and payable on said returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges of a material
nature imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being contested
in good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Company or its
Subsidiaries, as the case may be); no tax Lien has been filed, and, to the
knowledge of the Company, no claim is being asserted, with respect to any such
tax, fee or other charge which reasonably could be expected to have a Material
Adverse Effect.
4.11 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any purpose which violates the provisions of the Regulations
of such Board of Governors. If requested by any Lender or the Documentation
Agent, the Company will furnish to the Documentation Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR
Form U-1 referred to in said Regulation U.
<PAGE>
4.12 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which
this representation is made or deemed made with respect to any Plan, and each
Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits to an extent which could reasonably be expected to have
a Material Adverse Effect. Neither the Company nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which could reasonably be expected to have a Material Adverse Effect, and
neither the Company nor any Commonly Controlled Entity would become subject to
any liability under ERISA in an amount which could reasonably be expected to
have a Material Adverse Effect if the Company or any such Commonly Controlled
Entity were to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this representation is
made or deemed made. To the knowledge of the Company or any Commonly
Controlled Entity, no such Multiemployer Plan for which the Company or any
Subsidiary could reasonably be expected to have a material liability is in
Reorganization or Insolvent. The present value (determined using actuarial
and other assumptions which are reasonable in respect of the benefits provided
and the employees participating) of the liability of the Company and each
Commonly Controlled Entity for post retirement benefits to be provided to
their current and former employees under Plans which are welfare benefit plans
(as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the
assets under all such Plans allocable to such benefits by an amount in excess
of $5,000,000.
4.13 Investment Company Act; Other Regulations. The Company is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Company is not subject to regulation under any Federal or State statute or
regulation which limits its ability to incur Indebtedness.
4.14 Subsidiaries. All the Subsidiaries of the Company at the date of
this Agreement are listed on Schedule 4.14 and the Subsidiaries that, as of
the date of this Agreement, are Significant Subsidiaries of the Company are
designated as such on Schedule 4.14.
4.15 Accuracy and Completeness of Information. The written
information, reports and other papers and data with respect to the Company
<PAGE>
(other than projections and estimates) furnished to the Agents or the Lenders
in connection with this Agreement or the obtaining of the commitments of the
Lenders hereunder was, at the time so furnished and when considered as a
whole, complete and correct in all material respects, or has been subsequently
supplemented by other information, reports or other papers or data, to the
extent necessary to give in all material respects a true and accurate
knowledge of the subject matter in all material respects. All projections and
estimates with respect to the Company and its Subsidiaries so furnished by the
Company were prepared and presented in good faith, it being recognized by the
Documentation Agent and the Lenders that such projections as to future events
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ from the projected results
and that such differences may be material; except as set forth and required
within this Agreement, the Company shall not be required to update such
projections.
4.16 Environmental Matters. Except to the extent that all of the
following, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect:
(a) To the knowledge of the Company, the facilities and properties
owned, leased or operated by the Company or any of its Subsidiaries (the
"Properties") do not contain, and have not previously contained, any Materials
of Environmental Concern in amounts or concentrations which (i) constitute or
constituted a violation of, or (ii) could reasonably be expected to give rise
to liability under, any Environmental Law.
(b) To the knowledge of the Company, the Properties and all operations
at the Properties are in compliance, and, to the extent of the Company's and
its Subsidiaries' involvement with the Properties, have in the last five years
been in compliance, in all material respects with all applicable Environmental
Laws, and there is no contamination at, under or about the Properties or
violation of any Environmental Law with respect to the Properties or the
business operated by the Company or any of its Subsidiaries (the "Business").
(c) Neither the Company nor any of its Subsidiaries has received any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental
Laws with regard to any of the Properties or the Business, nor does the
Company have knowledge or reason to believe that any such notice will be
received or is being threatened.
(d) To the knowledge of the Company, Materials of Environmental Concern
have not been transported or disposed of from the Properties while owned or
operated by the Company or any of its Subsidiaries in violation of, or in a
manner or to a location which could reasonably be expected to give rise to
liability under, any Environmental Law, nor have any Materials of
Environmental Concern been generated, treated, stored or disposed of at, on or
under any of the Properties in violation of, or in a manner that could
reasonably be expected to give rise to liability under, any applicable
Environmental Law.
<PAGE>
(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Company, threatened, under any
Environmental Law to which the Company or any Subsidiary is or will be named
as a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements outstanding
under any Environmental Law with respect to the Properties or the Business.
(f) To the knowledge of the Company, there has been no release or
threat of release of Materials of Environmental Concern at or from the
Properties, or arising from or related to the operations of the Borrower or
any Subsidiary in connection with the Properties or otherwise in connection
with the Business, in violation of or in amounts or in a manner that could
reasonably give rise to liability under Environmental Laws.
4.17 Status of the Notes. All indebtedness of the Company under this
Agreement, the Notes and the Applications (including, without limitation
principal, interest (including interest accruing after the occurrence of any
event described in Section 8(f), whether or not such interest constitutes an
allowed claim in any proceeding referred to in Section 8(f)), fees, expenses
and indemnities) constitutes, and the Company hereby expressly agrees that all
such indebtedness shall constitute, "Senior Debt" as such term is used in the
1992 Subordinated Debt Indenture.
4.18 Purpose of Loans. The proceeds of the Loans shall be used by the
Company for working capital purposes in the ordinary course of business and to
make the purchases and investments permitted by Section 7.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extensions of Credit. The agreement of each
Lender to make the initial extensions of credit requested to be made by it is
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions precedent:
(a) Loan Documents. The Documentation Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of
the Company and each Agent, with a counterpart for each Lender, (ii) for
the account of each Lender, a Revolving Credit Note, conforming to the
requirements hereof and executed by a duly authorized officer of the
Company, (iii) for the account of each Short-Term Funding Lender, a
Short-Term Funding Line Note conforming to the requirements hereof and
executed by a duly authorized officer of the Company and (iv) the
Guaranty, executed by a duly authorized officer of each Guarantor.
<PAGE>
(b) Intercreditor Agreement. A supplement to the Intercreditor
Agreement, in form satisfactory to the Documentation Agent, shall have
been executed and delivered by each Lender not already a party thereto.
(c) Corporate Proceedings. The Documentation Agent shall have
received, with a counterpart for each Lender, (i) a copy of the
resolutions, in form and substance reasonably satisfactory to the
Documentation Agent, of the Board of Directors of the Company and each
Guarantor authorizing (x) in the case of the Company, the execution,
delivery and performance of this Agreement, the Notes and the other Loan
Documents to which it is a party, and the borrowings contemplated
hereunder, and (y) in the case of each Guarantor, the execution,
delivery and performance of the Guaranty, in each case, certified by the
Secretary or an Assistant Secretary of the Company or such Guarantor, as
the case may be, as of the Closing Date, which certificate shall state
that the resolutions thereby certified have not been amended, modified,
revoked or rescinded and shall be in form and substance satisfactory to
the Documentation Agent and (ii) an incumbency certificate of the
Company and each Guarantor, satisfactory in form and substance to the
Documentation Agent, with appropriate insertions and attachments.
(d) Corporate Documents. The Documentation Agent shall have received,
with a counterpart for each Lender, true and complete copies of the
Charter and By-laws of the Company and each Guarantor, certified as of
the Closing Date as complete and correct copies thereof by the Secretary
or an Assistant Secretary of the Company or such Guarantor, as the case
may be.
(e) No Violation. The consummation of the transactions contemplated
hereby shall not contravene, violate or conflict with, nor involve the
Documentation Agent or any Lender in any violation of, any Requirement
of Law.
(f) Fees. The Syndication Agent, the Documentation Agent and the
Administrative Agent shall have received the fees to be received on the
Closing Date referred to in subsection 2.5.
(g) Legal Opinions. The Documentation Agent shall have received, with
a counterpart for each Lender, the executed legal opinions of (i) the
Corporate Counsel to the Company, substantially in the form of Exhibit
E-1 hereto, and (ii) Piper & Marbury L.L.P., counsel to the Company and
the Guarantors, substantially in the form of Exhibit E-2. Such legal
opinions shall cover such other matters incident to the transactions
contemplated by this Agreement as the Documentation Agent may reasonably
require.
(h) Borrowing Base Certificate. The Documentation Agent shall have
received a Borrowing Base Certificate, dated the Closing Date and
setting forth a calculation of the Borrowing Base as of April 30, 1995,
showing that the Aggregate Outstanding Revolving Extensions of Credit on
the Closing Date (after giving effect to the extension of credit
hereunder on the Closing Date), when added to the Permitted Senior
Indebtedness on the Closing Date, shall not exceed the Borrowing Base as
set forth therein.
<PAGE>
(i) Existing Credit Agreement. The Documentation Agent shall have
received evidence satisfactory to it that, effective as of the Closing
Date and after giving effect for the initial extensions of Credit
hereunder all amounts outstanding under the Existing Credit Agreement
will have been paid in full and the Commitments thereunder will have
been replaced with the Commitments hereunder.
5.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Company or any Guarantor in or pursuant to the
Loan Documents shall be true and correct in all material respects on and
as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loans
requested to be made on such date.
(c) Additional Documents. The Documentation Agent shall have received
each additional document, instrument, legal opinion or item of
information reasonably requested by it, including, without limitation, a
copy of any debt instrument, security agreement or other material
contract to which the Company may be a party.
(d) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Documentation Agent, and the Documentation
Agent shall have received such other documents and legal opinions in
respect of any aspect or consequence of the transactions contemplated
hereby or thereby as it shall reasonably request.
Each borrowing by and Letter of Credit issued on behalf of the Company
hereunder shall constitute a representation and warranty by the Company as of
the date of such Loan or such issuance that the conditions contained in
subsection 5.2(a) and (b) have been satisfied.
<PAGE>
SECTION 6. AFFIRMATIVE COVENANTS
The Company hereby agrees as follows for so long as any of the
Commitments remain in effect, any Note or any Letter of Credit remains
outstanding and unpaid or any other amount is owing to any Lender or the
Agents hereunder:
6.1 Financial Statements. The Company will furnish to each Lender:
(a) as soon as available, but in any event within 100 days after the
end of each fiscal year of the Company, copies of the consolidated
balance sheets of the Company and its consolidated Subsidiaries as at
the end of such year and the related consolidated statements of income
and retained earnings and changes in cash flows for such year, setting
forth in each case in comparative form the figures for the previous
year, reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit (other
than qualifications related to the incorporation of reports by other
independent certified public accountants), by Ernst & Young or other
independent certified public accountants of nationally recognized
standing not unacceptable to the Required Lenders; and
(b) as soon as available, but in any event not later than 55 days after
the end of each of the first three quarterly periods of each fiscal year
of the Company, the unaudited consolidated balance sheets of the Company
and its consolidated Subsidiaries as at the end of such quarter and the
related unaudited consolidated statements of income and retained
earnings and changes in cash flows of the Company and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through
the end of such quarter, setting forth in each case in comparative form
the figures for the previous year, certified by a Responsible Officer as
being fairly stated in all material respects when considered in relation
to the consolidated financial position of the Company and its
consolidated Subsidiaries (subject to normal year-end audit
adjustments);
all such financial statements to be prepared in accordance with GAAP applied
consistently throughout the periods reflected therein and with prior periods
(except as approved by such accountants or officer, as the case may be, and
disclosed therein).
6.2 Certificates; Other Information. The Company will furnish to each
Lender:
(a) concurrently with the delivery of the financial statements referred
to in subsection 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that
in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default, except as specified in such
certificate;
<PAGE>
(b) concurrently with the delivery of the financial statements referred
to in subsections 6.1(a) and 6.1(b), a compliance certificate of a
Responsible Officer, substantially in the form of Exhibit G, stating
that, to the best of such officer's knowledge, the Company during such
period has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement
and in the Notes to be observed, performed or satisfied by it (and
containing calculations demonstrating compliance with subsections 7.1
and 7.11 and such other financial information as requested by the
Documentation Agent), and that such officer has obtained no knowledge of
any Default or Event of Default except as specified in such certificate;
(c) not later than 95 days after the end of each fiscal year of the
Company, a copy of the projections by the Company of the operating
budget and cash flow budget of the Company and its Subsidiaries for the
succeeding fiscal year, such projections to be accompanied by a
certificate of a Responsible Officer to the effect that while such
officer has no reason to believe such projections are incorrect or
misleading in any material respect, such projections are based upon
assumptions that may not materialize or may change adversely due to
factors related to the Company's business or industry, and unanticipated
events and circumstances may occur subsequent to the date of such
projections, such that the actual results achieved may vary from such
projections, and such variations may be material, and that the Company
is under no obligation to update such projections;
(d) promptly upon their becoming available, but in any event no later
than ten days after the same are sent, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, or by any Restricted
Subsidiary of the Company to its stockholders (other than the Company or
any Subsidiary of the Company), of all regular and periodic reports and
all registration statements (excluding exhibits thereto and Registration
Statements on Form S-8) and prospectuses, if any, filed by the Company
or any of its Restricted Subsidiaries with any securities exchange or
with the Securities and Exchange Commission or any successor or
analogous Governmental Authority; and all of press releases and other
statements made available generally by the Company or any of its
Restricted Subsidiaries to the public concerning material developments
in the business of the Company and any of its Restricted Subsidiaries;
(e) promptly, such additional financial and other information as any
Lender may from time to time reasonably request;
(f) as soon as practicable, but in no event later than 25 days after the
end of each month, a Borrowing Base Certificate certifying in reasonable
detail the Borrowing Base as of the last day of such month, which
certificate shall be complete and correct as of the date thereof; and
<PAGE>
(g) concurrently with the delivery of the financial statements referred
to in subsections 6.1(a) and 6.1(b), the financial information set forth
on Schedule 6.2(g) hereto.
6.3 Payment of Obligations. The Company and each Restricted Subsidiary
will pay, discharge or otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, all obligations of whatever nature
which if not so paid could reasonably be expected to have a Material Adverse
Effect, except where the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves in conformity
with GAAP with respect thereto have been provided on the books of the Company
or its Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence. The Company and
the Restricted Subsidiaries, taken as a whole, will at all times remain
principally engaged in the business currently being conducted by the Company
and the Restricted Subsidiaries, and in all respects material to the business
of the Company and the Restricted Subsidiaries taken as a whole, the Company
shall, and will cause each of the Restricted Subsidiaries to, preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises required
for the normal conduct of such business, except (i) as otherwise permitted
pursuant to subsection 7.5 and (ii) the Company shall not be required to
preserve any such right, privilege or franchise if the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company or any Subsidiary and that the loss thereof could not
reasonably be expected to have a Material Adverse Effect. The Company shall,
and will cause each Restricted Subsidiary to, comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to
comply therewith could not reasonably be expected to have a Material Adverse
Effect.
6.5 Maintenance of Property; Insurance. The Company and each
Restricted Subsidiary will keep in all material respects all property useful
and necessary in its business in good working order and condition (provided,
however, that nothing in this subsection 6.5 shall prevent the Company from
discontinuing the operation or maintenance, or both the operation and
maintenance, of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and could not reasonably be expected to have a
Material Adverse Effect); maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amounts and
against at least such risks (but including in any event public liability,
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business;
and furnish to each Lender, upon written request, reasonable information as to
the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. The
Company and each Restricted Subsidiary will keep proper books of records and
account in which full, true and correct entries in conformity with GAAP and
<PAGE>
all Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and permit representatives of any
Lender, at such Lender's expense, to visit and inspect as reasonably requested
any of its properties and the properties of the real estate joint ventures in
which the Company or any Subsidiary within the Homebuilding Segment
participates or manages and examine and make abstracts from any of its books
and records at any reasonable time and as often as may reasonably be desired
and to discuss the business, operations, properties and financial and other
condition of the Company and its Subsidiaries and such real estate joint
ventures in which the Company or any Subsidiary within the Homebuilding
Segment participates or manages, as reasonably requested with officers and
employees of the Company and its Subsidiaries and with its independent
certified public accountants.
6.7 Notices. The Company will promptly give notice to the
Documentation Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Company or any of its Restricted Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time
between the Company or any of its Restricted Subsidiaries and any
Governmental Authority, which, in either case, reasonably could be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Company or any of its
Restricted Subsidiaries (i) in which the amount involved and not covered
by insurance is $10,000,000 or more or (ii) in which injunctive or
similar relief is sought which reasonably could be expected to have a
Material Adverse Effect;
(d) the following events, as soon as possible and in any event within
30 days after the Company knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, or any
withdrawal from, or the termination, Reorganization or Insolvency of any
Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the PBGC or the Company or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of,
any Plan;
(e) any change in the Rating by either Rating Agency; and
(f) any event or occurrence which has a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Company proposes to take with respect
thereto.
<PAGE>
6.8 Environmental Laws. (a) The Company, each Restricted Subsidiary
and each joint venture in which the Company or any Restricted Subsidiary
participates or manages will comply with and insure compliance by all tenants
and subtenants, if any, with all Environmental Laws and obtain and comply in
all material respects with and maintain, and insure that all tenants and
subtenants obtain and comply with and maintain, any and all licenses,
approvals, registrations or permits required by Environmental Laws, except in
each case to the extent that failure to do so could not reasonably be expected
to have a Material Adverse Effect; and
(b) The Company, each Restricted Subsidiary and each such joint venture
will conduct and complete all investigations, studies, sampling and testing,
and all remedial, removal and other actions required under Environmental Laws
and promptly comply in all material respects with all lawful orders and
directives of all Governmental Authorities respecting Environmental Laws,
except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not
reasonably be expected to have a Material Adverse Effect; and
(c) The Company will defend, indemnify and hold harmless each Agent and
the Lenders, and their respective employees, agents, officers and directors,
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to
the violation of or noncompliance with any Environmental Laws, or any orders,
requirements or demand of Governmental Authorities related thereto, including
without limitation reasonable attorney and consultant fees, investigation and
laboratory fees, court costs and litigation expenses, except to the extent
that any of the foregoing arise out of the gross negligence or willful
misconduct of the party seeking indemnification therefor. The agreements
contained in this paragraph (c) shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable
hereunder.
6.9 Guarantees from Future Subsidiaries. The Company will promptly
secure the execution and delivery of the Guaranty to the Documentation Agent
on behalf of the Lenders from each Subsidiary, whether now existing or formed
and organized after the Closing Date, if such Subsidiary (i) has assets with
an aggregate book value equal to or greater than $1,000,000 and (ii) is
included in the Homebuilding Segment. Each such Subsidiary which hereafter
meets the criteria set forth in the preceding sentence shall execute and
deliver the Guaranty within 30 days after it meets such criteria.
Concurrently with the execution and delivery by such a Subsidiary of a
Guaranty, the Company will deliver to the Documentation Agent such legal
opinions and evidence of corporate action and authority in respect thereof as
shall be reasonably requested by the Documentation Agent.
SECTION 7. NEGATIVE COVENANTS
<PAGE>
The Company hereby agrees as follows for so long as any of the
Commitments remain in effect, any Note or any Letter of Credit remains
outstanding and unpaid or any other amount is owing to any Lender or any Agent
hereunder:
7.1 Financial Condition Covenants. The Company shall not:
(a) Maintenance of Consolidated Net Worth of the Company. Permit the
Consolidated Net Worth of the Company (i) on March 31, 1995, to be less
than $287,000,000 or (ii) on the last day of any fiscal quarter ending
after March 31, 1995, to be less than $287,000,000 plus the sum of (A)
50% of Consolidated Net Income of the Company for each fiscal quarter
for which such Consolidated Net Income is positive during the period
from April 1, 1995 through such date plus (B) the aggregate amount of
net proceeds received by the Company from all registered public
offerings of securities of the Company characterized as capital stock in
accordance with GAAP after April 1, 1995 through such date.
(b) Maintenance of Total Liabilities in Relation to Adjusted
Consolidated Tangible Net Worth. Permit Combined Total Liabilities of
the Homebuilding Segment on the last day of any fiscal quarter of the
Company to be greater than the sum of (i) 2.75 multiplied by that
portion of Adjusted Consolidated Tangible Net Worth on such day which is
less than or equal to $218,000,000 plus (ii) 2.0 multiplied by that
portion of Adjusted Consolidated Tangible Net Worth on such day which is
greater than $218,000,000; provided, that in the event that Fixed Charge
Coverage is less than 1.75 for any two consecutive fiscal quarters of
the Company, the multipliers specified in clauses (i) and (ii) of this
subsection (i.e. 2.75 and 2.0) shall each be reduced by 0.25, effective
as of the last day of the fiscal quarter immediately following the
second of such two consecutive fiscal quarters of the Company, and such
multipliers shall be further reduced by 0.1 on and as of the last day of
each subsequent fiscal quarter of the Company unless Fixed Charge
Coverage for such subsequent fiscal quarter is equal to or greater than
1.75, in which case such multipliers shall be as set forth in clauses
(i) and (ii) of this subsection effective as of such day. For purposes
of this subsection 7.1(b), Combined Total Liabilities of the
Homebuilding Segment shall exclude accounts payable and accrued
expenses.
(c) Maintenance of Fixed Charge Coverage. Permit Fixed Charge Coverage
to be less than 1.50 for any three consecutive fiscal quarters of the
Company.
(d) Maintenance of Net Worth Ratio of the Financial Services Segment.
Permit the ratio of Financial Services Segment Combined Total
Liabilities to the Consolidated Adjusted Net Worth of the Financial
Services Segment to be greater than 8.0 to 1.0 as of the end of any
quarter in Ryland Mortgage Company's fiscal year.
<PAGE>
7.2 Limitation on Indebtedness. Neither the Company nor any Restricted
Subsidiary will create, incur, assume or suffer to exist any Indebtedness,
except:
(a) Indebtedness in respect of the Loans, the Notes, and the other
obligations of the Company under this Agreement;
(b) Indebtedness of the Company to any Subsidiary and of any Subsidiary
to the Company or any other Subsidiary; provided, in each case, that
such Indebtedness be permitted as an Investment pursuant to subsection
7.8;
(c) Indebtedness of the Company or any of its Subsidiaries in respect
of purchase money mortgage financing for real estate inventory,
provided, that the holder of such Indebtedness shall have no recourse
against the Company or any Subsidiary in respect of such Indebtedness,
such recourse being limited solely to the assets financed with the
proceeds of such Indebtedness, and provided, further, that (i) at least
50% of the aggregate capitalized cost of the assets so acquired with
such purchase money mortgage financing by the Company, its Subsidiaries
and the Company's consolidated joint ventures shall have been financed
with such purchase money mortgage financing and (ii) the aggregate
capitalized cost of all assets pledged in respect of or otherwise
securing all such non-recourse purchase money mortgage financing of the
Company, its Subsidiaries and its consolidated and unconsolidated joint
ventures shall not at any time exceed $100,000,000;
(d) Subordinated Debt;
(e) Specified Debt;
(f) Indebtedness in respect of industrial revenue bonds outstanding on
the Closing Date and listed on Schedule 7.2(f) hereto;
(g) Indebtedness constituting, or constituting the primary obligations
guaranteed by, the Guarantee Obligations permitted pursuant to
subsection 7.4(a), (b) or (c);
(h) Indebtedness of the Company or any other entity in the Homebuilding
Segment in the form of reimbursement obligations in respect of letters
of credit issued for the account of the Company or such other entity
other than Letters of Credit issued hereunder and other than Permitted
IRB Letters of Credit, provided, that such Indebtedness shall not
include any letters of credit supporting obligations under any
Indebtedness having a final maturity of more than one year from the date
of incurrence of such Indebtedness;
<PAGE>
(i) Indebtedness of a corporation which becomes a Subsidiary or which
is merged into the Company or any Subsidiary after the date hereof,
provided that (i) such Indebtedness existed at the time such corporation
became a Subsidiary or was so merged and was not created in anticipation
thereof and (ii) immediately after giving effect to the acquisition of
such corporation by the Company no Default or Event of Default shall
have occurred and be continuing;
(j) refinancing of existing Indebtedness of the Company or any
Restricted Subsidiary or other Indebtedness permitted under this
subsection 7.2 (a), (b), (c), (d), (e), (f), (g), (h), (i), (k), (l),
(m), (n), (o) and (p) on terms no less favorable to the Company and not
resulting in an Event of Default or Default hereunder, provided, that
the provisions of the applicable clause (other than this clause (j)) of
this subsection 7.2 under which such Indebtedness is permitted are
satisfied after giving effect thereto;
(k) subject to subsection 7.15 hereof, additional Indebtedness of the
Company or any of its Subsidiaries in the Homebuilding Segment (other
than the Indebtedness described in the paragraphs of this subsection 7.2
other than this paragraph) (i) having restrictive covenants no more
restrictive or less favorable to the Company than the terms and
provisions hereof, (ii) having a final maturity of greater than one year
from the date of incurrence of such Indebtedness and (iii) having no
revolving credit or other provisions for short-term repayment and
reborrowing, provided, that no more than an aggregate of $20,000,000 in
principal of such Indebtedness matures prior to the Termination Date;
(l) Indebtedness of any entity within the Ryland Financial Division so
long as there is no recourse in respect thereof to the Company or any
entity in the Homebuilding Segment or so long as any such recourse to
the Company or any entity within the Homebuilding Segment is permitted
pursuant to subsection 7.4;
(m) Indebtedness of the Company and any of its Subsidiaries incurred to
finance the acquisition of fixed or capital assets (whether pursuant to
a loan, a Financing Lease or otherwise) in an aggregate amount at any
time outstanding not to exceed $15,000,000; provided, that such
Indebtedness shall be secured solely by the assets financed with the
proceeds of such Indebtedness;
(n) Indebtedness of the Company or any other entity in the Homebuilding
Segment in the form of reimbursement obligations in respect of
completion bonds issued for the account of the Company or such other
entity in the ordinary course of business of the Homebuilding Segment in
respect of construction projects undertaken by it;
(o) Indebtedness of the Company or any other entity in the Homebuilding
Segment in the form of reimbursement obligations in respect of letters
of credit issued for the account of the Company or such other entity for
the benefit of employee benefit or employee insurance programs of the
Company or any of its Subsidiaries; and
<PAGE>
(p) Indebtedness of the Company or any of its Subsidiaries in the
Homebuilding Segment to any Lender, the proceeds of which are used to
finance acquisition, development or construction projects, the financing
of which projects by such Lender pursuant to this clause (p), in the
determination of such Lender, furthers the purposes applicable to it
under the Community Reinvestment Act of 1977, as amended, and the
regulations issued thereunder, provided that (i) the aggregate principal
amount of all such Indebtedness shall not exceed $15,000,000 at any time
outstanding and (ii) such Indebtedness, if secured by assets of the
Company or any Subsidiary, shall be secured solely by such assets
financed with the proceeds of such Indebtedness.
7.3 Limitation on Liens. Neither the Company nor any Restricted
Subsidiary will create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired,
except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Company or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Company or such Subsidiary;
(f) Liens in existence on the Closing Date securing Indebtedness
permitted by subsection 7.2(f), a refinancing thereof pursuant to
subsection 7.2(j) or any extensions, renewals or replacements thereof,
provided that no such Lien is spread to cover any additional property
after the Closing Date and that the amount of Indebtedness secured
thereby is not increased;
<PAGE>
(g) Liens securing Indebtedness of the Company and its Subsidiaries
permitted by subsection 7.2(c) or 7.2(m) incurred to finance the
acquisition of real estate inventory or fixed or capital assets or a
refinancing thereof pursuant to subsection 7.2(j), provided that (i)
such Liens shall be created substantially simultaneously with the
acquisition of such real estate inventory or fixed or capital assets
(or, in the case of a refinancing pursuant to subsection 7.2(j), such
Liens shall be renewals or replacements of Liens created substantially
simultaneously with the acquisition of such real estate inventory or
fixed or capital assets), (ii) such Liens do not at any time encumber
any property other than the property financed by such Indebtedness and
(iii) if applicable, the percentage of such acquisition financed with
proceeds of Indebtedness shall satisfy the requirements set forth in
clause (ii) to the last proviso to subsection 7.2(c);
(h) Liens on the property or assets of a corporation which becomes a
Subsidiary or which is merged into the Company or a Subsidiary after the
date hereof securing Indebtedness permitted by subsection 7.2(i) (or
subsection 7.2(j) in respect of such Indebtedness), provided that (i)
such Liens existed at the time such corporation became a Subsidiary or
was so merged and were not created in anticipation thereof, (ii) any
such Lien is not spread to cover any additional property or assets of
such corporation after the time such corporation becomes a Subsidiary or
is so merged, and (iii) the amount of Indebtedness secured thereby is
not increased;
(i) Liens on assets of the Financial Services Segment securing
Indebtedness of the Financial Services Segment permitted by subsection
7.2(g) or 7.2(l);
(j) judgment and other similar Liens arising in connection with court
proceedings; provided (i) the execution or other enforcement thereof is
effectively stayed and the claims secured thereby are being actively
contested in good faith by appropriate proceedings and (ii) no Default
or Event of Default shall have occurred and be continuing and
(k) Liens securing Indebtedness permitted under subsection 7.2(p),
provided that such Liens cover only such assets financed with the
proceeds of such Indebtedness.
7.4 Limitation on Guarantee Obligations. Neither the Company nor any
Restricted Subsidiary will create, incur, assume or suffer to exist any
Guarantee Obligation except:
(a) the Company and other entities within the Homebuilding Segment may
incur Guarantee Obligations for the benefit of the Ryland Financial Division
if the aggregate amount of such Guarantee Obligations, plus the net amount of
Investments by the Homebuilding Segment in the Financial
<PAGE>
Services Segment, does not exceed the sum of (i) $50,000,000, and (ii)
an amount, if a positive number, equal to (A) the aggregate value of all
cash dividends received by the Company from the Financial Services
Segment, determined in accordance with GAAP, during the period from
April 1, 1995 to and including such date less (B) an amount equal to the
excess of (1) the aggregate amount of cash dividends paid by the Company
on its common stock during such period over (2) 50% of the Consolidated
Net Income of the Homebuilding Segment for such period;
(b) subject to subsection 7.15 hereof, the Company may incur Guarantee
Obligations other than those described in paragraphs (a) and (e) of this
subsection 7.4 in an aggregate amount at any time outstanding not
exceeding 25% of Adjusted Consolidated Tangible Net Worth at such time,
provided, that Guarantee Obligations of the Company for the benefit of
unconsolidated joint ventures permitted under subsection 7.8(e) hereof
shall not at any time exceed an aggregate amount equal to 15% of
Adjusted Consolidated Tangible Net Worth at such time;
(c) the Company and its Restricted Subsidiaries may incur Guarantee
Obligations in respect of Permitted IRB Letters of Credit;
(d) the entities within the Financial Services Segment may incur other
Guarantee Obligations;
(e) the Company and other entities within the Homebuilding Segment may
incur Guarantee Obligations in respect of letters of credit and
completion bonds permitted pursuant to subsection 7.2(h), (n) or (o);
and
(f) Subsidiaries of the Company may incur Guarantee Obligations in
respect of the Specified Debt, provided that simultaneously with the
execution and delivery of any guaranty in respect thereof by any
Subsidiary, such Subsidiary shall execute and deliver a substantially
identical guaranty in respect of all obligations of the Company under
this Agreement and the other Loan Documents.
7.5 Limitations of Fundamental Changes. Neither the Company nor any
Restricted Subsidiary will enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets except:
(a) any Restricted Subsidiary of the Company may be merged or
consolidated with or into the Company provided that the Company shall be
the continuing or surviving corporation, or with or into any one or more
wholly owned Restricted Subsidiaries of the Company provided that the
wholly owned Restricted Subsidiary or Subsidiaries shall be the
continuing or surviving corporation;
<PAGE>
(b) any wholly owned Restricted Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or any other wholly owned
Restricted Subsidiary of the Company;
(c) the Company or any Restricted Subsidiary may sell, lease, transfer
or otherwise dispose of any or all of its assets to the Company or any
Restricted Subsidiary of the Company, whether existing on or created
after the date of this Agreement; provided, that if the transferor is
the Company or a Guarantor, the transferee shall be the Company or a
Guarantor; and
(d) sales, conveyances, leases, assignments, transfers or other
dispositions of property, business or assets permitted under subsection
7.6.
7.6 Limitation on Sale of Assets. Neither the Company nor any
Restricted Subsidiary will convey, sell, lease, assign, transfer or otherwise
dispose of any of its property, business or assets (including, without
limitation, stock of Subsidiaries, receivables and leasehold interests and,
with respect to the Financial Services Segment, its loan servicing
portfolios), whether now owned or hereafter acquired, except:
(a) obsolete or worn out property disposed of in the ordinary course of
business;
(b) the sale of inventory in the ordinary course of business;
(c) the sale or discount of accounts receivable arising in the ordinary
course of business in connection with the compromise or collection
thereof;
(d) the sale or discount without recourse of mortgage loan receivables;
(e) the sale by the Financial Services Segment in the ordinary course
of its business of its rights under loan servicing portfolios owned on
the Closing Date;
(f) as permitted by subsection 7.5 (other than pursuant to subsection
7.5(d));
(g) the sale of mortgages and mortgage-backed or other securities by
the Financial Services Segment in the ordinary course of business;
(h) the sale, transfer or other disposition of any stock, property or
assets of the Limited-Purpose Subsidiaries;
(i) the sale, transfer or other disposition of Cash Equivalents; and
<PAGE>
(j) any other sale or disposition of property or assets (including
stock or assets of Subsidiaries), provided that the aggregate book value
of all assets so sold or disposed of in any period of twelve consecutive
months shall not exceed 10% of the book value of the consolidated total
assets of the Company (excluding the assets of the Limited Purpose
Subsidiaries) as at the beginning of such twelve-month period.
7.7 Limitation on Dividends. The Company will not declare or pay any
dividend (other than dividends payable solely in common stock of the Company)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of stock of the Company or any
warrants or options to purchase any such stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of the
Company or any Subsidiary (such declarations, payments, setting apart,
purchases, redemptions, defeasances, retirements, acquisitions and
distributions being herein called "Restricted Payments"), except that (i) the
Company may make any Restricted Payment so long as, after giving effect
thereto, no Default or Event of Default will be in existence and (ii) the
Company may in any event pay dividends in respect of the Company's Series A
ESOP Convertible Preferred Stock for any period in any amount not exceeding
the amount of principal and interest payable to the Company for such period by
the recipient of such dividends.
7.8 Limitation on Investments. Neither the Company nor any Restricted
Subsidiary will make any Investments, except:
(a) extensions of trade credit and other payables in the ordinary
course of business;
(b) Investments in Cash Equivalents;
(c) acquisitions by the Company or any of its Restricted Subsidiaries
within the Homebuilding Segment of assets constituting a business unit
or the capital stock of any Person; provided, that such business unit or
Person is engaged in the same general type of business as conducted by
the Company or one of its Restricted Subsidiaries; provided, further,
that the aggregate amount of consideration paid by the Company and its
Restricted Subsidiaries for all such acquisitions of assets or capital
stock (including as a part of such consideration any Indebtedness
assumed as a part thereof) does not exceed (i) in any fiscal year, an
amount equal to 25% of Adjusted Consolidated Tangible Net Worth as at
the end of the immediately prior fiscal year of the Company or (ii)
since the Closing Date, an aggregate amount equal to $100,000,000; and
provided, finally, that after giving effect thereto, no Default or Event
of Default shall be in existence;
<PAGE>
(d) acquisitions by the Company or any of its Restricted Subsidiaries
other than acquisitions permitted under subsection 7.8(c) or (h) of, or
investments in, assets constituting a business unit or the capital stock
of any Person; provided, that the aggregate amount of consideration paid
by the Company and its Restricted Subsidiaries for all such acquisitions
of assets or capital stock (including as a part of such consideration
any Indebtedness assumed as a part thereof) does not exceed an aggregate
amount equal to $25,000,000; and provided, further, that after giving
effect thereto, no Default or Event of Default shall be in existence;
(e) (i) Investments by the Company or any of its Subsidiaries within
the Homebuilding Segment in joint ventures, other than Consolidated
Joint Ventures, in an aggregate amount for all such Investments not
exceeding at any date the sum of (A) $41,500,000, (B) an amount equal to
the aggregate value of all cash distributions attributable to such
Investments received by the Company from all joint ventures in which the
Company or any of its Subsidiaries within the Homebuilding Segment is a
participant, determined in accordance with GAAP, during the period from
April 1, 1995 to and including such date and (C) 15% of cumulative
Adjusted Consolidated Net Income of the Company for the period from and
including April 1, 1995 to and including the last day of the fiscal
quarter of the Company ending immediately prior to such date;
(f) Investments by the Company in any Subsidiary within the
Homebuilding Segment or in any Consolidated Joint Venture or by any
Subsidiary within the Homebuilding Segment in the Company, in any other
Subsidiary within the Homebuilding Segment or in any Consolidated Joint
Venture;
(g) Investments by the Company or any other entity within the
Homebuilding Segment in the Financial Services Segment if the aggregate
amount of such Investments outstanding on any date, plus the aggregate
amount of all Guarantee Obligations incurred by the Homebuilding Segment
for the benefit of the Ryland Financial Division outstanding on such
date, does not at any time exceed the sum of (i) $50,000,000 and (ii) an
amount, if a positive number, equal to (A) the aggregate value of all
cash dividends received by the Company from the Financial Services
Segment, determined in accordance with GAAP, during the period from
April 1, 1995 to and including such date less (B) an amount equal to the
excess of (1) the aggregate amount of cash dividends paid by the Company
on its common stock during such period over (2) 50% of the Consolidated
Net Income of the Homebuilding Segment for such period;
(h) Investments by entities within the Financial Services Segment in
any Person and acquisitions of assets constituting a business unit or
the capital stock of any Person by entities within the Financial
Services Segment;
<PAGE>
(i) loans and advances to employees of the Company or its Subsidiaries
for travel, entertainment and relocation expenses in the ordinary course
of business; and
(j) other loans and advances to employees of the Company in connection
with incentive or stock purchase plans or arrangements in an aggregate
amount not to exceed $3,000,000 at any time outstanding.
7.9 Limitation on Optional Payments and Modification of Debt
Instruments. (a) Neither the Company nor any Restricted Subsidiary will (i)
make any optional payment or prepayment on or redemption of any Subordinated
Debt or (ii) amend, modify or change, or consent or agree to any amendment,
modification or change to any of the terms (including, without limitation, the
subordination terms) of any Subordinated Debt (other than any such amendment,
modification or change which would extend the maturity or reduce the amount of
any payment of principal thereof or which would reduce the rate or extend the
date for payment of interest thereon or would otherwise make the terms of the
Subordinated Debt more favorable to the Company and no less favorable to the
holders of the senior debt to which such Subordinated Debt is subordinated);
provided that so long as no Default is in existence or would result therefrom,
the Company may prepay Subordinated Debt to the extent that the aggregate face
amount of the Subordinated Debt so prepayed after the Closing Date does not
exceed $25,000,000.
(b) No Restricted Subsidiary within the Financial Services Segment will
amend, modify or change, or consent or agree to any amendment, modification or
change to any of the terms of any debt instrument to which it is a party the
effect of which would be to (i) impose restrictions on the payment of
dividends, directly or indirectly, to or for the benefit of the Company which
would limit such dividends to an aggregate amount for all Restricted
Subsidiaries in the Financial Services Segment in any fiscal year which is
less than the Combined Net Income of the Financial Services Segment for the
current fiscal year or (ii) impose restrictions on the making by such
Restricted Subsidiaries of Advances, directly or indirectly, to or for the
benefit of the Company which would limit such Advances to an aggregate amount
for all Restricted Subsidiaries in the Financial Services Segment which is
less than $25,000,000 at any time outstanding, provided, that provisions which
by their terms would impose such restrictions only in the event of a default
under such debt instrument and solely as a result of such default shall not be
deemed to be included in the restrictions described in the foregoing clauses
(i) or (ii).
7.10 Transactions with Affiliates. Neither the Company nor any
Restricted Subsidiary will enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Affiliate unless such transaction is otherwise
permitted under this Agreement, or is upon fair and reasonable terms no less
favorable to the Company or such Subsidiary, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person not an
Affiliate.
<PAGE>
7.11 Limitation on Inventory. The Company will not permit (a) Unsold
Land Held at the end of any month to exceed 20% of Adjusted Consolidated
Tangible Net Worth of the Company at such date, or (b) Unsold Land Under
Development to exceed an amount equal to 150% of Adjusted Consolidated
Tangible Net Worth or (c) the ratio of (i) the sum of (A) the average Unsold
Land Held on the last day of each month during the six-month period ending on
such date plus (B) the average Unsold Land Under Development on the last day
of each month during the six-month period ending on such date plus (C) the
average Unsold Housing Inventory on the last day of each month during the six-
month period ending on such date to (ii) the average Total Housing Inventory
on the last day of each month during the six-month period ending on such date
to exceed .75 to 1. Notwithstanding any of the foregoing to the contrary, in
the event that Fixed Charge Coverage is less than 1.20 for any two consecutive
fiscal quarters of the Company, then for each fiscal quarter of the Company
subsequent to the second such consecutive fiscal quarter, the aggregate amount
of purchases of land which, immediately after such purchase, would be included
under the definition herein of "Unsold Land Held" during such subsequent
quarter shall be limited to an amount equal to 50% of the average quarterly
amount attributable to the purchase cost of land which would be included in
"Cost of Goods Sold" on a combined balance sheet of the Homebuilding Segment
determined in accordance with GAAP for the four fiscal quarters of the Company
immediately prior to such subsequent quarter, effective until the fiscal
quarter of the Company immediately following the first subsequent fiscal
quarter of the Company for which Fixed Charge Coverage is 1.20 or greater.
7.12 Fiscal Year . The Company will not permit the fiscal year of
the Company to end on a day other than December 31.
7.13 Compliance with ERISA . Neither the Company nor any
Restricted Subsidiary will (a) terminate any Plan so as to result in any
material liability to PBGC, (b) engage in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA) involving any
Plan which would result in a material liability for an excise tax or civil
penalty in connection therewith, (c) incur or suffer to exist any material
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived, involving any Plan, or (d) allow or suffer to exist any event
or condition which presents a material risk of incurring a material liability
to PBGC by reason of termination of any such Plan.
7.14 Preferred Stock . The Company will not permit any Restricted
Subsidiary within the Homebuilding Segment to issue preferred stock to any
Person other than the Company.
7.15 Limitation on Indebtedness of New Subsidiaries.
Notwithstanding anything to the contrary in subsection 7.2 or subsection 7.4
hereof, the Company shall not permit any Subsidiary of the Company in the
Homebuilding Segment created or acquired after the Closing Date to create,
incur, assume or suffer to exist any Indebtedness which otherwise would be
permitted under subsection 7.2(k) or subsection 7.4(b) hereof.
<PAGE>
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Company shall fail to pay any principal of any Note or any
Reimbursement Obligation when due in accordance with the terms thereof
or hereof; or the Company shall fail to pay any interest on any Note, or
any other amount payable hereunder, within 2 days after any such
interest or other amount becomes due in accordance with the terms
thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Company
or any Guarantor herein or in any other Loan Document or which is
contained in any certificate or document furnished at any time under or
in connection with this Agreement shall prove to have been incorrect in
any material respect on or as of the date made or deemed made; or
(c) The Company shall default in the observance or performance of any
agreement contained in Section 7 (other than subsection 7.11); or
(d) The Company shall default in the observance or performance of any
other agreement contained in this Agreement (other than as provided in
paragraphs (a) through (c) of this Section 8), and such default shall
continue unremedied (i) for a period of 90 days, in the case of
subsection 7.11, or (ii) for a period of 30 days, in the case of any
other such provision; or
(e) The Company or any of its Restricted Subsidiaries shall (i) default
in any payment of principal of or interest on any Indebtedness having
a principal balance of $10,000,000 or more (other than the Notes) or in
the payment of any Guarantee Obligation of $10,000,000 or more, beyond
the period of grace (not to exceed 15 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or performance
of any other agreement or condition relating to any such Indebtedness or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur
or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity
or such Guarantee Obligation to become payable; provided that the
failure by Ryland Mortgage Company or any of its Subsidiaries to pay any
such Indebtedness or Guarantee Obligation in the form of reimbursement
obligations in respect of letters of credit issued for the account of
Ryland Mortgage Company or any of its Subsidiaries backing obligations
under master servicing agreements shall not constitute an Event of
Default under this paragraph (e) until the date which is 90 days after
the date on which such reimbursement obligations become due and payable;
or
<PAGE>
(f) (i) The Company or any of its Restricted Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of its
assets, or the Company or any of its Restricted Subsidiaries shall make
a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Company or any of its Restricted
Subsidiaries any case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against the Company or any of its Restricted
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against
all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) the Company or any of its Restricted Subsidiaries
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) the Company or any of its Restricted
Subsidiaries shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving
any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect
to any Plan or any Lien in favor of the PBGC or a Plan shall arise on
the assets of the Company or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed,
to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely to
result in the termination of such Plan for purposes of Title IV of
ERISA, (iv) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (v) the Company or any Commonly Controlled Entity
shall, or in the reasonable opinion of the Required Lenders is likely
to, incur any liability in connection with a withdrawal from, or the
Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other
event or condition shall occur or exist with respect to a Plan; and in
each case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect; or
<PAGE>
(h) One or more judgments or decrees shall be entered against the
Company or any of its Restricted Subsidiaries involving in the aggregate
a liability (not paid or fully covered by insurance) of $10,000,000 or
more and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the
entry thereof; or
(i) If a Designated Event shall occur;
(j) The Company shall cease to own, directly or indirectly and free and
clear of any Lien, 100% of the issued and outstanding capital stock of
M.J. Brock & Sons, Inc. and Ryland Mortgage Company; or
(k) The Guaranty shall cease, for any reason, to be in full force and
effect, or the Company or any Guarantor shall so assert in writing;
then, and in any such event, (A) if such event is an Event of Default
specified in clause (i) or (ii) of paragraph (f) above with respect to the
Company, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the Notes (including, without limitation, all amounts
of L/C Obligations, whether or not the beneficiaries of the then outstanding
Letters of Credit shall have presented the documents required thereunder)
shall immediately become due and payable, and (B) if such event is any other
Event of Default, either or both of the following actions may be taken: (i)
with the consent of the Required Lenders, the Documentation Agent may, or upon
the request of the Required Lenders, the Documentation Agent shall, by notice
to the Company declare the Commitments to be terminated forthwith, whereupon
the Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Documentation Agent may, or upon the request of the
Required Lenders, the Documentation Agent shall, by notice of default to the
Company, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries
of the then outstanding Letters of Credit shall have presented the documents
required thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment
for honor shall not have occurred at the time of an acceleration pursuant to
the preceding paragraph, the Company shall at such time deposit in a cash
collateral account opened by the Documentation Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Documentation Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Company hereunder and under the Notes. After all such
<PAGE>
Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations
of the Company hereunder and under the Notes shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Company.
Except as expressly provided above in this Section, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
SECTION 9. THE AGENTS
9.1 Appointment . (a) Each Lender hereby irrevocably designates
and appoints Chemical as the Documentation Agent of such Lender under this
Agreement and the other Loan Documents, and each Lender irrevocably authorizes
Chemical, as the Documentation Agent for such Lender, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Documentation Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Documentation Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Documentation Agent
(b) Each Lender hereby irrevocably designates and appoints NationsBank as
the Administrative Agent of such Lender under this Agreement and the other
Loan Documents, and each Lender irrevocably authorizes NationsBank, as the
Administrative Agent for such Lender, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
9.2 Delegation of Duties . Any Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it
with reasonable care.
<PAGE>
9.3 Exculpatory Provisions . Neither any Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall
be (i) liable for any action lawfully taken or omitted to be taken by it or
such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Company or any
officer thereof contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred to or provided
for in, or received by any Agent under or in connection with, this Agreement
or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the Notes or
any other Loan Document or for any failure of the Company to perform its
obligations hereunder or thereunder. No Agent shall be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance
of any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or records of the
Company.
9.4 Reliance by Agents . Any Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Company), independent accountants and other
experts selected by such Agent. Each Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with such
Agent. Any Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. Each Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the Notes and the other Loan Documents in accordance with a
request of the Required Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Notes.
9.5 Notice of Default . No Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless such Agent has received notice from a Lender or the Company
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Documentation Agent receives such a notice, the Documentation Agent shall give
notice thereof to the Lenders. The Documentation Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders; provided that unless and until the
Documentation Agent shall have received such directions, the Documentation
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders.
<PAGE>
9.6 Non-Reliance on Agents and Other Lenders . Each Lender
expressly acknowledges that neither any Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by any Agent hereafter
taken, including any review of the affairs of the Company, shall be deemed to
constitute any representation or warranty by such Agent to any Lender. Each
Lender represents to the Agents that it has, independently and without
reliance upon any Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Company and made its own decision to
make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon any Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the
other Loan Documents, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports
and other documents expressly required to be furnished to the Lenders by the
Agents hereunder, no Agent shall have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Company which may come into the possession of such
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
9.7 Indemnification . The Lenders agree to indemnify each Agent
in its capacity as such (to the extent not reimbursed by the Company and
without limiting the obligation of the Company to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought under this subsection (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with their
Commitment Percentages immediately prior to such date), from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever
which may at any time (including, without limitation, at any time following
the payment of the Notes) be imposed on, incurred by or asserted against any
Agent in any way relating to or arising out of this Agreement, any of the
other Loan Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by such Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable to any Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from such
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts
payable hereunder.
<PAGE>
9.8 Agents in Individual Capacity . Any Agent and its Affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Company as though such Agent were not an Agent hereunder and
under the other Loan Documents. With respect to its Loans made or renewed by
it and any Note issued to it, each Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 Successor Administrative Agent . The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders, which successor agent
shall be approved by the Company, whereupon such successor agent shall succeed
to the rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Notes. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this subsection shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Administrative Agent under this Agreement and
the other Loan Documents.
9.10 Successor Documentation Agent . The Documentation Agent may
resign as Documentation Agent upon 30 days' notice to the Lenders. If the
Documentation Agent shall resign as Documentation Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders, which successor agent
shall be approved by the Company, whereupon such successor agent shall succeed
to the rights, powers and duties of the Documentation Agent, and the term
"Documentation Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Documentation Agent's rights, powers
and duties as Documentation Agent shall be terminated, without any other or
further act or deed on the part of such former Documentation Agent or any of
the parties to this Agreement or any holders of the Notes. After any retiring
Documentation Agent's resignation as Documentation Agent, the provisions of
this subsection shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Documentation Agent under this Agreement and
the other Loan Documents.
<PAGE>
9.11 The Co-Agents and the Syndication Agent. Neither the Co-
Agents nor the Syndication Agent, in such capacities, shall have any duties,
responsibilities, obligations, liabilities or functions under this Agreement
or the other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers . Neither this Agreement, any Note,
any other Loan Document, nor any terms hereof of thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. With the written consent of the Required Lenders, the
Documentation Agent and the Company may, from time to time, enter into written
amendments, supplements or modifications hereto and to the Notes and the other
Loan Documents for the purpose of adding any provisions to this Agreement or
the Notes or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Company hereunder or thereunder or waiving, on such
terms and conditions as the Documentation Agent may specify in such
instrument, any of the requirements of this Agreement or the Notes or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (a) reduce the amount or extend the maturity of any Note or
any installment thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any fee payable to any Lender hereunder, in each
case without the consent of the Lender affected thereby, (b) change the amount
of any Lender's Revolving Credit Commitment without the consent of the Lender
affected thereby and each Issuing Bank, (c) change the amount of any Lender's
Short-Term Funding Line Commitment without the consent of the Lender affected
thereby, (d) amend, modify or waive any provision of this subsection or reduce
the percentage specified in the definition of Required Lenders, or consent to
the assignment or transfer by the Company of any of its rights and obligations
under this Agreement and the other Loan Documents, in each case without the
written consent of all the Lenders, (e) amend, modify or waive any provision
of Section 9 without the written consent of the then Administrative Agent,
Documentation Agent and Co-Agents, (f) amend, modify or waive any provision of
subsection 2.4 without the written consent of the Administrative Agent, (g)
amend, modify or waive any provision of Section 3 without the written consent
of each Issuing Bank affected thereby or (h) release the obligation of any
Guarantor under the Guaranty without the written consent of all the Lenders.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Company, the
Lenders, the Agents and all future holders of the Notes. In the case of any
waiver, the Company, the Lenders and the Agents shall be restored to their
former position and rights hereunder and under the outstanding Notes and any
other Loan Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right
consequent thereon.
10.2 Notices . All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy, telegraph or telex), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered by
<PAGE>
hand, or 5 days after being deposited in the mail, postage prepaid, or, in the
case of telecopy notice, when received, or, in the case of telegraphic notice,
when delivered to the telegraph company, or, in the case of telex notice, when
sent, answerback received, addressed as follows in the case of the Company,
the Administrative Agent and the Documentation Agent, and as set forth in
Schedule 1.1 in the case of the other parties hereto, or to such other address
as may be hereafter notified by the respective parties hereto and any future
holders of the Notes:
The Company: The Ryland Group, Inc.
11000 Broken Land Parkway
Columbia, Maryland 21044-3562
Attention: Chief Financial
Officer
Telecopy: 410-715-7909
The Documentation Agent:
Chemical Bank
270 Park Avenue
New York, New York 10017
Attention:
Telecopy:
The Administrative Agent:
NationsBank, N.A. (Carolinas)
6610 Rockledge Drive
Bethesda, MD 20817-1876
Attention: Robert Gillison
Telecopy: 301-571-0719
provided that any notice, request or demand to or upon the Administrative
Agent or the Lenders pursuant to subsection 2.3A, 2.3B, 2.4, 2.6, 2.7 or 2.8
shall not be effective until received.
10.3 No Waiver; Cumulative Remedies . No failure to exercise and
no delay in exercising, on the part of the Documentation Agent or any Lender,
any right, remedy, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties . All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement and the Notes.
<PAGE>
10.5 Payment of Expenses and Taxes . The Company agrees (a) to
pay or reimburse the Documentation Agent for all its reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation
and execution of, and any amendment, supplement or modification to, this
Agreement and the Notes and the other Loan Documents and any other documents
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation,
the reasonable fees and disbursements of counsel to the Documentation Agent,
(b) to pay or reimburse each Lender and each Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes, the other Loan Documents and any such
other documents, including, without limitation, reasonable fees and
disbursements of counsel to such Agent and to the several Lenders, and (c) to
pay, indemnify, and hold each Lender and each Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any
waiver or consent under or in respect of, this Agreement, the Notes, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and
hold each Lender and each Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the Notes, the other Loan Documents or the
use of the proceeds of the Loans (all the foregoing, collectively, the
"indemnified liabilities"), provided, that the Company shall have no
obligation hereunder to any Agent or any Lender with respect to indemnified
liabilities arising from (i) the gross negligence or willful misconduct of
such Agent or any such Lender, (ii) legal proceedings commenced against any
Agent or any such Lender by any security holder or creditor thereof arising
out of and based upon rights afforded any such security holder or creditor in
its capacity as such, or (iii) legal proceedings commenced against any Agent
or any such Lender by any other Lender or by any Transferee (as defined in
subsection 10.6). Any person which may seek indemnification under this
subsection 10.5 will promptly notify the Company of any claim, litigation,
investigation or proceeding of which it shall receive notice which may give
rise to any liability subject to indemnification under this subsection 10.5
and shall permit the Company to participate, at the Company's expense, in the
defense of such claim, litigation, investigation or proceeding unless such
person seeking indemnification shall have determined, in its sole discretion,
that such participation by the Company would be disadvantageous to such
person; provided, however, that the failure so to notify the Company will not
relieve it of its indemnification obligations under this subsection 10.5,
except to the extent of any damages directly suffered by the Company as a
result of such failure to notify. The agreements in this subsection shall
survive repayment of the Notes and all other amounts payable hereunder.
<PAGE>
10.6 Successors and Assigns; Participations and Assignments . (a)
This Agreement shall be binding upon and inure to the benefit of the Company,
the Lenders, each Agent, all future holders of the Notes and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or
more banks or other financial institutions ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such Lender, any
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents. In the event of any such sale by a Lender of
a participating interest to a Participant, such Lender's obligations under
this Agreement to the other parties to this Agreement shall remain unchanged,
such Lender shall remain solely responsible for the performance thereof, such
Lender shall remain the holder of any such Note for all purposes under this
Agreement and the other Loan Documents, such Lender shall retain the sole
right to enforce against the Company the Obligations of the Company relating
to the Loans and to approve any amendment, modification or waiver of any
provision of this Agreement (other than amendments, modifications or waivers
decreasing any fees payable hereunder or changing the amount of principal of
or the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the
Loans), and the Company and the Agents shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. The Company
agrees that if amounts outstanding under this Agreement and the Notes are due
or unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed
to have the right of set-off in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Lender
under this Agreement or any Note, provided that, in purchasing such
participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in subsection 10.7(a)
as fully as if it were a Lender hereunder. The Company also agrees that each
Participant shall be entitled to the benefits of subsections 2.16, 2.17, 2.18
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if it were a Lender; provided that, in the case of
subsection 2.18, such Participant shall have complied with the requirements of
said subsection and provided, further, that no Participant shall be entitled
to receive any greater amount pursuant to any such subsection than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any Affiliate thereof or, with the consent of the
Company, the Documentation Agent and the Administrative Agent, to an
<PAGE>
additional bank or financial institution ("an Assignee") all or any part of
its rights and obligations under this Agreement and the Notes pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit F, executed by
such Assignee, such assigning Lender (and, in the case of an Assignee that is
not then a Lender or an Affiliate thereof, by the Documentation Agent, the
Administrative Agent and the Company) and delivered to the Documentation Agent
for its acceptance and recording in the Register. Upon such execution,
delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment as set forth therein, (y) the assigning Lender
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such assigning
Lender shall cease to be a party hereto) and (z) after giving effect to each
such assignment, each of the assigning Lender (unless such assigning Lender
shall have assigned its entire Commitment pursuant to such assignment) and
each assignee shall have a Commitment in an amount not less than $5,000,000.
(d) The Documentation Agent shall maintain at its address referred to
in subsection 10.2 a copy of each Assignment and Acceptance delivered to it
and a register (the "Register") for the recordation of the names and addresses
of the Lenders and the Commitment of, and principal amount of the Loans owing
to, each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Company, the
Documentation Agent and the Lenders may treat each Person whose name is
recorded in the Register as the owner of the Loan recorded therein for all
purposes of this Agreement. The Register shall be available for inspection by
the Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Company and the Documentation
Agent) together with payment to the Documentation Agent of a registration and
processing fee of $2,500, the Documentation Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Company.
On or prior to such effective date, the Company, at its own expense, shall
execute and deliver to the Documentation Agent (in exchange for the Revolving
Credit Note of the assigning Lender, which such Note shall be returned to the
Company marked "Cancelled") a new Revolving Credit Note to the order of such
Assignee in an amount equal to the Revolving Credit Commitment assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Revolving Credit Commitment hereunder, a new Revolving Credit Note
to the order of the assigning Lender in an amount equal to the Revolving
Credit Commitment retained by it hereunder. Such new Notes shall be dated the
Closing Date and shall otherwise be in the form of the Note replaced thereby.
<PAGE>
(f) The Company authorizes each Lender to disclose to any Participant
or Assignee (each, a "Transferee") and any prospective Transferee any and all
financial information in such Lender's possession concerning the Company and
its Affiliates which has been delivered to such Lender by or on behalf of the
Company pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Company in connection with such Lender's credit
evaluation of the Company and its Affiliates prior to becoming a party to this
Agreement, provided that, prior to any such disclosure of nonpublic
information, each such assignee or participant or proposed assignee or
participant shall execute an agreement whereby such assignee or participant
shall agree to be bound by the provisions contained in Section 10.14 hereof.
(g) Nothing herein shall prohibit any Lender from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off . (a) If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of its Loans or
Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in
Section 8(f), or otherwise), other than in respect of Short-Term Funding Loans
pursuant to the provisions of this Agreement, in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans or the Reimbursements Obligations owing to it, or
interest thereon, such Benefitted Lender shall purchase for cash from the
other Lenders such portion of each such other Lender's Loan or the
Reimbursement Obligations owing to it, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such Benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the
extent of such recovery, but without interest. The Company agrees that each
Lender so purchasing a portion of another Lender's Loan may exercise all
rights of payment (including, without limitation, rights of set-off) with
respect to such portion as fully as if such Lender were the direct holder of
such portion.
(b) If an Event of Default shall occur and be continuing, in addition
to any rights and remedies of the Lenders provided by law, each Lender shall
have the right, without prior notice to the Company, any such notice being
expressly waived by the Company to the extent permitted by applicable law, to
set-off and appropriate and apply against any amount becoming due and payable
by the Company hereunder or under the Notes (whether at the stated maturity,
by acceleration or otherwise)any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender to or for the credit or the account of the Company. Each
Lender agrees promptly to notify the Company and the Documentation Agent after
any such set-off and application made by such Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application.
<PAGE>
10.8 Counterparts . This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Company and the Documentation Agent.
10.9 Severability . Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
10.10 Integration . This Agreement represents the agreement of
the Company, the Agents and the Lenders with respect to the subject matter
hereof, and there are no promises or representations by any Agent or any
Lender relative to subject matter hereof not reflected herein.
10.12 Submission To Jurisdiction The Company hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgement
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from
any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
<PAGE>
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Company at its address set forth in subsection 9.2 or at such other
address of which the Documentation Agent shall have been notified
pursuant thereto; and
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction.
10.14 Confidentiality Each Lender agrees to take normal and
reasonable precautions to maintain the confidentiality of non-public
information provided to it by the Company or any Subsidiary in connection with
this Agreement or any other Loan Document; provided, however, that any Lender
may disclose such information (a) at the request of any regulatory authority
or in connection with an examination of such Lender by any such authority, (b)
pursuant to subpoena or other court process, (c) when required to do so in
accordance with the provisions of any applicable law, (d) at the direction of
any other Governmental Authority, (e) to such Lender's independent auditors
and other professional advisors, (f) to any Transferee or potential Transferee
or (g) to the extent such information is public when received by such Lender
or becomes public thereafter due to the act or omission of any person other
than such Lender or its advisors, agents, employees or representatives;
provided that such Transferee agrees to comply with the provisions of this
subsection 10.14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
THE RYLAND GROUP, INC.
By:/s/ Michael D. Mangan
--------------------------
Title: Executive Vice President and
Chief Financial Officer
(..continued)
<PAGE>
EXHIBIT 10.5
CONFORMED
RESTATED LOAN AND SECURITY AGREEMENT
between
ASSOCIATES MORTGAGE FUNDING CORPORATION,
as a borrower
RYLAND MORTGAGE COMPANY,
as a borrower and a guarantor
BANK ONE, TEXAS, N.A.,
as Agent,
and
CERTAIN LENDERS,
as Lenders
Initially $365,000,000
June 16, 1995
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS AND REFERENCES 2
1.1 Definitions 2
1.2 Time References 18
1.3 Other References 18
1.4 Accounting Principles 18
SECTION 2. BORROWINGS AND LCS 18
2.1 Commitments and Borrowing Base 18
2.2 Borrowing Procedures Generally 19
2.3 Wet-Borrowing Procedures 21
2.4 LC Procedures 21
2.5 Increases and Terminations 23
SECTION 3. PAYMENT TERMS 24
3.1 Notes 24
3.2 Payment Procedures 24
3.3 Scheduled Principal and Interest 25
3.4 Prepayments 25
3.5 Order of Application 26
3.6 Sharing 28
3.7 Interest Rates 28
3.8 Interest Calculations 29
3.9 Maximum Rate 29
3.10 Interest Periods 29
3.11 Conversions 30
3.12 Booking Borrowings 30
3.13 Basis Unavailable or Inadequate for LIBOR Rate 30
3.14 Additional Costs 30
3.15 Change in Laws 31
3.16 Funding Loss 31
3.17 Foreign Lenders, Participants, and Purchasers 31
3.18 Fees 32
SECTION 4. SECURITY 33
4.1 Guaranty 33
4.2 Collateral 35
4.3 Collateral Procedures 37
4.4 Borrowing-Base Reports 38
4.5 Borrowing Base 38
4.6 Agent for Appraisals 38
4.7 Power of Attorney 38
4.8 Redemption of Mortgage Collateral 39
4.9 Correction of Notes 40
4.10 Release of Servicing Rights 40
SECTION 5. CONDITIONS PRECEDENT 41
5.1 Initial Borrowing or LC 41
5.2 Each Borrowing or LC 41
5.3 General 41
SECTION 6. REPRESENTATIONS AND WARRANTIES 41
6.1 Purpose of Credit 41
6.2 Corporate Existence, Good Standing,
Authority and Compliance 41
6.3 Subsidiaries 42
6.4 Authorization and Contravention 42
6.5 Binding Effect 42
6.6 Fiscal Year and Financial Information 42
6.7 Litigation 42
6.8 Taxes 42
6.9 Environmental Matters 42
<PAGE>
6.10 Employee Plans 43
6.11 Government Regulations 43
6.12 Transactions with Affiliates 43
6.13 Debt 43
6.14 No Liens 43
6.15 Perfection and Priority of Lender Liens 43
6.16 Principal Office, Etc 43
6.17 Trade Names 43
6.18 Government Approvals 43
6.19 Appraisals 44
6.20 Solvency 44
6.21 Full Disclosure 44
SECTION 7. AFFIRMATIVE COVENANTS 44
7.1 Reporting Requirements 44
7.2 Use of Proceeds 45
7.3 Books and Records 45
7.4 Inspections 45
7.5 Taxes 45
7.6 Expenses 46
7.7 Maintenance of Existence, Assets, and Business 46
7.8 Insurance 46
7.9 Further Assurances 46
7.10 Take-Out Commitments and Servicing Contracts 47
7.11 Compliance with Material Agreements 47
7.12 Appraisals 47
7.13 INDEMNIFICATION 47
SECTION 8. NEGATIVE COVENANTS 47
8.1 Debt 47
8.2 Liens 48
8.3 Loans, Advances, and Investments 48
8.4 Distributions 48
8.5 Merger or Consolidation 48
8.6 Liquidations and Dispositions of Assets 48
8.7 Use of Proceeds 48
8.8 Collateral Matters 48
8.9 Transactions with Affiliates. 49
8.10 Employee Plans 49
8.11 Compliance with Laws and Documents 49
8.12 Government Regulations 49
8.13 Fiscal Year Accounting 49
8.14 New Businesses 49
8.15 Assignment 49
SECTION 9. FINANCIAL COVENANTS 49
9.1 Net Worth Covenants 49
9.2 Leverage Ratio 50
9.3 Net Income 50
9.4 Cash Flow 50
9.5 Servicing Portfolio 50
SECTION 10. DEFAULTS AND REMEDIES 50
10.1 Default 50
10.2 Remedies 52
10.3 Right of Offset 53
10.4 Private Sales 53
10.5 Waivers 54
10.6 Performance by Agent 54
10.7 No Responsibility 54
10.8 No Waiver 54
10.9 Cumulative Rights 54
10.10 Proceeds 55
<PAGE>
10.11 Rights of Individual Lenders 55
10.12 Notice to Agent 55
10.13 Costs 55
SECTION 11. AGENT 55
11.1 Authorization and Action 55
11.2 Agent's Reliance, Etc 56
11.3 Agent and Affiliates 56
11.4 Lender Credit Decision 57
11.5 Indemnification 57
11.6 Successor Agent 57
11.7 Agent as Custodian 58
SECTION 12. MISCELLANEOUS 58
12.1 Nonbusiness Days 58
12.2 Communications 58
12.3 Form and Number of Documents 59
12.4 Exceptions to Covenants 59
12.5 Survival 59
12.6 Governing Law 59
12.7 Invalid Provisions 59
12.8 Conflicts Between Loan Papers 59
12.9 Venue and Service of Process 59
12.10 Discharge and Certain Reinstatement 60
12.11 Amendments, Consents, Conflicts, and Waivers 60
12.12 Multiple Counterparts 61
12.13 Parties 61
12.14 Participations 62
12.15 Transfers 62
12.16 Existing-Loan Agreement and Entireties 63
SCHEDULES AND EXHIBITS
Schedule 1.1(a) - Lenders and Commitments
Schedule 1.1(b) - Wiring Instructions
Schedule 1.1(c) - Conditions for Eligibility
Schedule 1.1(d) - Borrowing-Base Calculations
Schedule 4.3 - Collateral Procedures
Schedule 5.1 - Closing Conditions
Schedule 6.3 - Ryland's Subsidiaries
Schedule 8.1 - Permitted Debt
Schedule 8.2 - Permitted Liens
Schedule 8.3 - Permitted Loans/Investments
Exhibit A-1 - Associates Note
Exhibit A-2 - Interim Note
Exhibit A-3 - Ryland Note
Exhibit A-4 - Intercompany Note
Exhibit B-1 - Credit Request for Warehouse Borrowing
Exhibit B-2 - Credit Request for Receivables Borrowing
Exhibit B-3 - Credit Request for Working-Capital Credit
Exhibit B-4 - Conversion Request
Exhibit B-5 - Payment Direction
Exhibit C-1 - Collateral-Delivery Notice
Exhibit C-2 - Collateral-Conversion Notice
Exhibit C-3 - Borrowing-Base Report for Mortgage Collateral
Exhibit C-4 - Borrowing-Base Report for Receivables
Exhibit C-5 - Borrowing-Base Report for Working Capital
Exhibit C-6 - Compliance Certificate
Exhibit D-1 - Bailee Letter for Investors
Exhibit D-2 - Bailee Letter for Pool Custodians
<PAGE>
Exhibit D-3 - Trust Receipt and Agreement
Exhibit D-4 - Request for Release
Exhibit E - Opinion of General Counsel
Exhibit F-1 - Amendment
Exhibit F-2 - Assignment
<PAGE>
RESTATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT is entered into as of June 16, 1995, between ASSOCIATES
MORTGAGE FUNDING CORPORATION, a Delaware corporation as a borrower
("Associates"), RYLAND MORTGAGE COMPANY, an Ohio corporation as a borrower and
a guarantor ("Ryland"), the Lenders described below, and BANK ONE, TEXAS,
N.A., as agent for itself and the other Lenders ("Agent"). Associates and
Ryland have requested Lenders and Agent to -- and, upon the terms below, they
have agreed to -- enter into this agreement to extend, renew and entirely
amend and restate the Existing-Loan Agreement.
(See Section 1.1 for defined terms.)
A. Ryland originates, acquires, markets, sells, and services
Mortgage Loans for one- to four-family owner-occupied dwellings.
B. Associates is Ryland's direct-wholly-owned Subsidiary and has
borrowed certain amounts under the Existing-Loan Agreement and advanced those
amounts to Ryland under the Intercompany Note for financing Ryland's
originating and acquiring Mortgage Loans until sold in the secondary market.
(1) Associates has requested from Lenders Warehouse Borrowings
under this agreement on a revolving basis, initially in an amount
necessary to renew the outstanding borrowings for those purposes under the
Existing-Loan Agreement and additionally in amounts to be advanced by
Associates to Ryland under the Intercompany Note for Ryland's originating
and acquiring additional Mortgage Loans until sold in the secondary
market.
(2) Under the Existing-Loan Agreement, among other things,
Associates granted a Lien on the Intercompany Note to secure -- and Ryland
unconditionally guaranteed -- the Existing Obligation related to those
borrowings. Under Section 4 of this agreement, among other things,
Associates and Ryland (the "Companies") renew, extend, and ratify that
Lien as a Lender Lien under this agreement and guaranty in respect of the
Obligation in respect of Warehouse Borrowings under this agreement.
(3) Each Company will derive substantial direct and indirect
benefits from Warehouse Borrowings under this agreement.
C. Under the Existing-Loan Agreement, Ryland also borrowed certain
amounts for purposes similar to those described below in this recital. Ryland
has requested from Lenders revolving extensions of credit -- which may be
through a combination of Borrowings and LCs -- under this agreement, initially
in an amount necessary to renew those extensions of credit under the Existing-
Loan Agreement and additionally for the following purposes:
(1) Financing -- through Receivables Borrowings -- of certain of
Ryland's Foreclosure Payments, P&I Payments, and T&I Payments.
(2) LCs -- as Working-Capital Credits -- to support Ryland's sales
of Servicing Rights if permitted under this agreement and other purposes
approved by Agent.
(3) Operating capital -- through Working-Capital Borrowings -- in
Ryland's ordinary course of business.
<PAGE>
D. Under the Existing-Loan Agreement, among other things, Ryland
granted Liens, securing the Existing Obligation, in all of the Mortgage Loans
and Mortgage Securities identified under the Existing-Loan Agreement as
Collateral and all of its present and future Servicing Receivables and other
Servicing Rights arising under the Guides. Under Section 4 of this agreement,
among other things, Ryland renews and extends those Liens as Lender Liens
under this agreement in respect of the Obligation under this agreement.
E. The Companies hereby fully terminate the commitment of all
Terminated Lenders under the Existing-Loan Agreement, as of the date of this
agreement, and hereby invite and accept other lenders to become Lenders under
this agreement.
F. Each Lender has severally agreed upon the terms of this agreement to
extend Warehouse Borrowings on a non-ratable basis, and all other Borrowings
on a ratable basis up to the total of its commitments in this agreement so
long as, among other things, a Borrowing Excess never exists by any of the
limitations in Section 2.1 or Schedule 1.1(d) being exceeded.
ACCORDINGLY, for adequate and sufficient consideration, the Companies,
Agent, and Lenders renew, extend, and entirely amend and restate the Existing-
Loan Agreement as follows:
SECTION 1 DEFINITIONS AND REFERENCES . Unless stated
otherwise, the following provisions apply to each Loan Paper and annexes,
exhibits, and schedules to them and certificates, reports, and other writings
delivered under them.
1.1 Definitions .
Acknowledgment Agreement means, at any time and as applicable, the form of
Acknowledgment Agreement then required by (a) FHLMC to be executed as a
condition to the creation of a security interest in Servicing Rights for
Mortgage Pools serviced for FHLMC, completed and executed by Ryland, Agent,
(if necessary) each Lender, and FHLMC, and otherwise in form acceptable to
Agent, together with every supplement to and replacements for that agreement
in accordance with the FHLMC Guide, or (b) FNMA to be executed as a condition
to the creation of a security interest in Servicing Rights for Mortgage Pools
serviced for FNMA, completed and executed by Ryland, Agent, (if necessary)
each Lender, and FNMA, and otherwise in form acceptable to Agent, together
with every supplement to and replacements for that agreement in accordance
with the FNMA Guide.
Adjusted-Net Worth means -- for Ryland, on a consolidated basis, and at
any time -- the sum of Ryland's stockholders' equity reflected on its balance
sheet minus certain loans and advances by Ryland to Ryland Group required to
be deducted for purposes of this definition by Item 13 on Schedule 8.3.
Adjusted-Tangible-Net Worth means -- for Ryland, on a consolidated basis,
at any time, and without duplication -- the sum of (a) Ryland's Adjusted-Net
Worth plus (b) Ryland's long-term Debt if its maturity is no earlier than
June 30, 1998, and its payment is subordinated to payment of the Senior
Obligations in form and substance acceptable to Determining Lenders, plus
(c) 1% of the principal balance of Mortgage Loans in Ryland's Eligible-
Servicing Portfolio, minus (d) purchased and originated Servicing Rights as
shown on Ryland's balance sheet, minus (e) Ryland's goodwill, including,
without limitation, any amounts representing the excess of the purchase price
paid for acquired assets, stock, or interests over the book value assigned to
them, minus (f) Ryland's patents, trademarks, service marks, trade names, and
copyrights, minus (g) Ryland's other intangible assets.
<PAGE>
Affiliate of a Person means any other individual or entity that --
directly or indirectly through ownership, voting securities, contract, or
otherwise -- controls, is controlled by, or under common control with that
Person. For purposes of this definition (a) "control" or similar terms mean
the power to direct or cause the direction of management or policies of that
Person or ownership or voting control of 10% or more of the Voting Shares of
that Person, and (b) the Companies are "Affiliates" of each other.
Agent means, at any time, Bank One, Texas, N.A. -- or its successor
appointed under Section 11 -- acting as agent for Lenders under the Loan
Papers. References to Agent in respect of LCs mean that institution in its
individual capacity.
Applicable Margin means the following interest margin over a base rate
(i.e., either the Fed-Funds Rate or LIBOR) as applicable under this agreement:
<TABLE>
<CAPTION>
Borrowing Base Rate Applicable
Margin
- --------------------------------------------------------------------------
<S> <C> <C>
Warehouse Borrowings
(except Gestation Borrowings) Fed-Funds Rate 0.875%
LIBOR 0.750%
Gestation Borrowings Fed-Funds Rate 0.625%
LIBOR 0.500%
Receivables Borrowings Fed-Funds Rate 1.000%
LIBOR Not applicable
Working-Capital
Borrowings Fed-Funds Rate 1.250%
LIBOR 1.125%
</TABLE>
Appraisal means, for any Mortgage Loan, a written statement of the market
value of the real property securing it.
Appraisal Law means any Law that is applicable to appraisals of mortgaged-
residential property in connection with transactions involving that property,
including, without limitation, Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, the Federal Deposit Insurance
Corporation Improvement Act of 1991, 12 C.F.R. Chapter I, Part 34, Subpart C,
12 C.F.R. Chapter II, Subchapter A, Part 225, Subpart G, and 12 C.F.R. Chapter
III, Subchapter B, Part 323.
Appraised Value means -- at any time for the Servicing Portfolio -- the
appraised value determined in the March 8, 1994, appraisal prepared by
Countrywide Servicing Exchange until superseded by the then-most recent
appraisal prepared in a manner and by an appraiser satisfactory to Agent that
was obtained by Ryland (or, whenever a Default exists, requested by Agent or
Determining Lenders).
Approved B-Paper Investor means (a) FHLMC, FNMA, and GNMA and (b) any
other Person from time to time named on a list agreed to by Agent and the
Companies -- which Agent shall furnish to any Lender upon request -- as that
list may be amended from time to time (i) by the Companies and Agent to remove
or add other names as Agent and the Companies may agree, (ii) by either Agent
or Determining Lenders to remove any such other Person after Agent has or
Determining Lenders have given to the Companies notice of -- and an
opportunity to discuss -- the proposed removal of that Person, or (iii)
automatically -- without signing by any party -- to remove any such Person who
then (A) is not Solvent, (B) fails to pay its debts generally as they become
due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any
Debtor Law, or (D) becomes a party to or is made the subject of any proceeding
provided for by any Debtor Law -- other than as a creditor or claimant -- that
could suspend or otherwise adversely affect the Rights of either Company,
Agent, or any Lender in connection with the transactions contemplated in the
Loan Papers.
<PAGE>
Approved Investor means (a) FHLMC, FNMA, and GNMA and (b) any other Person
from time to time named on a list agreed to by Agent and the Companies --
which Agent shall furnish to any Lender upon request -- as that list may be
amended from time to time (i) by the Companies and Agent to remove or add
other names as Agent and the Companies may agree, (ii) by either Agent or
Determining Lenders to remove any such other Person after Agent has or
Determining Lenders have given to the Companies notice of -- and an
opportunity to discuss -- the proposed removal of that Person, or (iii)
automatically -- without signing by any party -- to remove any such Person who
then (A) is not Solvent, (B) fails to pay its debts generally as they become
due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any
Debtor Law, or (D) becomes a party to or is made the subject of any proceeding
provided for by any Debtor Law -- other than as a creditor or claimant -- that
could suspend or otherwise adversely affect the Rights of either Company,
Agent, or any Lender in connection with the transactions contemplated in the
Loan Papers.
Approved-Jumbo Investor means (a) FHLMC, FNMA, and GNMA and (b) any other
Person from time to time named on a list agreed to by Agent and the
Companies -- which Agent shall furnish to any Lender upon request -- as that
list may be amended from time to time (i) by the Companies and Agent to remove
or add other names as Agent and the Companies may agree, (ii) by either Agent
or Determining Lenders to remove any such other Person after Agent has or
Determining Lenders have given to the Companies notice of -- and an
opportunity to discuss -- the proposed removal of that Person, or (iii)
automatically -- without signing by any party -- to remove any such Person who
then (A) is not Solvent, (B) fails to pay its debts generally as they become
due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any
Debtor Law, or (D) becomes a party to or is made the subject of any proceeding
provided for by any Debtor Law -- other than as a creditor or claimant -- that
could suspend or otherwise adversely affect the Rights of either Company,
Agent, or any Lender in connection with the transactions contemplated in the
Loan Papers.
Approved PMI means any private-mortgage insurance company from time to
time named on a list agreed to by Agent and the Companies -- which Agent shall
furnish to any Lender upon request -- as that list may be amended from time to
time (a) by the Companies and Agent to remove or add other names as Agent and
the Companies may agree, (b) by either Agent or Determining Lenders to remove
any Person on the list after Agent has or Determining Lenders have given to
the Companies notice of -- and an opportunity to discuss -- the proposed
removal of that Person, or (c) automatically -- without signing by any party
- -- to remove any such Person who then (i) is not Solvent, (ii) fails to pay
its debts generally as they become due, (iii) voluntarily seeks, consents to,
or acquiesces in the benefit of any Debtor Law, or (iv) becomes a party to or
is made the subject of any proceeding provided for by any Debtor Law -- other
than as a creditor or claimant -- that could suspend or otherwise adversely
affect the Rights of either Company, Agent, or any Lender in connection with
the transactions contemplated in the Loan Papers.
ARM Loan means an adjustable-rate Mortgage Loan -- including, without
limitation all of the "products" listed at the end of Schedule 4.3 -- that is
a (a) Conventional Loan that complies with all applicable requirements for
purchase under either the FNMA or FHLMC standard form of conventional-
mortgage-purchase contract, (b) Jumbo Loan, or (c) FHA Loan.
Assignment means an Assignment and Assumption Agreement executed by a
selling Lender and a Purchaser under Section 12.15 and delivered to Agent in
substantially the form of Exhibit F-2.
<PAGE>
Associates is defined in the preamble of this agreement, and, for purposes
of Section 4.1, includes, without limitation, Associates as a debtor-in-
possession and any party appointed in the future as a trustee or receiver for
Associates or all or substantially all of its assets under any Debtor Law.
Associates Note means a promissory note executed and delivered by
Associates, payable to a Lender's order, in the stated principal amount of its
Commitment Percentage of the Warehouse Sublimit, and substantially in the form
of Exhibit A-1, as renewed, extended, amended, or replaced.
Average-Adjusted-Fed-Funds Rate means -- for any period -- an annual
interest rate equal to the quotient of (a) the sum of the Fed-Funds Rate plus
the Applicable Margin for each calendar day during that period divided by (b)
the number of days during that period.
Average-Depositary Balances means -- for any period and for any
Depositary -- the quotient of (a) the sum of the deposits that have been
allocated under the Balance-Carry-Forward Agreement with that Depositary for
alternative calculations of interest under Section 3.7 on the Principal Debt
of Non-LIBOR Borrowings owed to that Depositary -- and those deposits for any
day that is not a Business Day are those deposits for the preceding Business
Day -- during that period, divided by (b) the number of days during that
period.
Average-Fed-Funds Rate means -- for any period -- an annual interest rate
equal to the quotient of (a) the sum of the Fed-Funds Rate for each calendar
day during that period divided by (b) the number of days during that period.
Average-Principal Debt means -- for any period, for any Lender, and for
Non-LIBOR Borrowings of any Borrowing Category -- the quotient of (a) the sum
of the Principal Debt of Borrowings in that Borrowing Category owed to that
Lender as of the close of business for each calendar day -- and that Principal
Debt for a day that is not a Business Day is the Principal Debt as of the
close of business for the preceding Business Day -- divided by (b) the number
of days during that period.
B-Paper Loan means a Mortgage Loan that is originated to an Approved B-
Paper Investor but may not be funded without prior approval from that
investor.
B-Paper Sublimit means, at any time,$20,000,000, but never more than 10%
of the Warehouse Sublimit.
Balance-Carry-Forward Agreement means any agreement that (a) is entered
into between a Depositary and the Companies, (b) carries forward credits for
excess account balances on at least a three-month basis, (c) never provides
for a different interest rate than that which is payable on the Principal Debt
under this agreement, (d) does not change the date interest payments are due
under this agreement, (e) does not alter the relative Rights among Agent and
Lenders under the Loan Papers, and (f) in no way obligates, binds, or inures
to Agent or any Lender except that Depositary.
Bond-Authority Loan means a Mortgage Loan originated under a state, local,
county, city, or community development authority program.
Borrowing means any amount disbursed (a) by one or more Lenders to or on
behalf of Associates or Ryland under the Loan Papers, either as an original
disbursement of funds, the continuation of an amount outstanding, or payment
under a LC or (b) by Agent or any Lender in accordance with -- and to satisfy
a Company's obligations under -- any Loan Paper.
<PAGE>
Borrowing Base means, at any time, the sum of the Borrowing Base for
Mortgage Collateral (which includes the Borrowing Base for Gestation
Collateral), the Borrowing Base for Receivables, and the Borrowing Base for
Working Capital, as those terms are defined in Schedule 1.1(d), which
definitions are incorporated in this agreement verbatim.
Borrowing-Base Report means a report executed by Agent and delivered to
the Companies and Lenders in substantially the form of Exhibit C-3 or executed
by Ryland and delivered to Agent in substantially the form of Exhibit C-4 or
C-5, as applicable.
Borrowing Category means any category of Borrowing determined with respect
to its purpose, e.g., a (a) Warehouse Borrowing, which may be a Gestation
Borrowing, Dry Borrowing, or Wet Borrowing, (b) Receivables Borrowing, which
may be a Foreclosure Borrowing, P&I Borrowing, or T&I Borrowing, or (c) or
Working-Capital Borrowing.
Borrowing Date means, for any Borrowing, the date it is disbursed.
Borrowing Excess means, at any time, the amount by which any of the
Borrowing limitations of Section 2.1 or Schedule 1.1(d) are exceeded.
Borrowing Type means any type of Borrowing determined with respect to the
applicable interest option, e.g., a Fed-Funds Borrowing or LIBOR Borrowing.
Business Day means (a) for all purposes, any day other than Saturday,
Sunday, and any other day that commercial banks are authorized or obligated by
Law to be closed in Texas, and (b) for purposes of any LIBOR Borrowing, a day
when commercial banks are open for international business in London.
Calendar Month means that portion of a calendar month that occurs at any
time from the date of this agreement to the Termination Date.
Calendar Quarter means that portion of any calendar quarter that occurs at
any time from the date of this agreement to the Termination Date.
Closing Date means the date of the initial Borrowing or LC under this
agreement, which must be by June 16, 1995.
Code means the Internal Revenue Code of 1986.
Collateral is defined in Section 4.2.
Collateral Conversion Notice means a notice executed by Ryland and
delivered to Agent in substantially the form of Exhibit C-2.
Collateral-Delivery Notice means a notice executed by Ryland and delivered
to Agent in substantially the form of Exhibit C-1.
Collateral Documents means the documents required to be delivered in
connection with various types of Collateral as described in Schedules 4.3 and
5.1.
Commitment means, for any Lender, the amount stated beside its name and so
designated on Schedule 1.1(a) (as it may be amended under this agreement), as
that amount may be cancelled or terminated in accordance with this agreement.
<PAGE>
Commitment Percentage means, at any time for any Lender, the proportion --
stated as a percentage -- that its Commitment bears to the total Commitments.
Commitment Usage means, at any time, the sum of the Principal Debt plus
the LC Exposure.
Companies is defined in the recitals of this agreement.
Compliance Certificate means a certificate executed by a Responsible
Officer of Associates and Responsible Officer of Ryland and delivered to Agent
in substantially the form of Exhibit C-6.
Conventional Loan means a Mortgage Loan that is not a FHA Loan or VA Loan.
Conversion Date is defined in Section 3.11.
Conversion Request means a notice executed by Associates or Ryland, as
applicable, and delivered to Agent in substantially the form of Exhibit B-4.
Credit Request means a request executed by Associates or Ryland, as
applicable, and delivered to Agent in substantially the form of Exhibit B-1,
B-2, or B-3, as appropriate.
Debt means -- for any Person, at anytime, and without duplication -- the
sum of (a) all debt for borrowed money, for the deferred purchase price of
property or services, or which is evidenced by a bond, debenture, note, or
other instrument, (b) all obligations under capitalized leases, (c) all
obligations in respect of letters of credit, acceptances, or similar
obligations issued or created for that Person's account, (d) all direct and
indirect guaranties of Debt of others, (e) every obligation secured -- or for
which the holder of the obligation is contingently or otherwise entitled to be
secured -- by any Lien on that Person's property whether that Person is
personally liable or assumes that obligation, and (f) all liabilities for
unfunded vested benefits under any Employee Plan.
Debtor Laws means all applicable liquidation, conservatorship, bankruptcy,
moratorium, arrangement, receivership, insolvency, reorganization, or similar
Laws from time to time in effect and generally affecting creditors' Rights.
Default is defined in Section 10.1.
Default Rate means, for any day, an annual interest rate equal to the
lesser of either (a) the Fed-Funds Rate plus 2.5% or (b) the Maximum Rate.
Depositary means any Lender with whom either Company maintains non-
interest bearing demand deposit accounts in its name, and who has entered into
a Balance-Carry-Forward Agreement with the Companies.
Determining Lenders means, at any time, any combination of Lenders whose
(a) Termination Percentages total at least 66 % at any time when a Default
exists, or (b) Commitment Percentages total at least 66 % at all other times.
Distribution -- with respect to any shares of any capital stock or other
equity securities issued by a Person -- means (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend with respect to those securities, (c)
any loan or advance by that Person to, or other investment by that Person in,
the holder of any of those securities, and (d) any other payment by that
Person with respect to those securities.
<PAGE>
Dry Borrowing means a Warehouse Borrowing that is (a) not a Gestation
Borrowing or Wet Borrowing, (b) supported by the Borrowing Base for Mortgage
Collateral, and (c) to be advanced by Associates to Ryland under the
Intercompany Note.
Eligible-Foreclosure Receivable means, at any time, any claim by Ryland in
respect of a Foreclosure Payment for which the applicable conditions for
eligibility described in Schedule 1.1(c) are satisfied.
Eligible-Gestation Collateral means, at any time, all Collateral that
would otherwise be Eligible-Mortgage Collateral and for which the applicable
conditions for eligibility described in Schedule 1.1(c) are satisfied.
Eligible-Mortgage Collateral means, at any time, all Eligible-Mortgage
Loans and all Eligible-Mortgage Securities.
Eligible-Mortgage Loan means, at any time, a Mortgage Loan for which the
applicable conditions for eligibility described in Schedule 1.1(c) are
satisfied other than Eligible-Gestation Collateral.
Eligible-Mortgage Security means, at any time, a Mortgage Security for
which the applicable conditions for eligibility described in Schedule 1.1(c)
are satisfied.
Eligible-P&I Receivable means, at any time, any claim by Ryland in respect
of a P&I Payment for which the applicable conditions for eligibility described
in Schedule 1.1(c) are satisfied.
Eligible-Servicing Portfolio means, at any time, the Servicing Portfolio
for which the applicable conditions for eligibility described in Schedule
1.1(c) are satisfied.
Eligible-T&I Receivable means, at any time, any claim by Ryland in respect
of a T&I Payment for which the applicable conditions for eligibility described
in Schedule 1.1(c) are satisfied.
Employee Plan means an employee-pension-benefit plan covered by Title IV
of ERISA and established or maintained by either Company.
Environmental Law means any Law that relates to the pollution or
protection of the environment or to Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974.
ERISA Affiliates means the Companies and every trade or business --
whether or not incorporated -- that, together with either Company, would be
treated as a single-employer under Sec. 4001 of ERISA.
Existing-Loan Agreement means the Loan and Security Agreement (as renewed,
extended, and amended through the date of this agreement) dated as of May 27,
1994, between Associates, Ryland, Bank One, Texas, N.A., as Agent, and certain
lenders.
Existing Obligation means the Obligation as defined in and arising under
the Existing-Loan Agreement.
Fed-Funds Borrowing means a Borrowing bearing interest at the Average-
Adjusted-Fed-Funds Rate.
<PAGE>
Fed-Funds Rate means, for any day, the annual interest rate -- rounded
upwards, if necessary, to the nearest 0.01% -- determined by Agent to be
either (a) the weighted average of the rates on overnight-federal-funds
transactions with member banks of the Federal Reserve System arranged by
federal-funds brokers for that day -- or, if not a Business Day on the
preceding Business Day -- as published by the Federal Reserve Bank of New
York, or (b) if not so published for any day, the average of the quotations
for that day on those transactions received by Agent from three federal-funds
brokers of recognized standing it may select.
FHA means the Federal Housing Administration within the United States
Department of Housing and Urban Development.
FHA Loan means a Mortgage Loan -- other than loans for mobile homes --
either (a) full or partial payment of which is insured by FHA under the
National Housing Act or Title V of the Housing Act of 1949, (b) for which FHA
has issued a current, binding, and enforceable commitment for that insurance,
or (c) which is eligible for direct endorsement under the FHA Direct
Endorsement Program.
FHLMC means the Federal Home Loan Mortgage Corporation.
Financials means balance sheets, profit and loss statements, statements of
cash flow and any other financial statements, reports, or information
specified by any Lender.
FNMA means the Federal National Mortgage Association.
Foreclosure Account means a non-interest bearing deposit account
established by Ryland with Agent -- styled and numbered "RMC Foreclosure Loan
Advance Account," Account No. 1885162436 -- for deposit of Foreclosure
Borrowings and payments of the Obligation related to Foreclosure Borrowings.
Foreclosure Borrowing means a Receivables Borrowing that is advanced by
Lenders to Ryland in accordance with their Commitment Percentages under
Section 2.2, supported by the Borrowing Base for Receivables, and to be used
by Ryland to reimburse itself for a Foreclosure Payment it has made.
Foreclosure Payment means the unreimbursed purchase price paid by Ryland
to repurchase a defaulted Mortgage Loan out of a Mortgage Pool in accordance
with Ryland's obligations under the applicable Servicing Contract.
Funding Loss means any reasonable, out-of-pocket loss or expense that any
Lender incurs because either Company (a) fails or refuses -- for any reason
other than a default by the Lender claiming that loss or expense -- to take
any LIBOR Borrowing that it has requested under this agreement, or (b) prepays
or pays any LIBOR Borrowing or converts any LIBOR Borrowing to another
Borrowing Type at any time other than the last day of the applicable Interest
Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to
time.
Gestation Borrowing means a Warehouse Borrowing that is (a) advanced to
Associates under the Gestation Sublimit and supported by the Borrowing Base
for Gestation Collateral, and (b) to be advanced by Associates to Ryland under
the Intercompany Note.
Gestation Sublimit means $100,000,000.
<PAGE>
GNMA means the Government National Mortgage Association.
Guide means the following, as applicable under the circumstances, for (a)
FHLMC, the Freddie Mac Sellers' & Servicers' Guide dated September 17, 1984,
(b) FNMA, the Fannie Mae Servicing Guide dated June 30, 1990, and (c) GNMA, as
applicable, either (i) the GNMA I Mortgage Securities Guide, Handbook
GNMA 5500.1REV-6, or (ii) the GNMA II Mortgage Securities Guide, Handbook
GNMA 5500.2.
Hazardous Substance means any substance (a) the presence of which requires
removal, remediation, or investigation under any Environmental Law, or
(b) that is defined or classified as a hazardous waste, hazardous material,
pollutant, contaminant, or toxic or hazardous substance under any
Environmental Law.
Intercompany Note means the promissory note executed by Ryland, payable to
Associates' order, and endorsed to Agent's order, substantially in the form of
Exhibit A-4, as renewed, extended, amended, and replaced.
Interest Period is determined in accordance with Section 3.10.
Interim Note means a promissory note executed and delivered by Associates,
payable to the order of a Lender whose Commitment is increasing under Section
2.5(a), in the stated amount of that increase, and in substantially the form
of Exhibit A-2, as renewed, extended, amended, or replaced.
Investment Facilities means any credit facility (as any of those
facilities may be renewed, extended, amended, or restated) now or in the
future entered into -- between either Company and (a) any Lender or (b) any
commercial or savings bank organized under the Laws of the United States of
America with a combined capital and unimpaired surplus of at least
$250,000,000, and a rating of C or better by Thompson Bank Watch, Inc., or an
IDC Financial Publishing rating of at least 75 -- to enable that Company to
make investments having a maximum maturity of 31 days in (i) commercial paper
given the highest rating (at least A-1 or P-1 or the equivalent) by a
nationally recognized credit rating agency, (ii) United States governmental
obligations, or (iii) certificates of deposit, bankers acceptances, and
repurchase agreements -- issued by the commercial bank providing the
"Investment Facility" meeting the requirements above -- in connection with
which there exists mutual Rights of offset.
Investment-Mortgage Loan means a Mortgage Loan that is otherwise an
Eligible-Mortgage Loan but for which there is no applicable Take-Out
Commitment.
Jumbo Loan means a Mortgage Loan that (a) is not a FHA Loan or VA Loan and
(b) complies with all applicable requirements for purchase (i) under the FNMA
or FHLMC standard form of conventional-mortgage-purchase contract except that
its amount exceeds the maximum-loan amount under those requirements, or (ii)
by an Approved-Jumbo Investor.
Laws means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LC means a letter of credit that (a) is issued by Agent for Ryland's
account under Section 2.4 and an LC Agreement, (b) is subject to each of the
LC Sublimit, Working-Capital Sublimit, and Receivables/Working-Capital
Sublimit, (c) is supported by the Borrowing Base for Working Capital, (d)
supports Ryland's sales of Servicing Rights if permitted under this agreement,
(e) expires before the Stated-Termination Date, and (f) otherwise is in form
first approved by Agent in its sole discretion.
<PAGE>
LC Agreement means, at any time, a letter of credit application and
agreement -- in substantially the standard form customarily used by Agent at
that time -- executed and delivered by Ryland for the issuance of an LC for
Ryland's account.
LC Exposure means -- at any time and without duplication -- the sum of (a)
the total undrawn- and uncancelled-face amount of all LCs plus (b) the LC
Obligation.
LC Obligation means, at any time, Ryland's total-unpaid-reimbursement
obligations to Agent for drafts or drawings paid under any LC.
LC Sublimit means $10,000,000.
Lender Lien means any present or future first-priority Lien securing the
Obligation and assigned, conveyed, and granted to or created in favor of Agent
for the benefit of Lenders under this agreement.
Lenders means (a) the financial institutions named on the attached
Schedule 1.1(a) or on the most recently amended Schedule 1.1(a), if any,
prepared by Agent under this agreement, and (b) subject to this agreement,
their respective successors and permitted assigns, but (c) not any Participant
who is not otherwise a party to this agreement.
LIBOR means, for a LIBOR Borrowing, the annual interest rate -- rounded
upwards, if necessary, to the nearest 0.01% -- equal to the annual interest
rate -- rounded upwards, if necessary to the nearest 0.01% -- that is (a) the
rate determined by Agent -- at approximately 9:30 a.m. on the second Business
Day before the applicable Interest Period -- as the rate reported by Telerate
Mortgage Services for deposits in United States dollars in the London
interbank market that are comparable in amount and maturity of that Borrowing,
or (b) if Agent cannot determine that rate, then the rate that deposits in
United States dollars are offered to Agent in the amount of that LIBOR
Borrowing in the London interbank market -- at approximately 10:30 a.m.,
London, England, time on the third Business Day before the applicable Interest
Period -- for deposits comparable in amount and maturity of that Borrowing.
LIBOR Borrowing means a Borrowing -- which may be a Warehouse Borrowing or
a Working-Capital Borrowing -- that bears interest at the LIBOR Rate.
LIBOR Rate means -- for any Interest Period -- the sum of LIBOR for that
Interest Period plus the Applicable Margin.
Lien means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds
prior to the claims of other creditors or the owners.
Litigation means any action by or before any Tribunal.
Loan Papers means (a) this agreement, certificates and reports delivered
under this agreement, and exhibits and schedules to this agreement, (b) all
agreements, documents, and instruments in favor of Agent or Lenders (or Agent
on behalf of Lenders) ever delivered under this agreement or otherwise
delivered in connection with any of the Obligation, including, without
limitation, all Notes, Security Documents, LCs, LC Agreements, and Balance-
Carry-Forward Agreements, and (c) all renewals, extensions, and restatements
of, and amendments and supplements to, any of the foregoing.
<PAGE>
Market Value means, at any time, a value determined for a Mortgage Loan or
a Mortgage Security in accordance with the following applicable procedures.
If Agent or Determining Lenders, as the case may be, are unable to obtain any
yield, price, or factor from the source or alternative source(s) stated below,
then Agent or Determining Lenders, as the case may be, shall make a good-faith
determination of that yield, price, or factor. That value is:
(a) For a Mortgage Loan, either (i) the weighted-average-commitment
prices of all Take-Out Commitments relating to that Mortgage Loan or (ii)
at the sole election of either Agent or Determining Lenders (whose
election supersedes Agent's), the market value of that Mortgage Loan
determined upon the then-most recent posted-net-yield (A) that is
furnished by FNMA and published by Telerate Mortgage Services, or (B) if
not so published by Telerate Mortgage Services, that is furnished by FNMA
as determined by Agent or Determining Lenders, as the case may be, or (C)
for a Mortgage Loan not eligible for FNMA purchase, that is reasonably
established by Agent or Determining Lenders, as the case may be.
(b) For a Mortgage Security, the product of (i) that Mortgage
Security's face amount times (ii) either:
(A) for a Mortgage Security not arising out of the pooling
of other Collateral, either (1) the most-recent percentage
published by Telerate Mortgage Services as the bid price for
mandatory delivery within 30 days for securities of the same type
and bearing the same interest rate as that Mortgage Security, or
(2) if that bid price is not published by Telerate Mortgage
Services, the average of the percentages obtained from three
brokerage firms selected in good faith by either Agent or
Determining Lenders (whose selection supersedes Agent's) as the
bid price for mandatory delivery within 30 days for securities of
the same type and bearing the same interest rate as that Mortgage
Security, or
(B) for a Mortgage Security arising out of the pooling of
other Collateral, the factor representing the percentage of that
Mortgage Security's outstanding-principal balance obtained either
from Telerate Mortgage Service or, if not available from Telerate
Mortgage Services, by Agent from FHLMC, FNMA, or GNMA, as
appropriate.
Material Agreement means, for any Person, any agreement to which that
Person is a party, by which that Person is bound, or to which any assets of
that Person may be subject, and that is not cancelable by that Person upon
less than 30-days notice without liability for further payment other than
nominal penalty, and the default under which or cancellation or forfeiture of
which would be a Material-Adverse Event.
Material-Adverse Event means, at any time, any circumstance or event that,
individually or collectively, is reasonably expected to result in a
(a) material-adverse impairment of Agent's or any Lender's ability to enforce
any of the Companies' collective obligations or any of Agent's or any Lender's
respective Rights under the Loan Papers, (b) material-adverse effect on the
financial condition of the Companies taken as a whole, or (c) Default.
Maximum Amount and Maximum Rate respectively mean -- for any day and for
any Lender -- the maximum non-usurious amount and the maximum non-usurious
rate of interest that, under applicable Law, the Lender is permitted to
contract for, charge, take, reserve, or receive on its portion of the
Obligation.
<PAGE>
Mortgage Collateral means all Mortgage Loans, Mortgage Securities, and
related Collateral Documents offered as Collateral under this agreement.
Mortgage Loan means a loan that is (a) not a construction or commercial
loan, (b) evidenced by a valid promissory note with a maturity within 30 years
of origination, and (c) secured by a mortgage, deed of trust, or trust deed
that (i) complies with all applicable requirements for purchase under either
the FNMA or FHLMC standard form of conventional-mortgage-purchase contract
(except, in the case of a mortgage or deed of trust securing a Jumbo Loan),
(ii) is otherwise in form and substance satisfactory to Agent, and (iii)
grants either a perfected first-priority Lien on the residential-real property
or is a Permitted-Second Mortgage.
Mortgage Pool means a (a) "group" or "grouping" of Mortgage Loans
assembled in accordance with -- and as that term is used in -- the FHLMC
Guide, (b) "pool" of Mortgage Loans assembled in accordance with -- and as
that term is used in -- the FNMA Guide or the GNMA I Guide, (c) "pool" of
Mortgage Loans or a "loan package" consisting of Mortgage Loans assembled in
accordance with -- and as those terms are used in -- the GNMA II Guide, or (d)
any other pool of Mortgage Loans assembled by an Approved Investor securing --
and providing for pass-through payments of principal and interest on -- its
Mortgage Securities.
Mortgage Securities -- sometimes called mortgage-backed securities and
whether in certificated or book-entry form -- means (a) participation
certificates representing undivided interests in Mortgage Loans purchased by
FHLMC under the Emergency Home Finance Act of 1970, (b) modified pass-through
mortgage-backed certificates guaranteed by FNMA under the National Housing
Act, (c) modified pass-through mortgage-backed certificates guaranteed by GNMA
under Sec. 306(g) of the National Housing Act, or (d) any other security issued
by an Approved Investor that is based on or backed by a Mortgage Pool
providing for pass-through payments of principal and interest.
Multiemployer Plan means a multiemployer plan as defined in Sec. 3(37) or
4001(a)(3) of ERISA or Sec. 414(f) of the Code to which any ERISA Affiliate is
making, or has made, or is accruing, or has accrued, an obligation to make
contributions.
Non-LIBOR Borrowing means a Borrowing -- which may be a Warehouse
Borrowing, Receivables Borrowing, or Working-Capital Borrowing -- that does
not bear interest at the LIBOR Rate.
Notes means the Associates Notes, Interim Notes, and Ryland Notes.
Obligation means all (a) of the Existing Obligation that is renewed under
this agreement and the Loan Papers, and (b) present and future indebtedness,
obligations, and liabilities of either Company to Agent or any Lender and
related to any Loan Paper -- whether principal, interest, fees, costs,
attorneys' fees, or otherwise, (c) amounts that would become due but for
operation of 11 U.S.C. Sec. 502 and 503 or any other provision of Title 11 of
the United States Code, (d) pre- and post-maturity interest on any of the
foregoing -- including, without limitation, all post-petition interest if
either Company voluntarily or involuntarily files for protection under any
Debtor Law, and (e) all renewals, extensions, and modifications of any of the
foregoing.
Participant is defined in Section 12.14.
PBGC means the Pension Benefit Guaranty Corporation.
Permitted Debt means Debt described on Schedule 8.1.
<PAGE>
Permitted Liens means Liens described on Schedule 8.2.
Permitted Loans/Investments means loans and investments described on
Schedule 8.3.
Permitted-Second Mortgage means a second-priority mortgage, deed of trust,
or trust deed for which Ryland holds a valid and enforceable Take-Out
Commitment from an Approved Investor for the related Mortgage Loan.
Person means any individual, entity, or Tribunal.
P&I Account means a non-interest bearing deposit account established by
Ryland with Agent -- styled and numbered "RMC P&I Loan Advance Account,"
Account No. 1885162410 -- for deposit of P&I Borrowings and payments of the
Obligation related to P&I Borrowings.
P&I Borrowing means a Receivables Borrowing that is advanced by Lenders to
Ryland in accordance with their Commitment Percentages under Section 2.2,
supported by the Borrowing Base for Receivables, and to be used by Ryland to
make a P&I Payment.
P&I Payment means an unreimbursed advance or payment by Ryland to effect
the timely payment of scheduled principal and interest on Mortgage Securities
that are backed by a Mortgage Pool serviced by Ryland in accordance with
Ryland's obligations under the applicable Servicing Contract to cover a short-
fall between the principal and interest collected from mortgagors in respect
of that Mortgage Pool and the principal and interest due on those Mortgage
Securities.
Potential Default means the occurrence of any event or existence of any
circumstance that would -- upon notice, time lapse, or both -- become a
Default.
Principal Debt means, at any time, the outstanding principal balance of
all Borrowings.
Purchaser is defined in Section 12.15.
RAMCO means RMC Asset Management Company, a Virginia corporation.
Receivables Borrowing means (a) a Borrowing (that may be a Foreclosure
Borrowing, a P&I Borrowing, or a T&I Borrowing), (b) that is advanced by
Lenders to Ryland in accordance with their Commitment Percentages under
Section 2.2, and (c) that is subject to the Receivables Sublimit and the
Receivables/Working-Capital Sublimit.
Receivables Sublimit means $40,000,000.
Receivables/Working-Capital Sublimit means $40,000,000.
Regulation Q means Regulation Q promulgated by the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 17.
Regulation U means Regulation U promulgated by the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 221.
Regulation X means Regulation X promulgated by the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 224.
Representatives means representatives, officers, directors, employees,
attorneys, and agents.
<PAGE>
Repurchase Agreement means any agreement, present or future, under which
Ryland or any of its Affiliates sells Mortgage Securities with an obligation
to repurchase them.
Responsible Officer means the chairman, president, chief executive
officer, chief financial officer, treasurer, or any assistant treasurer.
Rights means rights, remedies, powers, privileges, and benefits.
RTC means Resolution Trust Corporation.
Ryland is defined in the preamble of this agreement.
Ryland Group means The Ryland Group, Inc., a Maryland corporation and
Ryland's parent corporation.
Ryland Note means a promissory note executed and delivered by Ryland,
payable to a Lender's order, in the stated principal amount of its Commitment
Percentage of the Receivables/Working-Capital Sublimit, and substantially in
the form of Exhibit A-3, as renewed, extended, amended, or replaced.
Second-Mortgage Sublimit means, at any time, $25,000,000, but never more
than 12.5% of the Warehouse Sublimit.
Security Documents means all documents now or in the future executed and
delivered by either Company or any other Person to create a Lender Lien or
otherwise assure or secure payment or performance of any of the Obligation --
including, without limitation, the documents described on Schedules 4.3 or 5.1
- -- as those documents may be renewed, extended, amended, restated, or
substituted.
Senior Obligations means the Obligation and all present and future Debt of
the Companies under the Investment Facilities.
A "servicer" means variously a "seller," "servicer," "issuer," or
"lender," as defined or used in the applicable Guide in respect of a Person
having Servicing Rights.
Servicing Contract means, at any time, a Guide or any other present or
future written agreement between an investor and Ryland acting as a servicer
- -- or master servicer in the case of a sub-servicing arrangement -- providing
for Ryland to service mortgage loans or mortgage pools, as that Guide or
agreement may be supplemented by applicable manuals, guides, and Laws.
Servicing Portfolio means -- for Ryland and at any time -- the total
unpaid-principal balance of all mortgage loans for which Ryland owns the
Servicing Rights.
Servicing Receivables means, at any time, all Eligible-Foreclosure
Receivables, Eligible-P&I Receivables, and Eligible-T&I Receivables.
Servicing Rights means -- for Ryland and at any time -- all present and
future Rights as servicer or master servicer under Servicing Contracts,
including, but not limited to, all Rights to receive Servicing Receivables and
all other compensation, payments, reimbursements, termination and other fees,
and proceeds of any disposition of those Rights.
Servicing Subsidiary is defined in Section 9.5(a).
<PAGE>
Settlement Account means a non-interest bearing deposit account
established by Ryland with Agent -- styled and numbered "RMC Warehouse
Settlement Account," Account No. 0100073055 -- for deposit of payments from
investors and the settlement of collections from Mortgage Securities in
connection with Mortgage Collateral.
Solvent means, for any Person, that (a) the fair-market value of its
assets exceeds its liabilities, (b) it has sufficient cash flow to enable it
to pay its debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
Stated-Termination Date means May 30, 1997.
Subordinated Debt means all present and future debt, liabilities, and
obligations of Associates to Ryland -- whether direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, joint and several, due
now or in the future, created directly or acquired by assignment or otherwise,
or evidenced in writing or not.
Subsidiary mean -- for any Person and at any time -- any corporation, more
than 50% of the Voting Shares of which is directly or indirectly owned by that
Person.
Take-Out Commitment means a written and binding commitment (a) from an
Approved Investor to purchase Mortgage Securities or -- within a period of 12
months from the date originated -- Mortgage Loans, and (b) for which there is
no condition that cannot be reasonably anticipated to be satisfied or complied
with before its expiration.
Taxes means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
Terminated Lender means any Lender under the Existing-Loan Agreement whose
commitment to extend credit under that agreement has been terminated and who
is not a Lender under this agreement.
Termination Date means the earlier of either (a) the Stated-Termination
Date or (b) the date all commitments or obligations of all Lenders to extend
any credit under this agreement have terminated or been cancelled.
Termination Percentage means, at any time for any Lender, the proportion
- -- stated as a percentage -- that the portion of the Commitment Usage directly
or indirectly owed to that Lender bears to the total Commitment Usage directly
or indirectly owed to all Lenders.
T&I Account means a non-interest bearing deposit account established by
Ryland with Agent -- styled and numbered "RMC T&I Loan Advance Account,"
Account No. 1885162428 -- used for deposit of T&I Borrowings and payments of
the Obligation related to T&I Borrowings.
T&I Borrowing means a Receivables Borrowing that is advanced by Lenders to
Ryland in accordance with their Commitment Percentages under Section 2.2,
supported by the Borrowing Base for Receivables, and to be used by Ryland to
make a T&I Payment.
T&I Payment means an unreimbursed advance or payment by Ryland to cover
tax- and insurance-escrow payments not paid when required by a mortgagor under
a Mortgage Loan in accordance with Ryland's obligations under the applicable
Servicing Contract.
<PAGE>
Total Liabilities means -- for Ryland, on a consolidated basis, and at any
time -- all amounts that should be reflected as a liability on Ryland's
balance sheet. The consolidated-repurchase and consolidated-reverse-
repurchase obligations of Ryland and its Affiliates under Repurchase
Agreements in connection with the sale of -- and secured by -- Mortgage
Securities may be excluded from Total Liabilities to the extent that (a) the
fair-market value of those Mortgage Securities is at least 100.5% of those
repurchase obligations or (b) Agent is furnished evidence satisfactory to it
that those Mortgage Securities are the subject of one or more hedging
agreements acceptable to Agent.
Tribunal means any (a) local, state, or federal judicial, executive, or
legislative instrumentality, (b) private arbitration board or panel, or
(c) central bank.
UCC means the Uniform Commercial Code or similar Laws enacted in
applicable jurisdiction.
VA means the Veteran's Administration.
VA Loan means a Mortgage Loan either (a) full or partial payment of which
is guaranteed by VA under the Servicemen's Readjustment Act of 1944 or
Chapter 37 of Title 38 of the United States Code, (b) for which VA has issued
a current binding and enforceable commitment for such a guaranty, or (c) which
is subject to automatic guarantee by VA -- which in each case, the applicable
guaranty, commitment to guarantee, or automatic guaranty is for the maximum
amount permitted by Law.
Voting Shares means, for any corporation, shares of any class or classes
(however designated) having ordinary voting power for the election of at least
a majority of the board of directors (or other governing body) of that
corporation, other than shares having that power only by reason of the
happening of a contingency.
Warehouse Account means a non-interest bearing deposit account established
by Associates with Agent -- styled and numbered "AMFC Warehouse Borrowing
Account," Account No. 1885162402 -- for deposit of Warehouse Borrowings,
funding of advances to Ryland under the Intercompany Note, deposit of payments
on the Intercompany Note, and deposit of payments of the Obligation related to
Warehouse Borrowings.
Warehouse Borrowing means (a) a Borrowing (that may be a Gestation
Borrowing, Wet Borrowing, or Dry Borrowing) that is advanced by one or more
Lenders, not necessarily in accordance with their Commitment Percentages may
never exceed the Warehouse Sublimit, and is supported by the Borrowing Base
for Mortgage Collateral, (b) that is advanced to Associates under this
agreement, and (c) that is to be advanced to Ryland under the Intercompany
Note by the next Business Day for Ryland to originate or acquire Mortgage
Loans until they are sold in the secondary market.
Warehouse Obligation is defined in Section 4.1(a).
Warehouse Sublimit means $325,000,000.
Wet Borrowing means a Warehouse Borrowing that is (a) advanced to
Associates under the Wet Sublimit under Section 2.3 and supported by the
Borrowing Base for Mortgage Collateral, and (b) to be advanced by Associates
to Ryland under the Intercompany Note.
Wet Sublimit means 30% of the total Commitments.
Wire Instructions means -- for any party to this agreement --the
information regarding wire transfers of funds to it described for it on
Schedule 1.1(b).
<PAGE>
Working-Capital Account means a non-interest bearing deposit account
established by Ryland with Agent -- styled and numbered "RMC Working Capital
Account," Account No. 1885162394 -- for deposit of Working-Capital Borrowings
and payments of the Obligation related to Working-Capital Credits.
Working-Capital Borrowing means a Borrowing that is (a) advanced by
Lenders to Ryland in accordance with their Commitment Percentage under Section
2.2, (b) subject to each of the Working-Capital Sublimit and the
Receivables/Working Capital Sublimit, (c) supported by the Borrowing Base for
Working-Capital, and (d) to be used as operating capital in Ryland's ordinary
course of business.
Working-Capital Credit means an LC or Working-Capital Borrowing.
Working-Capital Sublimit means $25,000,000.
1.2 Time References . Time references (e.g., 9:30 a.m.) are to
time in Dallas, Texas. In calculating a period from one date to another, the
word "from" means "from and including" and the word "to" or "until" means "to
but excluding."
1.3 Other References . Where appropriate, the singular
includes the plural and vice versa, and words of any gender include each other
gender. Heading and caption references may not be construed in interpreting
provisions. Monetary references are to currency of the United States of
America. Section, paragraph, annex, schedule, exhibit, and similar references
are to the particular Loan Paper in which they are used. References to
"telecopy," "facsimile," "fax," or similar terms are to facsimile or telecopy
transmissions. References to any Person include that Person's heirs, personal
representatives, successors, trustees, receivers, and permitted assigns.
References to any Law include every amendment or supplement to it, rule and
regulation adopted under it, and successor or replacement for it. References
to any Loan Paper or other document include every renewal and extension of it,
amendment and supplement to it, and replacement or substitution for it.
References to payment on demand mean by the next Business Day after the
applicable demand is given under Section 12.2.
1.4 Accounting Principles . GAAP determines all accounting and
financial terms and compliance with financial reporting covenants. GAAP in
effect on the date of this agreement determines compliance with financial
covenants. Otherwise, all accounting principles applied in a current period
must be comparable in all material respects to those applied during the
preceding comparable period other than changes concurred in by the Companies'
independent public accountants.
SECTION 2. BORROWINGS AND LCS .
2.1 Commitments and Borrowing Base . Schedule 1.1(a), as it
may be amended under this agreement, lists each Lender's Commitment. Subject
to the limitations below and other provisions of the Loan Papers and on
Business Days before the Termination Date, each Lender severally and not
jointly commits -- directly or indirectly through participations under Section
2.4 -- to extend credit to Associates and to Ryland on a revolving basis,
which credit may be Borrowings under Section 2.2, Wet Borrowings under Section
2.3 or LCs under Section 2.4. The following limitations must be read together
and are not mutually exclusive.
(a) The total Commitment Usage may never exceed the lesser of
either (i) the total Commitments or (ii) the total Borrowing Base.
<PAGE>
(b) The Principal Debt of all Warehouse Borrowings may never
exceed the lesser of either (i) the Warehouse Sublimit or (ii) the Borrowing
Base for Mortgage Collateral.
(c) The Principal Debt of all Gestation Borrowings may never
exceed the lesser of either (i) the Gestation Sublimit or (ii) the Borrowing
Base for Gestation Collateral.
(d) The Principal Debt of all Wet Borrowings may never exceed
the Wet Sublimit.
(e) The sum of the Principal Debt of all Receivables
Borrowings plus the Commitment Usage of all Working-Capital Credits may never
exceed the Receivables/Working-Capital Sublimit.
(f) The Principal Debt of all Receivables Borrowings may
never exceed the lesser of either (i) the Receivables Sublimit or (ii) the
Borrowing Base for Receivables, and:
- No Foreclosure Borrowing may exceed 80% of the Foreclosure
Payments for which it is borrowed.
- A P&I Borrowing may only be made between the 10th day and 20th
day of a Calendar Month (in which event it is part of
Tranche A for P&I Borrowings) or the 21st day and last day
of a Calendar Month (in which event it is part of Tranche B
for P&I Borrowings).
- No more than five borrowings may ever be outstanding as part of
each of Tranche A for P&I Borrowings or Tranche B for P&I
Borrowings.
- - No P&I Borrowing (1) may exceed 90% of the P&I Payments for
which it is borrowed, (2) may be made during the ten-day
period applicable under Section 3.4, or (3) may be made
while any other P&I Borrowing for a P&I Payment to the same
investor remains unpaid.
- No T&I Borrowing may exceed 80% of the T&I Payments for which it
is borrowed.
(g) The Commitment Usage for all Working-Capital Credits may
never exceed the lesser of either (i) the Working-Capital Sublimit or (ii) the
Borrowing Base for Working-Capital.
(h) The LC Exposure may never exceed the LC Sublimit.
(i) No Lender's direct or indirect portion of the Commitment
Usage may ever exceed its Commitment.
(j) No Lender's direct or indirect portion of the Commitment
Usage for credit extensions under clauses (f), (g), (h), or (i) above may ever
exceed its Commitment Percentage of the applicable limitations in those
clauses.
(k) Each LC must be a minimum of $500,000, each Borrowing
must be a minimum of $500,000, and each LIBOR Borrowing must also be an
integral multiple of $100,000.
2.2 Borrowing Procedures Generally . The following conditions and
procedures apply to all Warehouse Borrowings -- subject to the conditions and
provisions for Wet Borrowings in Section 2.3 -- and all Receivables Borrowings
and Working-Capital Borrowings:
<PAGE>
(a) Wire Instructions. Until changed by a notice to each other
party to this agreement, each party's Wire Instructions are described on
Schedule 1.1(b), as that schedule may be unilaterally amended by Agent
(following consultation with the applicable one or more Lenders) and
distributed to the parties to this agreement in order to reflect changes
in accordance with each notice given under this clause.
(b) Credit Request. Associates or Ryland, as applicable, may only
request a Borrowing by delivering to Agent -- and, in the case of a
Warehouse Borrowing, to the Lender from whom it is being requested -- a
related Credit Request before 1:00 p.m. on either the date on which the
Borrowing is requested to be made (the "Borrowing Date") for a Fed-Funds
Borrowing or the third-Business Day before the Borrowing Date for a LIBOR
Borrowing.
(i) A Credit Request must, among other things, indicate
whether Associates or Ryland is obtaining the Borrowing, indicate
the Borrowing Category and Borrowing Type -- and a Receivables
Borrowing may not be a LIBOR Borrowing -- for the requested
Borrowing, and indicate the Lender therefor if for a Warehouse
Borrowing, and irrevocably binds the Companies when it is
delivered to Agent.
(ii) Agent shall use its best efforts to promptly -- but
at least by 2:00 p.m. on the day it timely receives a Credit
Request for either a Receivables Borrowing or a Working-Capital
Borrowing -- fax a copy of it to each Lender and confirm it by
telephone.
(iii) For any Warehouse Borrowing requested under a Credit
Request, Ryland must cause the delivery to Agent of (A) a related
Collateral-Delivery Notice before 10:30 a.m. on the date that the
Credit Request must be delivered and (B) except as permitted for
Wet Borrowings, all of the Collateral Documents required by
Schedules 4.3 and 5.1 for any new Collateral offered in that
Collateral-Delivery Notice.
(c) Remittance by Lenders. Subject to compliance with Section 4.4,
each Lender shall -- as the case may be -- remit either the amount of the
Warehouse Borrowing requested from it or its Commitment Percentage of any
Receivables Borrowing or Working-Capital Borrowing requested in a Credit
Request to Agent's principal office in Dallas, Texas, by wire transfer
according to Agent's Wiring Instructions on Schedule 1.1(b), in funds that
are available for immediate use by Agent by 3:30 p.m. on the applicable
Borrowing Date.
(d) Funding by Agent. Subject to receipt of those funds, Agent
shall -- unless to its actual knowledge any of the applicable conditions
precedent have not been satisfied by the Companies or waived by Lenders --
make those funds available to or for the account of Associates or Ryland,
as the case may be, by 4:00 p.m. on the Borrowing Date:
- For any Warehouse Borrowing, by depositing those funds into the
Warehouse Account.
- For any Receivables Borrowing, by depositing those funds into the
Foreclosure Account, P&I Account, or T&I Account, as the
case may be.
- For any Working-Capital Borrowing, by depositing those funds into
the Working-Capital Account.
<PAGE>
(e) Non-remittance Under Credit Request. Absent contrary written
notice from a Lender received by Agent by 4:00 p.m. on the applicable
Borrowing Date, Agent may assume that each Lender has remitted its portion
of a Borrowing, as required by Section 2.2(c), under a Credit Request
available to Agent on the applicable Borrowing Date and may -- but is not
obligated to -- make available to Associates or Ryland, as the case may
be, a corresponding amount. If a Lender fails to remit its portion of
that Borrowing available to Agent on that Borrowing Date as so required --
whether because of that Lender's default, because that Lender is not open
for business on that Business Day, or otherwise -- then Agent may recover
that amount on demand (i) from that Lender, together with interest at the
Fed-Funds Rate, during the period from the Borrowing Date to the date
Agent recovers that amount from that Lender -- which payment is then
deemed to be that Lender's required remittance of that Borrowing -- or
(ii) if that Lender fails to pay that amount upon demand, then from
Associates or Ryland, as the case may be, together with interest at an
annual interest rate equal to the rate applicable to the requested
Borrowing during the period from the Borrowing Date to the date Agent
recovers that amount from Associates or Ryland, as the case may be.
Notwithstanding these provisions, each Lender remains obligated to lend
its portion of that Borrowing as required by Section 2.2(c), assumes the
credit risk for that amount when the Borrowing is made available to or for
Associates or Ryland, as the case may be, and -- after Agent has recovered
the amount of interest provided for in clause (i) above -- is entitled to
interest on that amount from the applicable Borrowing Date.
(f) Other Lender's Responsibility. Although no Lender is
responsible for the failure of any other Lender to remit its required
portion of any Borrowing, the failure of any Lender to remit its required
portion of any Borrowing does not excuse any other Lender from remitting
its required portion of that Borrowing.
2.3 Wet-Borrowing Procedures . The conditions and procedures of
Section 2.2 apply to Wet Borrowings except as follows:
(a) Collateral Documents. A Wet Borrowing may be funded before
delivery to Agent of all of the required Collateral Documents for the
Eligible-Mortgage Loans supporting that Wet Borrowing. The Collateral-
Delivery Notice delivered to Agent for a Wet Borrowing may be sent to
Agent by fax but must identify and describe each Mortgage Loan that
supports that Wet Borrowing and the amount of the Borrowing Base for
Eligible-Mortgage Loans applicable to it. By delivering the
Collateral-Delivery Notice, Ryland confirms its grant under this
agreement of Lender Liens -- from the Borrowing Date for each Wet
Borrowing -- on each Collateral Document offered as Collateral in that
Collateral-Delivery Notice that is perfected subject to the delivery of
the related promissory notes for those Mortgage Loans to Agent or its
bailee.
(b) Funding by Agent. Agent shall make the funds available to
Associates by 4:00 p.m. on the Borrowing Date by depositing these funds
into the Warehouse Account.
2.4 LC Procedures . The following conditions and procedures apply
to LCs:
(a) Credit Request and LC Agreement. Ryland may only request a LC
by delivering to Agent a related Credit Request and LC Agreement before
11:30 a.m. on the second-Business Day before the LC is to be issued.
(b) Participations. Immediately upon Agent's issuance of any LC,
Agent is deemed to have sold and transferred to each other Lender --
and each other Lender is deemed irrevocably and unconditionally to have
purchased and received from Agent -- without recourse or warranty, an
undivided interest and participation in the LC and Agent's obligations
under it to the extent of that Lender's Commitment Percentage of the
face amount of that LC, which participation must be paid for on Agent's
demand if there is ever any LC Obligation outstanding in connection
with it. Agent shall provide a copy of each LC to each other Lender
promptly after issuance.
<PAGE>
(c) Reimbursement Obligation. To induce Agent to issue and
maintain LCs and Lenders to participate in issued LCs, Ryland agrees to
reimburse Agent (i) on demand, on or after the date when any draft or
draw request is presented under any LC, the amount paid by Agent and
(ii) promptly, upon demand, the amount of any additional fees Agent
customarily charges for the application and issuance of a letter of
credit, amending letter of credit applications and agreements, honoring
drafts and draw requests, and taking similar action in connection with
letters of credit. Until repaid by Ryland by a payment or a Borrowing
under Section 2.2, the LC Obligation is a demand obligation and bears
interest at the Default Rate while outstanding. Ryland's obligations
in respect of the LC Obligation are absolute and unconditional under
any and all circumstances and irrespective of any setoff, counterclaim,
or defense to payment that Ryland may have at any time against Agent or
any other Person.
(d) Payments Under LCs. Agent shall promptly notify Ryland of the
date and amount of any draft or draw request presented for honor under
any LC. Agent's failure to give that notice will not affect Ryland's
obligations under this agreement. Agent shall pay the requested amount
upon presentment of a draft or draw request unless presentment on its
face does not comply with the terms of the applicable LC. When making
payment, Agent may disregard (i) any default or potential default that
exists under any other agreement and (ii) obligations under any other
agreement that have or have not been performed by the beneficiary or
any other Person. Agent is not liable for any of those obligations.
(e) Absolute Obligations. Ryland's reimbursement obligations to
Agent and Lenders, and each Lender's obligations to Agent, under this
Section 2.4 are absolute and unconditional irrespective of -- and Agent
is not responsible for -- (i) the validity, enforceability,
sufficiency, accuracy, or genuineness of documents or endorsements
(even if they are in any respect invalid, unenforceable, insufficient,
inaccurate, fraudulent, or forged), (ii) any dispute by Ryland with --
or any claims, setoffs, defenses, counterclaims, or other Rights by
Ryland against -- Agent, any Lender, or any other Person, or (iii) the
occurrence of any Potential Default or Default. However, nothing in
this agreement constitutes a waiver of Ryland's or any Lender's Rights
to assert any claim or defense based upon the gross negligence or
willful misconduct of Agent.
(f) Issuance and Cancellation. Each LC is deemed issued upon
delivery to the beneficiary or Ryland. If Ryland requests any LC be
delivered to Ryland rather than the beneficiary and later cancels that
LC, then Ryland shall return it to Agent together with Ryland's written
certification that it has never been delivered to the beneficiary. If
any LC is delivered to the beneficiary under Ryland's instructions,
Ryland's cancellation is ineffective without Agent's receipt of the
beneficiary's written consent and the LC. RYLAND SHALL INDEMNIFY AGENT AND
EACH LENDER FOR ALL LOSSES, COSTS, DAMAGES, EXPENSES, AND REASONABLE ATTORNEYS'
FEES SUFFERED OR INCURRED BY AGENT OR ANY LENDER RESULTING FROM ANY DISPUTE
CONCERNING RYLAND'S CANCELLATION OF ANY LC.
(g) Agent's Responsibilities. Agent shall exercise and give the
same care and attention to each LC as it gives to its other letters of
credit. In paying any draft or draw under any LC, Agent has no
responsibility to obtain any document (other than any documents
expressly required by the respective LC) or to ascertain or inquire as
to any document's validity, enforceability, sufficiency, accuracy, or
genuineness or the authority of any Person delivering it. Neither
Agent nor its Representatives will be liable to any Lender or either
Company for any LC's use or for any beneficiary's acts or omissions.
Any action, inaction, error, delay, or omission taken or suffered by
Agent or any of its Representatives in connection with any LC,
applicable draws, drafts, or documents, or the transmission, dispatch,
or delivery of any related message or advice, if in good faith and in
conformity with applicable Laws and in accordance with the standards of
care specified in the Uniform Customs and Practices for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500 is binding upon the Companies and Lenders and does not place
Agent or any of its Representatives under any resulting liability to
either Company or any Lender. Agent is not liable to either Company or
any Lender for any action taken or omitted, in the absence of gross
negligence or willful misconduct, by Agent or its Representative in
connection with any LC.
<PAGE>
(h) Cash Collateral. On the Termination Date, during the
continuance of any Default under Section 10.1(d), or upon any demand by
Agent while any other Default exists, Ryland shall provide to Agent,
for the benefit of Lenders, cash collateral in an amount equal to the
then-existing LC Exposure or other collateral acceptable to Agent in
its sole discretion.
(i) INDEMNIFICATION. RYLAND SHALL PROTECT, INDEMNIFY, PAY, AND SAVE
AGENT, EACH LENDER, AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS,
CHARGES, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS'
FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE OF THE
ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE OF AGENT TO HONOR
A DRAFT OR DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR OMISSION
(WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE TRIBUNAL. HOWEVER, NO
PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING FOR ITS OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(j) Other Agreements. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not
incorporated into this agreement in any manner.
(k) Governing Provisions. The fees and other amounts payable with
respect to each LC are as provided in this agreement, drafts and draws
under each LC are part of the Obligation, and the terms of this
agreement control any conflict between the terms of this agreement and
any LC Agreement.
2.5 Increases and Terminations .
(a) Annual Increases. Associates may request any one or more
Lenders to increase their respective share of the Warehouse Sublimit so
that the total Warehouse Sublimit may be increased to no more than
$375,000,000 for a 120-consecutive-day period during each calendar
year. That increase must be effected by an amendment to this agreement
under Section 12.11 that is executed by the Companies, Agent, and the
one or more Lenders selected by Ryland and Agent who have agreed to
increase their Commitments for that period and by Associates' execution
and delivery of an Interim Note to each of those Lenders in the amount
of the increase to its Commitment.
(b) Increases by Lenders. No Lender is obligated to increase its
Commitment under any circumstances, and no Lender's Commitment may be
increased except by its execution of an amendment to this agreement
under Section 12.11.
<PAGE>
(c) Other Increases. The total Commitments may not otherwise be
increased except by an amendment executed by the Companies, Agent, and
all Lenders under Section 12.11.
(d) Terminations. After giving written and irrevocable notice to
Agent and each Lender at least three Business Days before the effective
date of any termination, Associates may fully terminate any one or more
Lenders' Commitments before the Stated-Termination Date except in the
event of Default. A Lender may agree to a partial termination of its
Commitment before the Stated-Termination Date by executing an amendment
under Section 12.11. A full or partial termination under this
clause (d) may only happen if (i) no Default exists unless otherwise
consented to by Lenders (other than the terminating Lender), whose
Termination Percentages total at least 51%, and (ii) requires (A) no
full or partial termination of any other Lender's Commitment, (B) a
mandatory prepayment under Section 3.4(d) on the effective date of the
termination, (C) payment of any related Funding Loss, and (D) no other
premium or penalty.
(e) Stated-Termination Date. The total Commitments automatically
terminate on the Stated-Termination Date.
(f) Reinstatement. Once terminated, no part of any Commitment may
be reinstated except by an amendment to this agreement under Section
12.11.
SECTION 3. PAYMENT TERMS .
3.1 Notes . The Principal Debt of Warehouse Borrowings and
interest on it are evidenced by the Associates Notes. The Principal Debt of
Receivables Borrowings and Working-Capital Borrowings, the LC Obligation, and
interest on the foregoing are evidenced by the Ryland Notes. Notwithstanding
any sale of participating interests under Section 12.14 or related-contrary
notice, the Companies and Agent may deem and treat each Lender as the absolute
owner of its respective one or more Notes for all purposes.
3.2 Payment Procedures .
(a) Payments by Companies. Associates (in respect of any of the
Obligation related to Warehouse Borrowings) or Ryland (in respect of
any of the Obligation related to Receivables Borrowings and Working-
Capital Credits) shall make each payment and prepayment on the
Obligation to Agent, on behalf of Lenders, in accordance with Agent's
Wiring Instructions on Schedule 1.1(b) and in funds that are available
for immediate use by Agent. Payments that are received by 1:00 p.m. on
a Business Day are deemed received on that Business Day. Payments that
are received after 1:00 p.m. on a Business Day are deemed received on
the next Business Day. Subject to Section 3.9, applicable interest
continues to accrue through the calendar day immediately before the
Business Day on which the payment is deemed received. Each day, Agent
will provide each Lender with the LIBOR rate in effect for that day.
Each Lender must directly invoice Ryland for interest under this
agreement for the Warehouse Sublimit only. Agent will provide the
interest invoices for interest under the Receivables/Working Capital
Sublimit. Ryland or Associates, after reviewing such invoice, shall
forward the invoice to Agent for distribution of funds to each Lender
in accordance with such invoice. All interest invoices received by
Agent from Ryland are deemed correct. Any dispute in interest amount
must be resolved between Ryland and such Lender directly.
<PAGE>
(b) Distributions by Agent. When received under clause (a) above,
Agent shall distribute each payment by wire transfer to each
appropriate Lender, in accordance with each Lender's share under
Section 3.5, reasonably promptly after receipt but by no later than
2:30 p.m. on the Business Day the payment is deemed to be received by
Agent under clause (a) above. If Agent fails to distribute any payment
to any Lender as required by this clause, then Agent shall pay to that
Lender on demand interest on that payment, from the date due under this
clause until paid, at an annual interest rate equal from day to day to
the Fed-Funds Rate.
3.3 Scheduled Principal and Interest . Associates (in respect
of any of the Obligation related to Warehouse Borrowings) or Ryland (in
respect of any of the Obligation related to Receivables Borrowings and
Working-Capital Credits) shall make scheduled payments of the Principal Debt
and interest on it as provided in this section. Each interest payment may be
deferred until the later of either the due date or the date that is three
Business Days after the appropriate Company is given written notice of the
amount of it. Unless otherwise provided in this agreement:
(a) LIBOR-Borrowing Interest. For each LIBOR Borrowing, Associates
(in respect of Warehouse Borrowings) or Ryland (in respect of Working-
Capital Borrowings) shall pay interest as it accrues on its Interest
Period's last day and -- if the Interest Period is longer than three
months -- 90 days after its Interest Period's first day and each 90
days after that.
(b) Non-LIBOR-Borrowing Interest. For each Non-LIBOR Borrowing,
Associates (in respect of Warehouse Borrowings) or Ryland (in respect
of Receivables Borrowings and Working-Capital Borrowings) shall pay
interest as it accrues (i) through the last day of the Calendar Month
preceding the payment date, on the 15th day of each Calendar Month
beginning July 15, 1995, and (ii) on the Termination Date.
(c) Default-Rate Interest. Associates (in respect of Warehouse
Borrowings) or Ryland (in respect of Receivables Borrowings and
Working-Capital Credits) shall pay interest at the Default Rate on
demand as it accrues.
(d) LC Obligation. Ryland shall pay the LC Obligation on demand.
(e) Interim Notes. Associates shall pay the full Obligation
evidenced by any Interim Note on its stated maturity date.
(f) Obligation. Associates (in respect of any of the Obligation
related to Warehouse Borrowings) or Ryland (in respect of any of the
Obligation related to Receivables Borrowings and Working-Capital
Credits) shall pay the full unpaid Principal Debt and all other
remaining Obligation on the Termination Date.
(g) Existing Obligation. In respect of the Existing Obligation, the
Companies shall (i) on the Closing Date, pay to each Terminated Lender
all Existing Obligation owed to that Terminated Lender, (ii) on the
Closing Date, pay to each Lender the amount of principal owed to that
Lender under the Existing-Loan Agreement that would exceed any of the
Borrowing limitations applicable to that Lender under Section 2.1, and
(iii) on the dates that such interest and fees would otherwise be
payable under this agreement, pay to each Lender all unpaid interest
and fees accrued to that Lender's benefit as of the Closing Date under
the Existing-Loan Agreement.
3.4 Prepayments .
(a) P&I Borrowings. For at least 10-consecutive days during each
30-consecutive-day period, Ryland shall pay all -- and not owe any --
Principal Debt of Tranche A for P&I Borrowings and of Tranche B for P&I
Borrowings -- as those terms are described in Section 2.1(f) -- which
10-day period may be different for that Tranche A and Tranche B.
<PAGE>
(b) T&I Borrowing. Ryland shall pay the Principal Debt of each T&I
Borrowing on or before the earlier of either 180 days after its
Borrowing Date or the Termination Date.
(c) Foreclosure Borrowing. Ryland shall pay the Principal Debt of
each Foreclosure Borrowing on or before the earlier of either 270 days
after its Borrowing Date or the Termination Date.
(d) Commitment Termination. Associates (in respect of any of the
Obligation related to Warehouse Borrowings) or Ryland (in respect of
any of the Obligation related to Receivables Borrowings and Working-
Capital Credits) shall -- on the date that full or partial termination
of a Lender's Commitment becomes effective under Section 2.5 -- pay to
that Lender the full Obligation owed to it in the case of a full
termination or the Principal Debt owed to it that exceeds its reduced
Commitment, as the case may be.
(e) Borrowing Excess. If at any time any Borrowing Excess exists,
then -- before the close of business on the third-Business Day after
the Companies receive written notice from Agent of the amount and
nature of the Borrowing Excess -- Associates (in respect of Warehouse
Borrowings) or Ryland (in respect of Receivables Borrowings and
Working-Capital Credits) shall take the following applicable action
that eliminates that Borrowing Excess:
(i) For a Borrowing Excess that is not capable of elimination
by delivery of additional Collateral or an increase in the total or any
applicable Borrowing Base -- e.g., an excess under Sections 2.1(a)(i) -- or
when a Default exists, prepay to Agent for distribution to the appropriate one
or more Lenders Principal Debt of the appropriate one or more Borrowing
Categories (together with any related Funding Loss).
(ii) For any other Borrowing Excess and only when no Default
exists, either (A) deliver to Agent, in accordance with this agreement,
additional Collateral that causes the total or the applicable Borrowing Base,
as the case may be, to increase, (B) prepay to Agent for distribution to the
appropriate one or more Lenders Principal Debt of the appropriate one or more
Borrowing Categories (together with any related Funding Loss), or (C) any
combination of the actions under clauses (A) or (B) above.
(f) Voluntary Prepayments. Associates or Ryland may voluntarily
prepay all or any of the Obligation at any time without premium or
penalty, but with any applicable Funding Loss.
3.5 Order of Application . All payments and proceeds -- whether
voluntary, involuntary, through the exercise of any Right of set-off or other
Right, realization against any Collateral, or otherwise and whether a Default
exists or not -- shall be applied in the following order:
(a) No Default. While no Default exists, in the order and manner
as Associates or Ryland, as the case may be, directs, except that
principal payments must always be applied in the following order and
manner:
(i) LC Obligation -- payable solely to Agent -- which Agent
shall distribute in accordance with the participation interests in
that LC Obligation that any one or more Lenders have purchased and
paid for under Section 2.4(b).
<PAGE>
(ii) Principal Debt in the order below (except as the order
may be rearranged by Agent to the extent possible to avoid the
application of any Funding Loss for LIBOR Borrowings) -- payable
to Lenders as provided in clause (iii) below. Principal Debt
shall be applied (A) to the Borrowing Category to the extent the
collections or proceeds are from or arose in respect of the
Collateral in its Borrowing Base and (B) then in the following
order:
- Working-Capital Borrowings
- P&I Borrowings
- T&I Borrowings
- Foreclosure Borrowings
- Wet Borrowings
- Dry Borrowings
- Gestation Borrowings
(iii) Payments under clause (ii) above shall be applied (A)
in respect of Working-Capital Borrowings, P&I Borrowings, T&I
Borrowings, and Foreclosure Borrowings, ratably to each Lender in
accordance with its Commitment Percentage, and (B) in respect of
each other Borrowing, to the Lender that extended the Borrowing as
selected among the same Borrowing Category by the Companies.
(b) Default or No Direction. While a Default exists or if the
appropriate Company fails to give any direction, in the following order
and manner:
(i) All costs and expenses incurred by Agent in connection
with its duties under the Loan Papers -- including, without
limitation, fees and expenses paid by Agent to any servicing
companies retained by Agent to assist it in servicing any
Collateral required to be serviced, to any attorneys, or to any
agents -- that have not been reimbursed by Lenders, together with
interest at the Default Rate, payable solely to Agent.
(ii) All costs and expenses incurred by any Lender in
connection with the Loan Papers that are reimbursable to it under
the Loan Papers and all amounts paid by that Lender to Agent as a
reimbursement to it of costs and expenses incurred by Agent in
connection with its duties under the Loan Papers, together with
interest at the Default Rate -- payable ratably to Lenders in the
proportion that each Lender's share of those costs and expenses
bears to the total of those costs and expenses for all Lenders.
(iii) Accrued and unpaid interest on the Obligation --
payable ratably to Lenders in the proportion that the amount of
interest owed to each Lender bears to the total of all interest
owed to all Lenders.
(iv) LC Obligation -- payable solely to Agent, which Agent
shall distribute in accordance with the participation interests in
that LC Obligation that any one or more Lenders have purchased and
paid for under Section 2.4(b).
(v) Principal Debt in the order below -- payable ratably to
each Lender in accordance with its Termination Percentage -- except as the
order may be rearranged by Agent to the extent possible to avoid the
application of any Funding Loss for LIBOR
<PAGE>
Borrowings. Principal Debt shall be applied (A) to the Borrowing
Category to the extent the collections or proceeds are from or
arose in respect of the Collateral in its Borrowing Base and (B)
then any excess will be applied in the following order:
- Working-Capital Borrowings
- P&I Borrowings
- T&I Borrowings
- Foreclosure Borrowings
- Wet Borrowings
- Dry Borrowings
- Gestation Borrowings
(vi) All other portions of the Obligation -- payable
ratably to Lenders in the proportion that each Lender's share of
those amounts bears to the total of those amounts for all Lenders.
(vii) Either (A) to Ryland or to its successors or assigns
on behalf of the Companies, to be divided between them as they may
agree, or (B) as a court of competent jurisdiction may direct.
3.6 Sharing . If any Lender obtains any amount -- whether
voluntary, involuntary, or otherwise, including, without limitation, as a
result of exercising its Rights under Section 10.3 -- that exceeds the portion
of that amount it is otherwise entitled under the Loan Papers to receive, then
that Lender shall purchase from the other Lenders participations that result
in the purchasing Lender's sharing the excess amount ratably with each Lender
in accordance with the portion it is entitled to receive under the Loan
Papers. If all or any of that excess amount is subsequently recovered from
that purchasing Lender, then the purchase of participations in it is
automatically rescinded and the purchase price restored to that purchasing
Lender to the extent of the recovery. Any Lender purchasing a participation
from another Lender under this section may, to the extent lawful, exercise all
of its Rights of payment (including the Right of offset) with respect to that
participation as fully as if that Lender were the direct creditor of either
Company in the amount of that participation.
3.7 Interest Rates . Unless otherwise provided in this agreement,
the Principal Debt and any past-due interest owed to each Lender bears
interest at an annual interest rate equal to the lesser of either the Maximum
Rate or:
(a) LIBOR Borrowings. For the Principal Debt of a LIBOR Borrowing:
The LIBOR Rate applicable to its Interest Period.
(b) Non-LIBOR Borrowings.
(i) For the Average-Principal Debt for all Non-LIBOR
Borrowings owed to a Depositary during any Calendar Month that does not exceed
that Depositary's Average-Depositary Balances for that Calendar Month: The
Applicable Margin for the Fed-Funds Rate.
(ii) For the Average-Principal Debt for all Non-LIBOR
Borrowings owed to any Lender during any Calendar Month and not bearing
interest under clause (i) above: The Average-Adjusted-Fed-Funds Rate for that
Calendar Month.
(c) Default Rate. For all past-due Principal Debt and past-due
interest on the Principal Debt:
<PAGE>
(i) For the Average-Principal Debt for all Non-LIBOR
Borrowings and all past-due accrued interest on those
Borrowings owed to a Depositary during any Calendar Month that
does not collectively exceed that Depositary's Average-
Depositary Balances for that Calendar Month: 2.5%.
(ii) For the Average-Principal Debt for all Non-LIBOR
Borrowings and all past-due accrued interest on those
Borrowings owed to any Lender during any Calendar Month and not
bearing interest under clause (i) above and for the Principal
Debt of all LIBOR Borrowings and all past-due accrued interest
on those Borrowings: The Default Rate.
3.8 Interest Calculations .
(a) Interest is calculated on the basis of actual days (including
the first but excluding the last) elapsed over a year of 360 days (or,
if that calculation would result in interest greater than the Maximum
Amount, 365 or 366 days, as the case may be).
(b) The provisions of this agreement relating to calculation of the
Average Fed-Funds Rate and the LIBOR Rate are included only for the
purpose of determining the rate of interest or other amounts to be paid
under this agreement that are based upon those rates. Each Lender may
fund and maintain its funding of all or any part of each Borrowing as
it selects.
3.9 Maximum Rate . Regardless of any Loan-Paper provision, no
Lender is entitled to contract for, charge, take, reserve, receive, or apply,
as interest on all or any of the Obligation any amount in excess of the
Maximum Rate. If a Lender ever does so, then any excess is treated as a
partial prepayment of principal, and any remaining excess shall be refunded to
Associates or Ryland, as the case may be. In determining if the interest paid
or payable exceeds the Maximum Rate, the Companies and Lenders shall, to the
extent lawful (a) treat all Borrowings as but a single extension of credit,
(b) characterize any nonprincipal payment as an expense, fee, or premium
rather than as interest, (c) exclude voluntary prepayments and their effects,
and (d) amortize, prorate, allocate, and spread the total amount of interest
throughout the full-contemplated term of the Obligation. However, if the
Obligation is paid in full before the end of that full-contemplated term and
the interest received for the Obligation's actual period of existence exceeds
the Maximum Amount, then Lenders shall refund any excess without being subject
to any penalties provided by any Laws. If Texas Laws are applicable for
purposes of determining the "Maximum Rate" or the "Maximum Amount," then those
terms mean the "indicated rate ceiling" from time to time in effect under
Article 1.04, Title 79, Texas Revised Civil Statutes, as amended. Chapter 15,
Subtitle 79, Texas Revised Civil Statutes, 1925 (which regulates certain
revolving credit loan accounts and revolving triparty accounts), does not
apply to the Obligation.
3.10 Interest Periods . When either Company requests any LIBOR
Borrowing, it may elect the applicable interest period (each an "Interest
Period") -- which may be either one, two, three, or six months at its option
or such other period as it and Agent may agree (after first obtaining
Determining Lender approval if for more than six months) -- subject to the
following conditions: (a) The initial Interest Period commences on the
applicable Borrowing Date or Conversion Date, and each subsequent applicable
Interest Period commences on the day when the next preceding applicable
Interest Period expires; (b) if any Interest Period begins on a day for which
no numerically corresponding Business Day in the calendar month at the end of
the Interest Period exists, then the Interest Period ends on the last Business
Day of that calendar month; (c) if an Interest Period would otherwise not end
on a Business Day, it shall end on the immediately preceding Business Day;
(d) no Interest Period for any portion of the Obligation may extend beyond the
scheduled repayment date for that portion of the Obligation; and (e) no more
than five Interest Periods may be in effect at any time.
<PAGE>
3.11 Conversions . Associates or Ryland, as the case may be, may
(a) convert a LIBOR Borrowing on the last day of the applicable Interest
Period to another Borrowing Type, (b) convert another Borrowing Type (subject
to Section 3.16) at any time to a LIBOR Borrowing, and (c) elect a new
Interest Period for a LIBOR Borrowing, by giving a Conversion Request to Agent
and each Lender no later than 9:30 a.m. on the day (the "Conversion Date")
that is the third Business Day before the last day of the applicable Interest
Period. However, a Borrowing may not be converted to or continued as a LIBOR
Borrowing if a Default exists, and, absent the applicable Company's timely
Conversion Request, a LIBOR Borrowing is deemed converted to a Fed-Funds
Borrowing effective when the applicable Interest Period expires.
3.12 Booking Borrowings . To the extent lawful, any Lender may
make, carry, or transfer the Principal Debt owed to it at, to, or for the
account of any of its branch offices or the office of any of its Affiliates.
However, no Affiliate of any Lender is entitled to receive any greater payment
under Section 3.14 than the transferor Lender would have been entitled to
receive with respect to that Principal Debt, and no Lender is entitled to
receive any greater payment under Section 3.14 on account of a transfer of
that Principal Debt to or for the account of a branch office -- other than the
one specified on Schedule 1.1(a) -- than it would have been entitled to
receive with respect to that Principal Debt if that transfer had not been
made. Each Lender shall use its reasonable efforts (consistent with its
internal policies and applicable Law) to make, carry, maintain, or transfer
its part of any Principal Debt with its Affiliates or branch offices in an
effort to eliminate or reduce to the extent possible the total amounts due to
it under Sections 3.14 and 3.15 if, in its reasonable judgment, those efforts
will not be disadvantageous to it.
3.13 Basis Unavailable or Inadequate for LIBOR Rate . If, on or
before any date when a LIBOR Rate is to be determined for a Borrowing, Agent
or any Lender (upon notice to Agent) determines that the basis for determining
the applicable rate is not available or that the resulting rate does not
accurately reflect the cost to Lenders of making or converting Borrowings at
that rate for the applicable Interest Period, then Agent shall promptly notify
the Companies of that determination (which is conclusive and binding on the
Companies, absent manifest error) and that Borrowing shall be a Fed-Funds
Borrowing. Until Agent notifies the Companies that it or the notifying
Lender (upon notice to Agent) has determined that those circumstances no
longer exist -- which it shall promptly do -- Lenders' commitments under this
agreement to make or convert to LIBOR Borrowings are suspended.
3.14 Additional Costs . This section survives the full satisfaction
of the Obligation and termination of the Loan Papers, and release of Lender
Liens.
(a) For any LIBOR Borrowing, if (i) (A) any change after the date
of this agreement in any present Law -- and for purposes of this
Section 3.14, Law includes interpretations and guidelines of any
Tribunal whether or not having the force of Law -- or any future Law
imposes, modifies, or deems applicable (or if compliance by any Lender
with any requirement of any Tribunal results in) any requirement that
any reserves (including, without limitation, any marginal, emergency,
supplemental, or special reserves) be maintained, (B) those reserves
reduce any sums receivable by that Lender under this agreement or
increase the costs incurred by that Lender in advancing or maintaining
any portion of any LIBOR Borrowing, and (C) that Lender determines that
the reduction or increase is material (and it may, in determining the
material nature of the reduction or increase, utilize reasonable
assumptions and allocations of costs and expenses and use any
reasonable averaging or attribution method), then (ii) that Lender
(through Agent) shall deliver to the Companies a certificate stating in
reasonable detail the calculation of the amount necessary to compensate
it for its reduction or increase (which certificate is conclusive and
binding absent manifest error), and Associates or Ryland, as the case
may be, shall pay that amount to that Lender within ten days after
demand.
<PAGE>
(b) For any Borrowing, if (i) (A) any change after the date of this
agreement in any present Law or any future Law regarding capital
adequacy or compliance by any Lender with any request, directive, or
requirement now or in the future imposed by any Tribunal regarding
capital adequacy or any change in the risk category of this transaction
reduces the rate of return on its capital as a consequence of its
obligations under this agreement to a level below that which it
otherwise could have achieved (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by it to be
material (and it may, in determining the amount, utilize reasonable
assumptions and allocations of costs and expenses and use any
reasonable averaging or attribution method), then (ii) that Lender
(through Agent) shall notify the Companies and deliver to the Companies
a certificate stating in reasonable detail the calculation of the
amount necessary to compensate it (which certificate is presumed
correct), and Associates or Ryland, as the case may be, shall pay that
amount to Lender within ten days after demand.
(c) Any Taxes payable by Agent or any Lender or ruled (by a
Tribunal) payable by Agent or any Lender in respect of any Loan Paper
shall -- if permitted by Law and if deemed material by Agent or that
Lender (who may, in determining the material nature of the amount
payable, utilize reasonable assumptions and allocations of costs and
expenses and use any reasonable averaging or attribution method) -- be
paid by Ryland, together with interest and penalties, if any (except
for Taxes payable on the overall net income of Agent or that Lender and
except for interest and penalties incurred as a result of the gross
negligence or willful misconduct of Agent or any Lender). Agent or
that Lender (through Agent) shall notify Ryland and deliver to Ryland a
certificate stating in reasonable detail the calculation of the amount
of payable Taxes, which certificate is conclusive and binding (absent
manifest error), and Ryland shall pay that amount to Agent for the
account of Agent or that Lender, as the case may be, within ten days
after demand. If Agent or that Lender subsequently receives a refund
of the Taxes paid to it by Ryland, then the recipient shall promptly
pay the refund to Ryland.
3.15 Change in Laws . If any change, after the date of this
agreement, in any present Law or any future Law makes it unlawful for any
Lender to make or maintain LIBOR Borrowings, then that Lender shall promptly
notify Agent, who shall promptly notify the Companies and (a) as to
undisbursed funds, any requested Borrowing shall be made as a Fed-Funds
Borrowing, (b) as to any outstanding Borrowing (i) if maintaining the
Borrowing until the last day of the applicable Interest Period is unlawful,
the Borrowing shall be converted to a Fed-Funds Borrowing as of the date of
notice, but neither Company is obligated to pay any related Funding Loss, or
(ii) if not prohibited by Law, the Borrowing shall be converted to an Fed-
Funds Borrowing as of the last day of the applicable Interest Period, or
(iii) if any conversion will not resolve the unlawfulness, Associates or
Ryland, as the case may be, shall promptly prepay the Borrowing, without
penalty, and without payment of any related Funding Loss. No Conversion
Request is required to be delivered in connection with any conversion under
this Section 3.15.
3.16 Funding Loss . Subject to Section 3.15, THE COMPANIES JOINTLY
AND SEVERALLY AGREE (IN RESPECT OF WAREHOUSE BORROWINGS) AND RYLAND AGREES
(IN RESPECT OF OTHER BORROWINGS) TO INDEMNIFY EACH LENDER AGAINST -- AND PAY
TO IT UPON DEMAND -- ANY FUNDING LOSS OF THAT LENDER. When any Lender
demands that a Company pay any Funding Loss, that Lender shall deliver to
Agent who shall promptly deliver to the Companies a certificate stating in
reasonable detail the basis for imposing Funding Loss and the calculation of
the amount, which calculation shall be presumed correct. This Section 3.16
survives the satisfaction and payment of the Obligation and termination of
the Loan Papers.
3.17 Foreign Lenders, Participants, and Purchasers . Each Lender,
Participant (by accepting a participation interest under this agreement), and
Purchaser (by executing an Assignment) that is not organized under the Laws of
<PAGE>
the United States of America or one of its states (a) represents to Agent and
the Companies that (i) no Taxes are required to be withheld by Agent or either
Company with respect to any payments to be made to it in respect of the
Obligation and (ii) it has furnished to Agent and the Companies two duly
completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001,
Form W-8, or any other form acceptable to Agent that entitles it to exemption
from U.S. federal withholding Tax on all interest payments under the Loan
Papers, and (b) covenants to (i) provide Agent and the Companies a new Form
4224, Form 1001, Form W-8, or other form acceptable to Agent upon the
expiration or obsolescence of any previously delivered form according to Law,
duly executed and completed by it, and (ii) comply from time to time with all
Laws with regard to the withholding Tax exemption. If any of the foregoing is
not true or the applicable forms are not provided, then the Companies and
Agent (without duplication) may deduct and withhold from interest payments
under the Loan Papers United States federal income Tax at the full rate
applicable under the Code.
3.18 Fees . The following are not compensation for the use,
detention, or forbearance of money, are in addition to and not in lieu of
interest and expenses otherwise described in the Loan Papers, are non-
refundable, to the extent lawful, bear interest if not paid when due at the
Default Rate, and are calculated on the basis of actual days (including the
first but excluding the last) elapsed over a year of 360 days (or 365 or 366
days, as the case may be, if the calculation would otherwise result in
exceeding the Maximum Amount and the payment were deemed to be interest
notwithstanding the above provisions to the contrary):
(a) Agent's Fees. The Companies shall pay to Agent -- for its sole
account -- an annual administrative fee and a custodial fee in an
amount and on such payment terms as may be agreed upon by the Companies
and Agent in writing.
(b) Commitment Fees. Ryland shall pay to Agent for each Lender two
commitment fees -- one based on that Lender's Commitment and another
based on that Lender's Commitment Percentage of the Working-Capital
Sublimit.
(i) Those commitment fees are payable in advance on (A) the
Closing Date for the Calendar Quarter in which it occurs and
(B) on the first day of each Calendar Quarter after the Closing
Date.
(ii) The amount of those commitment fees are a percentage
per annum -- calculated on the basis of 15 basis points of the
Commitment Percentage of the Warehouse Sublimit, and 33 basis
points of the Commitment Percentage of the Receivables/Working-
Capital Sublimit
(c) LC Fees. As a condition to the issuance or extension of a LC, Ryland
shall pay to Agent a fee equal to the product of (i) 1.0% of the face
amount of the LC times (ii) a fraction, the numerator of which is the
number of months from the issuance date to the expiry date (and rounded
up to the nearest whole month) and the denominator of which is 12.
Agent will keep, for its own account, 25% of each such fee paid and
will divide among all Lenders, including Agent, ratably according to
their LC participation amounts, the remaining 75%. Ryland shall also
pay on demand and solely for Agent's account any and all additional
customary LC fees charged by Agent, including those relating to
confirming, negotiating, or amending LCs. Agent shall refund to Ryland
any unearned LC fee that Ryland has paid to Agent in respect of the
undrawn portion of any LC that is cancelled before its expiration date.
<PAGE>
SECTION 4. SECURITY .
4.1 Guaranty .
(a) Guaranty. To induce Agent and Lenders to enter into this
agreement and extend credit to Associates and for other good and
valuable consideration -- including, without limitation, the facts
stated in the recitals to this agreement -- but not as a condition to
Lenders' agreements to extend credit to Ryland under this agreement,
Ryland unconditionally and irrevocably guarantees to Agent and each
Lender (i) the prompt payment of the Obligation related in any way to
Warehouse Borrowings (the "Warehouse Obligation") at maturity -- by
acceleration or otherwise -- and at all times after maturity in
accordance with the Loan Papers and (ii) the prompt performance of and
compliance with every term, covenant, and condition of the Loan Papers
when due. Ryland acknowledges and agrees that this agreement expressly
refers to each of the Loan Papers, including, without limitation, the
Notes.
(b) Nature of Liability. "This guaranty" refers to this Section
4.1, which is an absolute, irrevocable, and continuing guaranty, and
Ryland's liability for any future Warehouse Obligation is not released
or reduced by the payment and performance of the Warehouse Obligation
in full from time to time and constitutes a renewal and extension of
Ryland's guaranty under Section 4.1 of the Existing-Loan Agreement.
(c) Payment and Performance by Ryland. If Associates fails to pay
or perform any Warehouse Obligation when due, Ryland shall pay or
perform that Warehouse Obligation on demand and without notice of
acceptance of this guaranty, creation of any Warehouse Obligation, any
Default, or Potential Default, presentment and demand for payment,
protest, nonpayment, dishonor, notice of the intent to accelerate, and
notice of acceleration, all of which Ryland waives.
(d) No Requirement to Pursue Other Rights. In order to enforce
payment and performance by Ryland, it is not necessary for Agent or any
Lender first or concurrently to institute suit or exhaust Rights
against Associates or any other Person or enforce Rights against any
present or future Collateral or other security.
(e) Effect of Certain Default. If a Default occurs under Section
10.1(d) in respect of Ryland, then the Obligation is, as between
Ryland, Lenders, and Agent, a fully matured, due, and payable
obligation of Ryland to Agent and Lenders -- without regard to whether
a Default or Potential Default then exists or whether any of the
Warehouse Obligation is then due and payable to Agent or any Lender --
payable in full by Ryland to Agent and Lenders.
(f) Other Debts. If Ryland becomes liable -- by endorsement or
otherwise -- for any debt of Associates to Agent or any Lender that is
not part of the Warehouse Obligation, then that liability is not in any
manner impaired or affected by this guaranty.
(g) Subordinated Debt. All Subordinated Debt is expressly
subordinated to the full payment and performance of the Warehouse
Obligation. Ryland may not receive or accept any payment from
Associates for any Subordinated Debt at any time when any Warehouse
Obligation is outstanding. If Ryland receives any payment of any
Subordinated Debt in violation of this section, Ryland shall hold that
payment in trust for Agent on behalf of Lenders and immediately turn it
over to Agent -- in the form received but with any necessary
endorsements -- to be applied to the Warehouse Obligation.
(h) Independent Analysis. Ryland may not rely upon Agent or any
Lender about -- and each expressly assumes all responsibilities to
remain informed about -- Associates' financial condition and any
circumstances affecting Associates' ability to pay or perform the
Warehouse Obligation.
<PAGE>
(i) Waiver of Certain Rights Against Others. Ryland may not
assert, enforce, or otherwise exercise -- and Ryland irrevocably
waives -- until payment in full of the Obligation (a) any Right of
subrogation to any of Agent's or any Lender's present or future Rights
or Collateral with respect to any Warehouse Obligation, (b) any Right
of recourse, reimbursement, contribution, indemnification, or similar
Right against any Person with respect to the payment or performance of
any Warehouse Obligation, and (c) any Right to participate in any
security or assurances for any Warehouse Obligation.
(j) Waiver of Certain Procedural Rights. Ryland waives all Rights
by which it might be entitled to require suit on an accrued Right of
action in respect of any Warehouse Obligation or require suit against
Associates or any other Person -- whether arising under (i) Sec. 34.02 of
the Texas Business and Commerce Code, which is about certain Rights to
require suit on accrued Rights of action following written notice, (ii)
Sec. 17.001 of the Texas Civil Practice and Remedies Code, which allows
suit against certain guarantors without suit against certain principal
obligors but precludes entry of judgment against certain guarantors
before entry of judgment against certain principal obligors, (iii) Rule
31 of the Texas Rules of Civil Procedure, which requires joinder of
certain principal obligors in suits against certain guarantors unless
judgment has been entered against those principal obligors, or (iv)
otherwise.
(k) Non-impairment. The occurrence or existence of any one or more
of the following -- with or without notice to or consent by Ryland --
does not release or reduce Ryland's liability under this guaranty: (i)
Agent or any Lender taking or accepting any other security or assurance
for any Warehouse Obligation; (ii) any release, surrender, exchange,
subordination, impairment, or loss of any security or assurance for any
Warehouse Obligation; (iii) any partial or full release of any other
Person's liability for any Warehouse Obligation; (iv) the insolvency,
bankruptcy, or lack of corporate, partnership, trust, or other power or
authority of any Person; (v) any renewal, extension, or rearrangement
of the payment or performance of -- or any assignment of -- any
Warehouse Obligation; (vi) any new agreement with -- or adjustment,
indulgence, forbearance, compromise, or release ever granted to any
other Person; (vii) any neglect, delay, omission, failure, or refusal
by Agent or any Lender to take or prosecute any action for the
collection of any Warehouse Obligation or to foreclose, take, or
prosecute any action under any document evidencing or securing any
Warehouse Obligation; (viii) the unenforceability of any Warehouse
Obligation against any Person because it exceeds the amount permitted
by Law, the act of creating it is ultra vires, or any individual
creating it exceeded his authority or violated his fiduciary duties in
connection with it; (ix) Agent or any Lender becomes required to refund
any payment or make payment to any other Person because any payment to
Agent or that Lender by any Person for any Warehouse Obligation is held
to constitute a preference under any Debtor Law or otherwise; or (x)
any existing or future offset, claim, or defense (except for the
defense of full payment and performance of the Warehouse Obligation
after the running of any preference period after that payment and
performance) of any other Person against Agent or any Lender or against
payment or performance of any Warehouse Obligation -- whether that
offset, claim, or defense arises in connection with the Warehouse
Obligation or otherwise -- and such claims and defenses include,
without limitation, failure of consideration, breach of warranty,
fraud, statute of frauds, bankruptcy, infancy, statute of limitations,
lender liability, accord and satisfaction, and usury.
<PAGE>
4.2 Collateral .
(a) From Associates. To secure the full payment and performance
of the Warehouse Obligation, Associates assigns, conveys, and grants
to -- and creates in favor of -- Agent a Lender Lien in:
- The Intercompany Note.
- The Warehouse Account and all amounts deposited in it or
represented by it.
- Cash and noncash proceeds of any Collateral otherwise
described in this clause (a).
(b) From Ryland. To secure the full payment and performance of the
full Obligation and the guaranty in Section 4.1, Ryland assigns,
conveys, and grants to -- and creates in favor of -- Agent Lender Liens
in all of the following items and types of property -- collectively,
together with the collateral described in clause (a) above and any
other present and future security for any of the Obligation, the
"Collateral" -- without transferring to Agent or any Lender any of
Ryland's obligations in respect of any of the following:
(i) In respect of Mortgage Collateral, all present and
future:
- Mortgage Loans -- including, without limitation, all
promissory notes evidencing and all mortgages, deeds
of trust, or trust deeds securing those Mortgage
Loans -- which from time to time are either (A)
deposited with or held by or for Agent under this
agreement or (B) identified by Ryland as support for a
Wet Borrowing.
- Mortgage Securities -- the Mortgage Pools for which
consists of Mortgage Loans that were Mortgage Loans
constituting part of the Collateral -- deposited with
or held by or for Agent under this agreement or
registered by book-entry in Agent's name under this
agreement.
- Private-mortgage insurance (including, without
limitation, all commitments to issue any such
insurance) covering -- and all commitments issued by
FHA to insure or issued by VA or GNMA to guarantee --
any Mortgage Loans included in the Collateral.
- Guaranties related to Mortgage Securities
included in the Collateral.
- Take-Out Commitments held by Ryland covering any Mortgage
Collateral and all proceeds resulting from the sale of
Mortgage Collateral to investors under Take-Out
Commitments.
- Security of any kind pledged by a mortgagor for
any Mortgage Collateral.
- Casualty insurance assigned to Ryland in
connection with any Mortgage Loan.
<PAGE>
(ii) In respect of the Servicing Portfolio, all present and
future:
- Servicing Rights pertaining in any way to Ryland's
Servicing Contracts with FHLMC, FNMA, or GNMA,
together with all present and future sums paid or
payable to Ryland on account of, or as a result of the
performance of, those Servicing Rights, whether as
compensation for the performance by Ryland, damages
related to any of the foregoing, amounts payable upon
cancellation or termination hereof, or otherwise.
- Servicing Receivables.
(iii) The Foreclosure Account, P&I Account, Settlement
Account, T&I Account, Working-Capital Account and all amounts
deposited in them or represented by them.
(iv) In respect of all of the Collateral otherwise
described in this clause (b), all present and future:
- Personal property, contract Rights, accounts, and
general intangibles of any kind whatsoever relating to
any of the Collateral otherwise described in this
clause (b).
- All files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, discs, cards,
accounting records, and other information and data of
Ryland relating to any Collateral otherwise described
in this clause (b) -- including, without limitation,
all information, data, programs, tapes, discs, and
cards necessary to administer and service any Mortgage
Loans with respect to which Ryland has Servicing
Rights in respect of the Servicing Portfolio.
- Cash and noncash proceeds of any of the
Collateral otherwise described in this clause (b).
(c) Renewal of Lender Liens. The Lender Liens under this Section
4.2 are renewals and extensions of the Lender Liens arising under the
Existing-Loan Agreement, including, without limitation, those evidenced or
perfected by the following financing statements, each executed by the
appropriate Company (including Ryland's three trade-names) as debtor and
Agent as secured party, and filed with the following jurisdictions, and
otherwise described as follows:
<TABLE>
<CAPTION>
Name Jurisdiction Number Date
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Associates Sec. of State,
DE 9408671 06/28/94
Sec. of State,
MD 41788224; Liber
3617, Folio 1928 06/27/94
Howard Co., MD 015451; Liber
0146, Folio 530 06/23/94
</TABLE>
<PAGE>
<TABLE>
Name Jurisdiction Number Date
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Sec. of State, TX 120435 06/20/94
Ryland Sec. of State, MD 4174887 and 41748193;
Liber 3617, Folio
1545 06/23/94
Howard Co., MD 015482; Liber 0146,
Folio 673 06/30/94
Sec. of State, OH 06159409102 06/15/94
Sec. of State, TX 115336 06/14/94
Ryland Funding
Group Sec. of State, MD 141747383; Liber
3617, Folio 1549 06/23/94
Howard Co., MD 015483; Liber 0146,
Folio 677 06/30/94
Sec. of State, OH 06159409103 06/15/94
Sec. of State, TX 115337 06/14/94
Rylco Funding
Group Sec. of State, MD 14747384; Liber 3617,
Folio 1553 06/23/94
Howard Co., MD 015484; Liber 0146,
Folio 681 06/30/94
Sec. of State, OH 06159409104 06/15/94
Sec. of State, TX 115338 06/14/94
RMC Mortgage Corp. Sec. of State, MD 141747385; Liber 3617,
Folio 1557 06/23/94
Howard Co., MD 015485; Liber 0146,
Folio 685 06/30/94
Sec. of State, OH 06159409101 06/15/94
Sec. of State, TX 115339 06/14/94
</TABLE>
Therefore, the Companies (i) ratify and confirm that all of those Lender Liens
are not released, reduced, or otherwise adversely affected by this agreement
and continue to secure full payment and performance of the present and future
Obligation, and (ii) agree to perform such acts and duly authorize, execute,
acknowledge, deliver, file, and record such additional documents, and
certificates as Agent may request in order to create, perfect, preserve, and
protect those Lender Liens.
4.3 Collateral Procedures .
(a) Compliance With Schedule 4.3. Ryland must deliver the
Collateral Documents and otherwise comply with all the required
procedures in Schedule 4.3 for Collateral offered in connection with
this agreement by no later than 10:30 a.m. on (i) the Borrowing Date
for Collateral supporting any Borrowing other than a Wet Borrowing and
(ii) seventh Business Day after the Borrowing Date of any Wet Borrowing
for Collateral supporting that Borrowing.
<PAGE>
(b) Ryland as Bailee. Ryland shall (i) hold in trust for Agent (A)
the original recorded copy of the mortgage, deed of trust, or trust
deed securing each Mortgage Loan, (B) a mortgagee policy of title
insurance (or binding unexpired and unconditional commitment to issue
such insurance if the policy has not yet been delivered to Ryland)
insuring Ryland's perfected, first priority Lien created by that
mortgage, deed of trust, or trust deed, (C) the original insurance
policies referred to in Section 7.8, and (D) all other original
documents, including any undelivered Take-Out Commitments, promissory
notes, and Mortgage Securities, (ii) specifically identify such items
in the appropriate Collateral-Delivery Notice, (iii) deliver to Agent
any of the foregoing items as soon as reasonably practicable upon
Agent's request, and (iv) for purposes of clause (a) above, be an
approved bailee for Agent to the extent that Ryland holds Collateral
that constitutes an Eligible-Mortgage Loan subject to the conditions of
Part A.1(a) on Schedule 1.1(c).
(c) Gestation Collateral. By 10:30 a.m. on the day that Associates
is converting any Dry Borrowing to a Gestation Borrowing, Associates
shall execute and deliver to Agent a Collateral-Conversion Notice.
4.4 Borrowing-Base Reports . By 11:00 a.m. on the date of any
Borrowing, any payment of Principal Debt, or removal of any Collateral, Agent
(for Borrowing-Base Reports for Mortgage Collateral) shall deliver to the
Companies and Lenders -- or Ryland (for other Borrowing-Base Reports) shall
deliver to Agent for Agent to deliver to each Lender -- the applicable
Borrowing-Base Report depending upon the Borrowing Category of the Borrowing
or payment or Borrowing Base in which that Collateral is included.
4.5 Borrowing Base . If at any time any item of Collateral ceases
to meet the applicable requirements of eligibility on Schedule 1.1(c), then
(a) that item is automatically excluded from all calculations of the
applicable Borrowing Base, and (b) Agent shall so notify the Companies and
Lenders.
4.6 Agent for Appraisals . Agent and Lenders appoint the Companies
as their special agents for the sole and limited purpose of obtaining and
maintaining Appraisals for Mortgage Loans as required by the Loan Papers.
4.7 Power of Attorney . Each Company irrevocably appoints Agent --
acting on behalf of Lenders -- as that Company's attorney-in-fact (with full
power of substitution) for, on behalf, and in the name of that Company to
(a) endorse and deliver to any Person any check, instrument, or other document
received by Agent or any Lender that represents payment in respect of any
Collateral, (b) prepare, complete, execute, deliver, and record any assignment
of any mortgage, deed of trust, or trust deed securing any Mortgage Loan or
Mortgage Security, (c) endorse and deliver or otherwise transfer any
promissory note evidencing any Mortgage Loan or Mortgage Security and do every
other thing necessary or desirable to effect transfer of all or any
Collateral, (d) take all necessary and appropriate action with respect to any
Obligation or any Collateral, (e) commence, prosecute, settle, discontinue,
defend, or otherwise dispose of any claim relating to any Collateral, and
(f) sign that Company's name wherever appropriate to effect the performance of
this agreement. This section shall be liberally, not restrictively, construed
so to give the greatest latitude to Agent's power as the Companies' attorney-
in-fact to collect, sell, and deliver any Collateral and all other documents
relating to it. The powers and authorities conferred on Agent in this section
(w) are discretionary and not obligatory on the part of Agent, (x) may be
exercised by Agent through any Person who, at the time of the execution of a
particular document, is an officer of Agent, (y) may not be exercised by Agent
unless a Default exists, and (z) is granted for a valuable consideration,
coupled with an interest, and irrevocable until -- and all Persons dealing
with Agent, any of its officers acting under this section, or any substitute
is fully protected in treating the powers and authorities conferred by this
section as existing and continuing in full force and effect until advised by
Agent that -- all commitments by Lenders to extend credit under this agreement
have been terminated or cancelled and the Obligation is fully paid and
performed.
<PAGE>
4.8 Redemption of Mortgage Collateral .
(a) Generally. So long as no Default or Potential Default exists,
either Company may -- at any time and from time to time -- obtain the
release of Lender Liens in any or all Mortgage Collateral by paying to
Agent, for application to the Obligation in accordance with this
agreement, the Borrowing Base for the Eligible-Mortgage Collateral --
determined as of the date that such Eligible-Mortgage Collateral was first
delivered to Agent -- to be released.
(b) Redemption for Sale. Either Company may -- at any time and
from time to time -- request that Agent permit the sale of Mortgage Loans.
Upon the receipt by Agent of that request, if no Default or Potential
Default exists, and subject to the provisions of clause (e) below, Agent
shall deliver to the investor, under Agent's bailee letter -- in
substantially the form of Exhibit D-1 or D-2, as applicable -- the
Collateral Documents for the Mortgage Loans being sold and that are held
by Agent. Unless otherwise provided in clause (c) below regarding
Bond-Authority Loans, release of the Lender Liens in that Collateral is
conditioned upon delivery to Agent -- within 45 days after delivery by
Agent of those Collateral Documents -- by that investor of either:
(i) An amount equal to the Borrowing Base of the Eligible-
Mortgage Loans so sold to be applied to the Obligation in
accordance with this agreement; or
(ii) In the case of Mortgage Loans being sold or exchanged
for Mortgage Securities, Eligible-Mortgage Securities, the
Borrowing Base for which equals the Borrowing Base for the
Eligible-Mortgage Loans so sold, which new Eligible-Mortgage
Securities are Collateral under this agreement for all purposes.
For purposes of this clause (b), the Borrowing Base for any Collateral is
determined as of the date that Collateral is first delivered to Agent
under this agreement. The delivery of Mortgage Securities and all
payments made in relation to them by investors shall be made directly to
Agent, and the Companies shall, as agent for Agent and only upon the
express prior written request of Agent, deliver to that investor the items
held by either Company under Section 4.3(b). Unless otherwise provided in
clause (c) below regarding Bond-Authority Loans, items of Mortgage
Collateral delivered by Agent to any investor under this section
automatically cease to be Eligible-Mortgage Collateral upon the earlier to
occur of either (A) the delivery to Agent by that investor of either the
payment or the Mortgage Securities under clause (i) or (ii) above or
(B) 45 days after delivery by Agent of those Collateral Documents in
respect of Eligible-Mortgage Loans or 60 days after delivery by Agent of
those Collateral Documents in respect of Eligible-Mortgage Securities.
Unless otherwise provided in clause (c) below regarding Bond-Authority
Loans, no more than $25,000,000 of Mortgage Collateral (i.e., face amount
of the promissory notes evidencing Mortgage Loans or Mortgage Securities)
may be delivered to an investor (other than FHLMC, FNMA, GNMA, or any
other investor approved by Agent for that purpose) for which either
payment or delivery of Eligible-Mortgage Securities under clause (i) or
(ii) has not been completed.
<PAGE>
(c) Redemption of Bond-Authority Loans for Sale. Notwithstanding
the requirements in clause (b) above, up to $10,000,000 of Mortgage
Collateral originated as Bond-Authority Loans may remain in the Borrowing
Base for Mortgage Collateral for up to 150 days. Release of the Lender
Liens in that Collateral is conditioned upon delivery to Agent -- within
150 days after delivery by Agent of those Collateral Documents -- by that
investor of either payment or delivery of Eligible-Mortgage Securities as
set forth in clause (b)(i) and (b)(ii) above. Items of Mortgage
Collateral relating to Bond-Authority Loans delivered by Agent to any
investor automatically cease to be Eligible-Mortgage Collateral upon the
earlier to occur of either (A) the delivery to Agent by that investor of
either the payment or the Mortgage Securities under clause (b)(i) or
(b)(ii) above or (B) 150 days after delivery by Agent of those Collateral
Documents in respect of Eligible-Mortgage Loans or 60 days after delivery
by Agent of those Collateral Documents in respect of Eligible-Mortgage
Securities. Notwithstanding the above, Bond-Authority Loans may never
remain in the Borrowing Base for Mortgage Collateral for more than 180
days.
(d) Continuation of Lender Lien and Application of Proceeds. The
Lender Liens in all Mortgage Collateral transmitted to any investor under
clause (b) and (c) above continue in effect until Agent receives the
payment or Mortgage Securities as provided in clauses (b)(i) or (b)(ii)
above.
(e) Certain Credits. No Lender is obligated at any time to credit
Associates for any amounts due from any investor for the purchase of any
Mortgage Collateral contemplated under this agreement until Agent has
actually received immediately available funds for that Mortgage Collateral
in the amount required under this agreement, and neither Agent nor any
Lender is obligated at any time to collect any amounts or otherwise
enforce any obligations due from any investor in respect of any such
purchase.
4.9 Correction of Notes .
(a) Delivery of Notes. Either Company may -- from time to time and
at any time -- request that Agent deliver a promissory note related to
any Mortgage Collateral so that the note may be replaced by a corrected
note. Upon receipt by Agent of that request, if no Default or
Potential Default exists, and subject to clause (b) below, Agent shall
deliver to that Company -- under Agent's Trust Receipt and Agreement in
substantially the form of Exhibit D-3 -- the note to be corrected, upon
the express condition of receipt by Agent of a corrected note that
conforms to the requirements of this agreement.
(b) Limitations. Notwithstanding clause (a) above (i) no more than
$2,000,000 of notes (that amount being the aggregate outstanding
principal balances of the notes) may ever be so delivered and not have
been replaced with corrected notes under this agreement, (ii) the
corrected note must be delivered to Agent endorsed in blank (without
restriction or limitation) within 21 days of the release by Agent of
the note to be corrected, and (iii) until the corrected note has been
delivered to Agent, the Borrowing Base for the related Eligible-
Mortgage Loan is the lesser of either (A) the Borrowing Base for the
Eligible-Mortgage Loan, the note for which is to be corrected, without
giving effect to this clause (b) or (B) 98% of the principal balance of
the corrected note.
4.10 Release of Servicing Rights . In connection with any sale of
Servicing Rights permitted by the Loan Papers, the Companies shall execute and
deliver to Agent a Request for Release and the appropriate Financing Statement
Changes in substantially the form of Exhibit D-4 for execution and delivery by
Agent, which Agent shall execute and return to the Companies within seven
days.
<PAGE>
SECTION 5. CONDITIONS PRECEDENT .
5.1 Initial Borrowing or LC . No Lender is obligated to fund
its part of any Borrowing and Agent is not obligated to issue any LC unless
Agent has received all of the documents and items described on -- except as
specifically otherwise noted on -- Schedule 5.1.
5.2 Each Borrowing or LC . In addition, no Lender is obligated
to fund (as opposed to continue or correct) its part of any Borrowing and
Agent is not obligated to issue any LC unless on the applicable Borrowing Date
or issue date (and after giving effect to the requested Borrowing or LC), as
the case may be: (a) Agent has timely received a Credit Request (together with
any applicable LC Agreement); (b) Agent has received any applicable LC fee;
(c) all of the representations and warranties of the Companies in the Loan
Papers are true and correct in all material respects (unless they speak to a
specific date or are based on facts which have changed by transactions
contemplated or permitted by this agreement); (d) no Default or Potential
Default exists; (e) the funding of the Borrowing or issuance of the LC, as the
case may be, is permitted by Law and does not cause a Borrowing Excess; and
(f) if reasonably requested by Agent, it has received evidence substantiating
any of the matters in the Loan Papers that are necessary to enable Associates
or Ryland, as the case may be, to qualify for the borrowing or LC, as the case
may be.
5.3 General . Each condition precedent in this agreement
(including, without limitation, those on the attached Schedule 5.1) is
material to the transactions contemplated by this agreement, and time is of
the essence with respect to each condition precedent. Subject to first
obtaining the approval of Lenders, Lenders may fund any Borrowing and Agent
may issue any LC without all conditions being satisfied. However, to the
extent lawful, that funding or issuance is not a waiver of the requirement
that each condition precedent be satisfied as a prerequisite for any
subsequent funding or issuance, unless Lenders specifically waive an item in
writing.
SECTION 6. REPRESENTATIONS AND WARRANTIES . The Companies jointly and
severally represent and warrant to Agent and Lenders as follows:
6.1 Purpose of Credit . Borrowings are to be used as stated in
the recitals of this agreement. No Company is engaged principally, or as one
of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" within the meaning of
Regulation U. No part of the proceeds of any Borrowing or LC draft or drawing
is to be knowingly used, directly or indirectly, for a purpose that violates
any Law, including without limitation, the provisions of Regulation U.
6.2 Corporate Existence, Good Standing, Authority and Compliance
. Each Company is duly organized, validly existing, and in good standing
under the Laws of the jurisdiction in which it is incorporated as stated in
the preamble of this agreement. Except where failure is not a Material-
Adverse Event, each Company (a) is duly qualified to transact business and is
in good standing as a foreign corporation or other entity in each jurisdiction
where the nature and extent of its business and properties require due
qualification and good standing, (b) possesses all requisite authority,
permits, and power to conduct its business as is now being -- or is
contemplated by this agreement to be -- conducted, and (c) is in compliance
with all applicable Laws.
<PAGE>
6.3 Subsidiaries . As of the date of this agreement (a)
Associates has no Subsidiaries, and (b) Ryland's only Subsidiaries are listed
on Schedule 6.3.
6.4 Authorization and Contravention . The execution and
delivery by each Company of each Loan Paper or related document to which it is
a party and the performance by it of its obligations under that Loan Paper (a)
are within its corporate power and authority, (b) have been duly authorized by
all necessary corporate action, (c) require no action by or filing with any
Tribunal other than any action or filing that has been taken or made on or
before the date of this agreement, (d) do not violate any provision of its
charter or bylaws, (e) do not violate any provision of Law or order of any
Tribunal applicable to it other than violations that individually or
collectively are not a Material-Adverse Event, (f) do not violate any Material
Agreements to which it is a party, and (g) do not result in the creation or
imposition of any Lien on any asset of either Company other than Lender Liens.
6.5 Binding Effect . Upon execution and delivery by all parties
to it, each Loan Paper constitutes a legal and binding obligation of each
Company party to it, enforceable against it in accordance with its terms
except as enforceability may be limited by applicable Debtor Laws and general
principles of equity.
6.6 Fiscal Year and Financial Information . The fiscal year of
each Company ends on December 31. Each Company has delivered to Agent and
Lenders copies of its balance sheet as of December 31, 1994, and the related
statements of income and cash flows for the period ended on that date. Those
Financials are complete and correct in all material respects, fairly present
each Company's financial condition as of -- and its results of operations for
the period ended on -- that date, and were prepared in accordance with GAAP.
As of the date of those Financials, there were no indebtedness, obligations,
or liabilities -- including, without limitation, any material contingent or
indirect liabilities and obligations or unusual forward or long-term
commitments -- of either Company that are not reflected in those Financials,
which are required to be so reflected based upon GAAP. No change that is a
Material-Adverse Event has occurred since the date of those Financials. Each
Company has also delivered to Lenders a management report for the month ended
March 31, 1995, which fairly and accurately in all material respects presents
that Company's commitment position, pipeline position, mortgage servicing and
production, balance sheet, and income statement as of the end of that month.
6.7 Litigation . There is no Litigation that is reasonably
likely to be determined adversely to either Company or, if so adversely
determined, is a Material-Adverse Event and that is pending or -- as of the
date of this agreement -- threatened against either Company or its assets. As
of the date of this agreement, no outstanding and unpaid judgments against
either Company exist that is a Material-Adverse Event.
6.8 Taxes . All Tax returns of each Company required to be
filed have been filed (or extensions have been granted) before delinquency --
except for returns for which the failure to file is not a Material-Adverse
Event -- and all Taxes imposed upon each Company that are due and payable have
been paid before delinquency other than Taxes for which the criteria for
Permitted Liens have been satisfied or for which nonpayment is not a Material-
Adverse Event.
6.9 Environmental Matters . Except to the extent not a
Material-Adverse Event, neither Company (a) knows of any environmental
condition or circumstance adversely affecting either Company's properties or
operations or any material portion of the properties subject to Mortgage
Loans, (b) has received any report of either Company's violation of any
Environmental Law, or (c) knows that either Company is under any obligation to
remedy any violation of any Environmental Law. Each Company has taken prudent
steps to determine that its properties and operations and that substantially
all of the properties subject to Mortgage Loans do not violate any
Environmental Law other than violations that are not individually or
collectively a Material-Adverse Event.
<PAGE>
6.10 Employee Plans . As of the date of this agreement and
except where occurrence or existence is not a Material Adverse Event (a) no
Employee Plan has incurred an "accumulated funding deficiency," as defined in
Sec. 302 of ERISA or Sec. 412 of the Code, (b) neither Company has incurred
liability under ERISA to the PBGC in connection with any Employee Plan, (c) no
ERISA Affiliate has fully or partially withdrawn from participation in a
Multiemployer Plan, (d) no "prohibited transaction," as defined in Sec. 406 of
ERISA or Sec. 4975 of the Code, has occurred in respect of any Employee Plan,
and(e) no "reportable event," as defined in Sec. 4043 of ERISA, has occurred
in respect of any Employee Plan, other than events for which the notice
requirement is waived under applicable PBGC regulations.
6.11 Government Regulations . Neither Company is subject to
regulation under the Investment Company Act of 1940.
6.12 Transactions with Affiliates . Neither Company is a party
to a material transaction with any of its Affiliates (excluding the other
Company) other than transactions in the ordinary course of business and upon
fair and reasonable terms not materially less favorable than it could obtain
or could become entitled to in an arm's-length transaction with a Person that
was not its Affiliate.
6.13 Debt . Neither Company is an obligor on any Debt other
than Permitted Debt.
6.14 No Liens . Each Company has good and indefeasible title
to the Collateral in which it has created Lender Liens under this agreement,
and all Collateral is free and clear of all Liens and other adverse claims of
any nature other than the Permitted Liens.
6.15 Perfection and Priority of Lender Liens . Lender Liens
shall be created and perfected upon (a) each Mortgage Note that is delivered
to Agent, (b) each Mortgage Security in certificated form that is delivered to
Agent or its bailee, (c) each Mortgage Security in book-entry form when notice
of the Lender Lien is given to the financial institution in whose favor that
security has been issued and that institution confirms that notice, (d) each
Mortgage Note and related Take-Out Commitment for 21-days after the Borrowing
Date of each related Wet Borrowing, (e) all Mortgage-Collateral transmitted to
any investor under Section 4.8(b) and Section 4.8(c) (which shall continue
until Agent receives payments or Mortgage Securities under that section), and
(f) all Servicing Receivables and other Servicing Rights upon delivery of the
documents described on Schedule 5.1 and, in the case of Financing Statements,
filing as indicated on that schedule.
6.16 Principal Office, Etc . The principal office, chief
executive office, and principal place of business of Associates is at 1201
Market Street, Wilmington, Delaware 19801, and of Ryland is at 11000 Broken
Land Parkway, Columbia, Maryland 21044.
6.17 Trade Names . No Company has used or transacted business
under any other corporate or trade name in the five-year period preceding the
Closing Date except that Ryland has and continues to do business from time to
time under the trade names Ryland Funding Group, Rylco Funding Group, and RMC
Mortgage Corp.
6.18 Government Approvals . Ryland -- and each Servicing
Subsidiary to the extent that its servicing rights are included to meet the
minimum requirements of Section 9.5(a) and solely to the extent that any of
the following matters relate to the Mortgage Loans or Mortgage Securities that
are part of those servicing rights -- is approved and qualified and in good
standing as an issuer, mortgagee, or seller/servicer, as stated below, and
meets all requirements applicable to its status as such:
<PAGE>
(a) GNMA approved issuer of Mortgage Securities guaranteed by GNMA;
(b) FNMA approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be sold
to FNMA;
(c) FHLMC approved seller/servicer of Mortgage Loans, eligible to
originate, purchase, hold, sell, and service Mortgage Loans to be sold
to FHLMC;
(d) FHA approved mortgagee, eligible to originate, purchase, hold,
sell, and service FHA Loans; and
(e) VA approved mortgagee, eligible to originate, purchase, hold,
sell, and service VA Loans.
6.19 Appraisals . With respect to the property the subject of
any Mortgage Loan, Ryland has obtained Appraisals in material compliance with
all Appraisal Laws.
6.20 Solvency . On each Borrowing Date or LC issue date, as
the case may be, each Company is, and after giving effect to the requested
Borrowing or LC will be, Solvent.
6.21 Full Disclosure . There is no material fact that either
Company has not disclosed to Lenders that is a Material-Adverse Event except
that no Company makes any warranty regarding general economic conditions. To
the best of each Company's knowledge, neither the Financials referred to in
Section 6.6 or delivered after the Closing Date under Section 7.1 nor any
Credit Request, Collateral-Delivery Notice, Collateral-Conversion Notice,
Borrowing-Base Report, Compliance Certificate, officer's certificate, or
written statement (other than any financial projections) authored by either
Company and delivered by either Company to Agent or any Lender in connection
with this agreement contains any untrue statement of material fact.
SECTION 7. AFFIRMATIVE COVENANTS . Until all commitments by Lenders to
extend credit under this agreement have been cancelled or terminated and the
Obligation is fully paid and performed, the Companies jointly and severally
covenant and agree with Agent and Lenders as follows:
7.1 Reporting Requirements . The Companies shall furnish to
Lenders the following, all in form and detail reasonably satisfactory to
Lenders:
(a) Annual Financials. Promptly when available but at least within
92 days after each fiscal-year end of Ryland Group, consolidated
Financials of Ryland Group and of Ryland (including consolidation with
- -- and consolidating at least as to -- Associates) as of that year end,
each reflecting the corresponding figures for the preceding fiscal year
in comparative form, accompanied by the related report prepared by
independent certified public accountants acceptable to Agent and
stating that the consolidated portion of those statements were prepared
in accordance with GAAP applied on a basis consistent with prior
periods except for such changes in GAAP concurred in by the Companies'
independent public accountants.
<PAGE>
(b) Quarterly Financials. Promptly when available but at least
within 47 days after each fiscal quarter of Ryland, consolidated
Financials of Ryland (including consolidation with -- and consolidating
at least as to -- Associates) as of that quarter end, accompanied in
each case by a Compliance Certificate.
(c) Monthly Report. Promptly when available but at least within 47
days after the last day of each Calendar Month, Ryland's customary
management report regarding its financial services segment analysis,
consolidated balance sheets, monthly report about, among other things,
its retail branch summary, limited partnership summary, wholesale
branch summary, marketing summary, warehouse interest detail and
summary, loan servicing report, loan servicing portfolio, acquired
servicing, title company report, escrow company report, key business
measurements, and new business summary and which may be at least as
comprehensive as the monthly management report currently being
delivered by Ryland under the Existing-Loan Agreement.
(d) Notices. Notice, promptly after either Company knows or has
reason to know, of (i) the existence and status of any Litigation that,
if determined adversely to either Company, would be a Material-Adverse
Event, (ii) any change in any material fact or circumstance represented
or warranted by either Company in any Loan Paper that constitutes a
Material-Adverse Event, (iii) the receipt by either Company of notice
of any violation or alleged violation of ERISA or any Environmental Law
or other Law if that violation individually or collectively with other
violations or allegations is a Material-Adverse Event, or (iv) a
Default or Potential Default -- other than under Section 10.1(a) --
specifying the nature thereof and what action the Companies have taken,
are taking, or propose to take with respect to it.
(e) Other Debt. Notice, promptly after either Company knows or has
reason to know, of any notice from, or the taking of any other action
by, the holder of any Debt of either Company -- only if that Debt is in
the amount specified in Section 10.1(e) -- with respect to a claimed
default, together with a detailed statement by a Responsible Officer of
that Company specifying the notice given or other action taken, the
nature of the claimed default, and what action the Companies are taking
or propose to take with respect to it.
(f) Other Information. Promptly upon reasonable request by Agent
or Determining Lenders (through Agent), information (not otherwise
required to be furnished under the Loan Papers) respecting the business
affairs, assets, and liabilities of the Companies and opinions,
certifications, and documents in addition to those mentioned in this
agreement.
7.2 Use of Proceeds . The Companies shall use the proceeds of
Borrowings and LC drafts or drawings only for the purposes represented in this
agreement.
7.3 Books and Records . Each Company shall maintain books,
records, and accounts necessary to prepare Financials in accordance with GAAP.
7.4 Inspections . Upon reasonable request, each Company shall
allow Agent, any Lender, or their respective Representatives to inspect any of
its properties, to review reports, files, and other records and to make and
take away copies, to conduct tests or investigations, and to discuss any of
its affairs, conditions, and finances with its directors, officers, employees,
or representatives from time to time during reasonable business hours.
7.5 Taxes . Each Company shall promptly pay when due any and
all Taxes other than Taxes of which the failure to pay is not a Material-
Adverse Event or which are being contested in good faith by lawful proceedings
diligently conducted, against which reserve or other provision required by
GAAP has been made, and in respect of which levy and execution of any Lien
have been and continue to be stayed.
<PAGE>
7.6 Expenses . The Companies jointly and severally agree to
pay (a) all reasonable legal fees and expenses incurred by Agent and all
reasonable legal fees and expenses in an amount not exceeding $1,000 for each
other Lender in connection with the preparation, negotiation, and execution of
the Loan Papers, (b) all reasonable legal fees and expenses incurred by Agent
in connection with each separate future amendment, consent, waiver, or
approval executed in connection with any Loan Paper, (c) all fees, charges, or
Taxes for the recording or filing of the Security Documents, (d) all other
reasonable out-of-pocket expenses of Agent or any Lender in connection with
the preparation, negotiation, execution, or administration of the Loan
Papers -- including, without limitation, courier expenses incurred in
connection with the Mortgage Collateral, (e) all amounts expended, advanced,
or incurred by Agent or any Lender to satisfy any obligation of either Company
under any Loan Paper, to collect the Obligation, or to enforce the Rights of
Agent or any Lender under any Loan Paper -- including, without limitation, all
court costs, attorneys' fees (whether for trial, appeal, other proceedings, or
otherwise), fees of auditors and accountants, and investigation expenses
reasonably incurred by Agent or any Lender in connection with any such
matters, (f) interest at an annual interest rate equal to the Default Rate
each item specified in clauses (a) through (e) above from 30 days after the
date of written demand or request for reimbursement to the date of
reimbursement, and (g) any and all stamp and other Taxes payable or determined
to be payable in connection with the execution, delivery, or recordation of
any Loan Paper -- IN CONNECTION WITH WHICH EACH COMPANY SHALL INDEMNIFY AND
SAVE AGENT AND EACH LENDER HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES
WITH RESPECT TO OR RESULTING FROM ANY DELAY IN PAYING OR OMISSION TO PAY
THOSE TAXES TO THE EXTENT THOSE LIABILITIES ARISE SOLELY BECAUSE THE
COMPANIES FAIL TO PAY THE TAXES UPON DEMAND BY A LENDER, WHICH INDEMNITY
SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF
THE LOAN PAPERS.
7.7 Maintenance of Existence, Assets, and Business . Each
Company shall (a) except as permitted by Section 8.5, maintain its corporate
existence and good standing in its state of incorporation and its authority to
transact business in all other states where failure to maintain its authority
to transact business is a Material-Adverse Event, and (b) maintain all
licenses, permits, and franchises necessary for its business where failure to
do so is a Material-Adverse Event -- including, without limitation, Ryland's
eligibility as lender, seller/servicer, and issuer as described in
Section 6.18.
7.8 Insurance . Each Company shall (a) maintain with
financially sound and reputable insurers, insurance with respect to its assets
and business against such liabilities, casualties, risks, and contingencies
and in such types and amounts -- including, without limitation, a fidelity
bond or bonds in form and with coverage, with a company, and with respect to
such individuals or groups of individuals -- as satisfy prevailing FNMA,
FHLMC, and GNMA requirements applicable to a qualified mortgage institution
and otherwise as is customary in the case of Persons engaged in the same or
similar businesses and similarly situated, and (b) upon Agent's request,
furnish to Agent from time to time (i) a summary of its insurance coverage, in
form and substance satisfactory to Agent, and (ii) originals or copies of the
applicable policies.
7.9 Further Assurances . Each Company shall (a) promptly, and
in any event within three Business Days after Agent's request -- or such
longer period as permitted under Section 4.9 -- cure any defects in the
execution and delivery of any Loan Paper and (b) at its expense, promptly
execute and deliver to Agent upon request all such other and further documents
to (i) comply with or accomplish either Company's agreements in any Loan
Paper, (ii) further evidence and more fully describe the Collateral intended
as security for the Obligation, (iii) correct any omissions in any Loan Paper,
(iv) more fully to state the security obligations in any Loan Paper, (v)
perfect, protect, or preserve (continue to do so) any Lender Lien created (or
intended to be created) under any Loan Paper, or (vi) make any recording, file
any notices, or obtain any consents.
<PAGE>
7.10 Take-Out Commitments and Servicing Contracts . Each
Company shall perform and observe in all material respects each of the
provisions of each Take-Out Commitment and Servicing Contract on its part to
be performed or observed and cause all things to be done that are necessary to
have each item of Mortgage Collateral and the Collateral Documents covered by
a Take-Out Commitment comply with its requirements.
7.11 Compliance with Material Agreements . Each Company shall
comply with all of its Material Agreements if failure to do so is a Material-
Adverse Event.
7.12 Appraisals . Each Company shall promptly (a) permit
Agent's and any Lender's authorized Representatives to discuss with either
Company's officers or with the appraisers furnishing Appraisals the procedures
for preparation, review, and retention of -- and to review and obtain copies
of -- all Appraisals pertaining to any Mortgage Collateral, and (b) upon any
Lender's request, cooperate with it to ascertain that the Appraisals comply
with all Appraisal Laws.
7.13 INDEMNIFICATION . IN CONSIDERATION OF THE COMMITMENTS BY
AGENT AND LENDERS UNDER THE LOAN PAPERS, THE COMPANIES JOINTLY AND
SEVERALLY AGREE TO INDEMNIFY AND DEFEND EACH AGENT, LENDER, AND THEIR
RESPECTIVE AFFILIATES AND REPRESENTATIVES (COLLECTIVELY, THE "INDEMNIFIED
PARTIES") -- AND DEFEND THEM AND HOLD EACH OF THEM HARMLESS -- AGAINST ANY
AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, DEFICIENCIES, INTEREST,
JUDGMENTS, COSTS, OR EXPENSES -- INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES -- INCURRED BY ANY OFTHEM ARISING FROM OR BECAUSE OF (A) ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR THREATENED IN
CONNECTION WITH ANY LOAN PAPER OR THE TRANSACTIONS CONTEMPLATED BY
THE LOAN PAPERS, INCLUDING, WITHOUT LIMITATION, ANY USE BY EITHER COMPANY OF
THE PROCEEDS OF BORROWINGS OR LC DRAFTS OR DRAWINGS, (B) ANY IMPOUNDMENT,
ATTACHMENT, OR RETENTION OF ANY MORTGAGE COLLATERAL OR ANY FAILURE OF ANY
INVESTOR TO PAY THE ENTIRE PURCHASE PRICE OF ANY MORTGAGE COLLATERAL UNDER
ANY TAKE-OUT COMMITMENT, (C) ANY ALLEGED VIOLATION OF ANY FEDERAL
OR STATE LAW RELATING TO USURY IN CONNECTION WITH ANY MORTGAGE COLLATERAL,
AND (D) ANY REPRESENTATION MADE BY EITHER COMPANY UNDER ANY LOAN PAPER.
ALTHOUGH EACH INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ANY
INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY IS ENTITLED TO
INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD.
THIS INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION
AND TERMINATION OF THE LOAN PAPERS.
SECTION 8. NEGATIVE COVENANTS . Until all commitments by Lenders to
extend credit under this agreement have been cancelled or terminated and the
Obligation is fully paid and performed, the Companies jointly and severally
covenant and agree with Agent and Lenders as follows:
8.1 Debt . Neither Company may directly or indirectly create,
incur, or suffer to exist any Debt except Permitted Debt.
<PAGE>
8.2 Liens . Neither Company may directly or indirectly
(a) create, incur, or suffer to exist any Lien on any of its assets except
Permitted Liens or (b) enter into or permit to exist any arrangement or
agreement that directly or indirectly prohibits either Company or RAMCO from
creating or incurring any Lien on any of its assets other than the Loan
Papers.
8.3 Loans, Advances, and Investments . Except as permitted by
Sections 8.4 or 8.5, no Company may make any loan, advance, extension of
credit, or capital contribution to, make any investment in, or purchase or
commit to purchase any stock or other securities or evidences of Debt of, or
interests in, any other Person other than Permitted Loans/Investments.
8.4 Distributions . Ryland may not directly or indirectly pay
or declare any Distribution during any fiscal year if a Default or Potential
Default exists or if, immediately after giving effect to it, a Default or
Potential Default would then exist.
8.5 Merger or Consolidation . Neither Company may directly or
indirectly merge or consolidate with or into any other Person except (a) any
merger solely for the purpose of accomplishing a re-incorporation in another
jurisdiction, (b) either Company may merge into the other, and (iii) any
Subsidiary of either Company may merge into either Company.
8.6 Liquidations and Dispositions of Assets . Except as set
forth in Section 8.4 or below, neither Company may directly or indirectly
dissolve or liquidate or sell, transfer, lease, or otherwise dispose of any
material portion of its assets or business except sales or other dispositions
by Ryland in the ordinary course of its business, of (a) subject to
Section 9.5, part of its Servicing Portfolio, or (b) subject to Section 4.8(b)
and Section 4.8(c), Mortgage Loans or Mortgage Securities that are Collateral,
or (c) Mortgage Loans or Mortgage Securities that are not Collateral, or (d)
sales by Ryland of Servicing Rights to its Subsidiaries upon 30 days advance
written notice to Agent and compliance with any requirements Agent may
reasonably make to ensure that the Lender Liens continue to cover all of those
Servicing Rights to the extent previously covered. Notwithstanding the
preceding sentence, Ryland may sell all or any part of the stock or the assets
of RAMCO, as well as all or any part of Ryland's master servicing rights and
bond administration and securities issuance businesses, free and clear of any
Lien created by this agreement.
8.7 Use of Proceeds . Neither Company may directly or
indirectly use the proceeds of Borrowings or of LC drafts or drawings (a) for
any purpose other than as represented in this agreement, (b) for the funding
or acquisition of construction or commercial first mortgage loans, (c) for
wages of employees, unless a timely payment to or deposit with the United
States of America of all amounts of Tax required to be deducted and withheld
with respect to such wages is also made, or (d) in violation of Regulation U,
Regulation X, or Sec. 7 of the Securities Exchange Act of 1934 .
8.8 Collateral Matters . Neither Company may directly or
indirectly:
(a) Relocate its principal office, chief executive office, or
principal place of business or change its corporate name or name under
which its is doing business without first (i) giving Agent 30 days
prior written notice of the proposed relocation or change and (ii)
executing and delivering all additional documents and performing all
additional acts as Agent, in its sole discretion, may request in order
to continue or maintain the existence and priority of the Lender Liens
intended to be created under the Loan Papers.
(b) Compromise, extend, release, or adjust payments on any Mortgage
Collateral, accept a conveyance of mortgaged property in full or
partial satisfaction of any Mortgage Collateral, or release any
mortgage, deed of trust, or trust deed securing or underlying any
Mortgage Collateral.
<PAGE>
(c) Agree to the amendment or termination of any Take-Out
Commitment in which Agent has a Lien or to the substitution of a Take-
Out Commitment for a Take-Out Commitment in which Agent has a Lien if
that amendment, termination, or substitution is a Material-Adverse
Event.
(d) Transfer, sell, assign, or deliver any Mortgage Collateral
pledged to Agent to any Person other than Agent, except pursuant to
Section 4.8.
8.9 Transactions with Affiliates. Neither Company may
directly or indirectly enter into any material transaction with any of its
Affiliates (except with another Company) other than transactions in the
ordinary course of business or upon fair and reasonable terms not materially
less favorable than it could obtain or could become entitled to in an
arm's-length transaction with a Person that was not its Affiliate.
8.10 Employee Plans . Except where a Material-Adverse Event
would not result, neither Company may directly or indirectly permit any of the
events or circumstances described in Section 6.10 to exist or occur.
8.11 Compliance with Laws and Documents . Neither Company may
directly or indirectly (a) violate the provisions of any Laws applicable to it
or of any Material Agreement to which it is a party if that violation alone or
with all other violations is a Material-Adverse Event or (b) violate the
provisions of its charter or bylaws or repeal, replace or amend any provision
of its charter or bylaws if any such action is a Material-Adverse Event.
8.12 Government Regulations . Neither Company may directly or
indirectly conduct its business in a way that it becomes regulated under the
Investment Company Act of 1940.
8.13 Fiscal Year Accounting . Neither Company may directly or
indirectly change its fiscal year nor use any accounting method other than
GAAP.
8.14 New Businesses . Neither Company may directly or
indirectly engage in any business except the businesses in which it or any of
its Affiliates is presently engaged and any other reasonably-related business.
8.15 Assignment . Except as permitted in Section 8.5, neither
Company may directly or indirectly assign or transfer any of its Rights,
duties, or obligations under any of the Loan Papers.
SECTION 9. FINANCIAL COVENANTS . Until all commitments by Lenders to
extend credit under this agreement have been cancelled or terminated and the
Obligation is fully paid and performed, the Companies jointly and severally
covenant and agree with Agent and Lenders as follows:
9.1 Net Worth Covenants .
(a) Associates' stockholders' equity reflected on its balance sheet
may not be less than $1,000,000 at the end of any quarter in
Associates' fiscal year.
<PAGE>
(b) Ryland's Adjusted-Net Worth may not be less than $40,000,000 at
the end of any quarter in Ryland's fiscal year.
(c) Ryland's Adjusted-Tangible-Net Worth may not be less than
$55,000,000 at the end of any quarter in Ryland's fiscal year.
9.2 Leverage Ratio . The ratio of Ryland's Total Liabilities
to Ryland's Adjusted-Tangible-Net Worth may not exceed 8.0 to 1.0 at the end
of any quarter in Ryland's fiscal year.
9.3 Net Income . Associates' net income may never be less than
$1.00 for any of Associates' fiscal years at the time of or after the Closing
Date.
9.4 Cash Flow . The sum of Ryland's net income or loss plus
(to the extent deducted in calculating that net income or loss) amortization,
depreciation, and other noncash charges -- on a consolidated basis -- may
never be less than $1.00 at the end of any of Ryland's fiscal quarters for the
four-fiscal-quarter periods then ended.
9.5 Servicing Portfolio . (a) The sum of the Servicing
Portfolio plus the total unpaid-principal balance of all mortgage loans for
which the servicing rights are owned by any wholly-owned Subsidiary of Ryland
(a "Servicing Subsidiary") may never be less than $5,000,000,000, and (b) the
total Eligible-Servicing Portfolio may never be less than $1,500,000,000.
SECTION 10. DEFAULTS AND REMEDIES .
10.1 Default . The term "Default" means the existence or
occurrence of any one or more of the following:
(a) Obligation. Either Company fails to pay (i) any Principal Debt
or LC Obligation it owes within one Business Day after it is due under
this agreement or (ii) any other part of the Obligation it owes within
three Business Days after it is due under any Loan Paper.
(b) Covenants. Either Company fails to punctually and properly
perform, observe, and comply with any covenant or agreement in any Loan
Paper -- other than the covenants to pay the Obligation -- and that
failure continues for 15 days after either Company knows of that
failure or Agent or any Lender notifies either Company of it.
(c) Misrepresentation. Any material statement, warranty, or
representation by or on behalf of either Company or Ryland Group in any
Loan Paper or any Credit Request, Collateral-Delivery Notice,
Compliance Certificate, management report, or other writing (except
financial projections) authored by either Company or Ryland Group and
furnished in connection with this agreement, proves to have been
incorrect or misleading in any material respect as of the date made or
deemed made.
(d) Debtor Law. Either Company (i) is not Solvent, (ii) fails to
pay its Debts generally as they become due, (iii) voluntarily seeks,
consents to, or acquiesces in the benefit of any Debtor Law, or
(iv) becomes a party to or is made the subject of any proceeding
provided for by any Debtor Law -- other than as a creditor or
claimant -- that could suspend or otherwise adversely affect the Rights
of Agent or any Lender granted in the Loan Papers unless, if the
proceeding is involuntary, the applicable petition is dismissed within
60 days after its filing.
<PAGE>
(e) Other Debt.
(i) Either (A) either Company or Ryland Group fails to make
within any applicable grace period any payment on any other
Debt that is not nonrecourse to it and that has unpaid
principal balance of over $500,000 for Associates, $1,000,000
for Ryland, or $20,000,000 for Ryland Group, and -- only if
that Debt arises with respect to a letter of credit issued for
either Company's account -- that failure continues for 90 days
after the date that payment is due, (B) any event, condition,
material breach, or default occurs under any document
evidencing, governing, securing, or relating to any such Debt
if, as a result of that occurrence, it becomes due before its
scheduled installments or stated maturity, or (C) any of the
foregoing occurs with respect to any such Debt of either
Company or Ryland Group with unpaid principal balances
exceeding, in the aggregate, $2,500,000 in the case of
Associates, $5,000,000 in the case of Ryland, or $20,000,000 in
the case of Ryland Group; and
(ii) That default or nonpayment is not remedied or and
effectively waived by the one or more holders of that Debt.
(f) Judgments, Etc. Either Company or Ryland Group fails within 30
days to appeal, pay, bond, or otherwise discharge any final judgments
or orders for payment of money which -- after subtracting from the
amount of such judgment or order the amount of any relevant insurance
coverage from Solvent insurers -- exceed $1,000,000 per case for either
Company, $5,000,000 per case for Ryland Group, or $5,000,000 total for
the Companies, or $15,000,000 total for Ryland Group.
(g) Levy, Seizure, Etc.. Any Person levies on, seizes, or attaches
all or any material assets of either Company or Ryland Group, and that
levy, seizure, and attachment is not dissolved and possession returned
to that Company or Ryland Group, as the case may be, within 30 days.
(h) Unenforceability. Any material provision of any Loan Paper for
any reason ceases to be in full force and effect or is fully or
partially declared null and void or unenforceable or the validity or
enforceability of any Loan Paper is challenged or denied by either
Company.
(i) Change of Control. Any change in the ownership of either
Company with the result that Associates ceases to be directly or
indirectly wholly and beneficially owned by Ryland or Ryland ceases to
be directly or indirectly wholly and beneficially owned by Ryland
Group;
(j) Agency Qualifications. (i) Ryland or any Servicing Subsidiary
fails to meet any GNMA seller or servicing standard or requirement that
is a Material-Adverse Event, (ii) GNMA revokes or terminates Ryland's
or any Servicing Subsidiary's Right to service for GNMA, (iii) GNMA
issues a letter of extinguishment under any GNMA guaranty agreement,
(iv) Ryland or any Servicing Subsidiary ceases to be an eligible issuer
or servicer under either the FNMA or FHLMC Guide, (v) FNMA or FHLMC
impose any sanctions upon Ryland or any Servicing Subsidiary resulting
in a Material-Adverse Event, (vi) FNMA or FHLMC terminate or revoke
Ryland's or any Servicing Subsidiary's Right to service for FNMA or
FHLMC, or (vi) FNMA or FHLMC initiate any transfer of servicing from
Ryland or any Servicing Subsidiary to another Person other than in the
ordinary course of business. A Servicing Subsidiary is included in
this Section 10.1(j) solely to the extent that its servicing rights are
being included to meet the minimum requirements of Section 9.5(a) and
solely as any of the foregoing provisions relate to the Mortgage Loans
or Mortgage Securities that are part of those servicing rights.
<PAGE>
(k) LCs. Agent is served with, or becomes subject to, a court
order, injunction, or other process or decree restraining or seeking to
restrain it from paying any amount under any LC, and either (i) a
drawing has occurred under the LC, and Ryland refuses to reimburse
Agent for the LC Obligation or (ii) the LC's expiration date has
occurred but the beneficiary's Right to draw under it has been extended
past the expiration date in connection with the pendency of the related
court action or proceeding, and Ryland fails to deposit with Agent cash
collateral in an amount equal to the LC Exposure under it.
10.2 Remedies .
(a) Debtor Law. Upon the occurrence of a Default under Section
10.1(d), the commitments of Lenders to extend credit under this
agreement automatically terminate and the full Obligation is
automatically due and payable, without presentment, demand, notice of
default, notice of the intent to accelerate, notice of acceleration, or
other requirements of any kind, all of which are expressly waived by
the Companies.
(b) Other Defaults. While a Default exists -- other than those
described in clause (a) above -- Agent may and, upon the direction of
Determining Lenders, shall declare the Obligation to be immediately due
and payable, whereupon it shall be due and payable, whereupon the
commitments of Lenders to extend credit under this agreement are then
automatically terminated.
(c) Other Remedies. Following the termination of the commitments
of Lenders to extend credit under this agreement and the acceleration
of the Obligation, Agent may, and at the direction of Determining
Lenders shall, do any one or more of the following:
(i) Reduce any claim to judgment;
(ii) Foreclose upon or otherwise enforce any Lender Liens;
(iii) Notify all obligors of Collateral serviced by either
Company and all servicers of other Collateral that the
Collateral has been assigned to Agent and that all payments
thereon are to be made directly to Agent or any other party as
may be designated by Agent; settle, compromise, or release, in
whole or in part, any amounts owing on the Collateral by any
obligor, servicer or any investor of any portion of the
Collateral, on terms acceptable to Agent; enforce payment and
prosecute any action or proceeding with respect to any and all
Collateral and where any such Collateral is in default,
foreclose on and enforce liens in such Collateral by any
available judicial procedure or without judicial process and
sell property acquired as a result of any such foreclosure;
(iv) Act, or contract with a third party to act, as
servicer of each item of Collateral serviced by either Company
and perform all obligations required in connection with Take-
Out Commitments;
(v) Exercise all Rights of a secured creditor under the UCC,
including without limitation selling the Collateral at public
or private sale, including sale pursuant to any applicable
Take-
<PAGE>
(vi) Out Commitment. To the extent that applicable law requires
that either Company receive notice of or prior to any such sale
(or any other disposition of Collateral) the Companies agree
that 10 days notice shall be reasonable notice. At any sale or
other disposition, the Collateral may be sold or disposed of as
an entirety or in separate parts, as Agent may determine.
Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to
time by announcement at the time and place fixed for the sale,
and that sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any
part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Agent until the selling
price is paid by the purchaser thereof, but Agent shall not
incur any liability in case of the failure of that purchaser to
take up and pay for the Collateral so sold and, in case of any
such failure, that Collateral may again be sold upon like
notice. Agent may, however, instead of exercising the power of
sale herein conferred upon it, proceed by a suit or suits at
law or in equity to collect all amounts due upon the Collateral
or to foreclose on and sell the Collateral or any portion of
the Collateral under a judgment or decree of a court or courts
of competent jurisdiction, or both; and
(vii) Exercise any other Rights in the Loan Papers, at Law,
in equity, or otherwise that Determining Lenders may direct.
Should any Default continue that, in Agent's opinion, materially and adversely
affects the Collateral or the interests of the Lenders under this agreement,
Agent may, in a notice to the Lenders of that Default set forth one or more
actions that Agent, in its opinion, believes should be taken. Unless
otherwise directed by Determining Lenders (excluding the Lender serving as
agent hereunder) within ten days following the date of the notice setting
forth the proposed action or actions, Agent may, but shall not be obligated
to, take the action or actions set forth in that notice.
10.3 Right of Offset . The Companies hereby grant to Agent and
to each Lender a right of offset, to secure the repayment of the Obligation,
upon any and all monies, securities, or other property of the Companies, and
the proceeds therefrom now or hereafter held or received by or in transit to
Agent or such Lender from or for the account of the Companies, whether for
safekeeping, custody, pledge, transmission, collection, or otherwise, and also
upon any and all deposits (general or special, time or demand, provisional, or
final) and credits of the Companies, and any and all claims of the Companies
against Agent or such Lender, at any time existing. Upon the occurrence of
any Default, Agent and each Lender is hereby authorized at any time and from
time to time, without notice to either Company, to offset, appropriate, and
apply any and all of those items against the Obligation, subject to
Section 3.6. Notwithstanding anything in this section or elsewhere in this
agreement to the contrary, neither Agent nor any other Lender shall have any
right to offset, appropriate, or apply any accounts of the Companies which
consist of escrowed funds (except and to the extent of any beneficial interest
which the Companies have in such escrowed funds) which have been so identified
by either Company in writing at the time of deposit thereof.
10.4 Private Sales . Agent shall incur no liability as a
result of the sale of the Collateral, or any part of the Collateral, at any
private sale made in a commercially reasonable manner. The Companies hereby
waive any claims either of them may have against Agent arising because the
price at which the Collateral may have been sold at that private sale was less
than the price which might have been obtained at a public sale or was less
than the Obligation.
<PAGE>
10.5 Waivers . The Companies waive any right to require Agent
to (a) proceed against any Person, (b) proceed against or exhaust any of the
Collateral or pursue its Rights and remedies as against the Collateral in any
particular order, or (c) pursue any other remedy in its power. Agent shall
not be required to take any steps necessary to preserve any Rights of either
Company against any Person from which either Company purchased any Mortgage
Loans or to preserve Rights against prior parties. The Companies and each
surety, endorser, guarantor, pledgor, and other party ever liable or whose
property is ever liable for payment of any of the Obligation jointly and
severally waive presentment and demand for payment, protest, notice of
intention to accelerate, notice of acceleration, and notice of protest and
nonpayment, and agree that their or their property's liability with respect to
the Obligation, or any part thereof, shall not be affected by any renewal or
extension in the time of payment of the Obligation, by any indulgence, or by
any release or change in any security for the payment of the Obligation, and
hereby consent to any and all renewals, extensions, indulgences, releases, or
changes, regardless of the number thereof.
10.6 Performance by Agent . Should any covenant, duty, or
agreement of either Company fail to be performed in accordance with the terms
of this agreement or of any document delivered under this agreement, Agent
may, at its option, after notice to Associates or Ryland, as the case may be,
perform, or attempt to perform, such covenant, duty, or agreement on behalf of
that Company and shall notify each Lender that it has done so. In such event,
the Companies shall jointly and severally, at the request of Agent, promptly
pay any amount expended by Agent in such performance or attempted performance
to Agent at its principal place of business, together with interest thereon at
the Maximum Rate from the date of such expenditure by Agent until paid.
Notwithstanding the foregoing, it is expressly understood that Agent does not
assume and shall never have, except by express written consent of Agent, any
liability or responsibility for the performance of any duties of either
Company under this agreement or under any other document delivered under this
agreement.
10.7 No Responsibility . Except in the case of fraud, gross
negligence, or willful misconduct, neither Agent nor any of its officers,
directors, employees, or attorneys shall assume -- or ever have any liability
or responsibility for -- any diminution in the value of the Collateral or any
part of the Collateral.
10.8 No Waiver . The acceptance by Agent or any Lender at any
time and from time to time of partial payment or performance by either Company
of any of their respective obligations under this agreement or under any Loan
Paper shall not be deemed to be a waiver of any Default then existing. No
waiver by Agent or any Lender shall be deemed to be a waiver of any other then
existing or subsequent Default. No delay or omission by Agent or any Lender
in exercising any right under this agreement or under any other document
required to be executed under or in connection with this agreement shall
impair such right or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof, or the exercise of any other right under
this agreement or otherwise.
10.9 Cumulative Rights . All Rights available to Agent and the
Lenders under this agreement or under any other document delivered under this
agreement shall be cumulative of and in addition to all other Rights granted
to Agent and the Lenders at Law or in equity, whether or not the Notes be due
and payable and whether or not Agent shall have instituted any suit for
collection, foreclosure, or other action in connection with this agreement or
any other document delivered under this agreement.
<PAGE>
10.10 Proceeds . If the proceeds of any sale or exercise of
any Rights are insufficient to satisfy the full Obligation, then the Companies
shall remain liable jointly and severally for any deficiency.
10.11 Rights of Individual Lenders . No Lender shall have any
right by virtue, or by availing itself, of any provision of this agreement to
institute any action or proceedings at Law or in equity or otherwise
(excluding any actions in bankruptcy), upon or under or with respect to this
agreement, or for the appointment of a receiver, or for any other remedy under
this agreement, unless the Determining Lenders previously shall have given to
Agent written notice of a Default and of the continuance thereof and made
written request upon Agent to institute such action or proceedings in its own
name as Agent and shall have offered to Agent reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and Agent, for 10 Business Days after its receipt of such notice,
request and offer of indemnity, shall have failed to institute any such action
or proceeding and no direction inconsistent with such written request shall
have been given to Agent by Determining Lenders; it being understood and
intended, and being expressly covenanted by the taker and holder of every Note
with every other taker and holder and Agent, that no one or more holders of
Notes shall have any right in any manner whatever by virtue, or by availing
itself, of any provision of this agreement to affect, disturb or prejudice the
Rights of any other Lenders, or to obtain or seek to obtain priority over or
preference to any other such Lender, or to enforce any right under this
agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Lenders. For the protection and enforcement of the
provisions of this Section 10.11, each and every Lender and Agent shall be
entitled to such relief as can be given either at law or in equity.
10.12 Notice to Agent . Should any Default or Potential
Default occur and be continuing, any Lender having actual knowledge thereof
shall notify Agent and the Companies of the existence thereof, but the failure
of any Lender to provide that notice shall not prejudice that Lender's Rights
under this agreement.
10.13 Costs . All court costs, reasonable attorneys' fees,
other costs of collection, and other sums spent by Agent or any Lender in the
exercise of any Right provided in any Loan Paper is payable to Agent or that
Lender, as the case may be, on demand, is part of the Obligation, and bears
interest at the Default Rate from the date paid by Agent or any Lender to the
date repaid by either Company.
SECTION 11. AGENT .
11.1 Authorization and Action . Each Lender hereby appoints
Bank One, Texas, N.A., as Agent, in its name and on its behalf, to (a) receive
all documents and items to be furnished to it under this agreement; (b) act as
Agent for and on its behalf in and under all of the Loan Papers; (c) arrange
the means of distributing the funds to be provided to the Companies and to
each Lender; (d) distribute to Lenders information, requests, payments,
prepayments, documents, and items received from Associates, Ryland and others
under this agreement; and (e) deliver to the Companies and others (as is
appropriate) requests, demands, approvals, and consents received from each
Lender. Each Lender recognizes and understands that, if Agent exercises the
remedies provided under Section 10 and Agent does not have adequate facilities
(and Agent shall have no obligation to develop adequate facilities) to service
any Collateral required to be serviced, it will be necessary for Agent to
contract with a third party to service such Collateral, and the fees paid for
such services will be a prior charge against the Collateral pursuant to
Section 3.5. As to any matter not expressly provided for by this agreement
(including, without limitation, enforcement or collection of the Notes), Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of Determining
Lenders or, in respect of the matters covered by Section 12.11(d), all
Lenders. However, Agent shall not be required to take any action which
exposes Agent to liability or which is contrary to this agreement or
applicable law. Agent agrees to give to each Lender prompt notice of each
notice given to it by either Company under this agreement.
<PAGE>
11.2 Agent's Reliance, Etc . Neither Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it or them under or in connection with this
agreement, except for its or their own gross negligence or willful misconduct,
except as otherwise set forth in Section 11.7 when acting in its capacity as
custodian. Without limitation of the generality of the foregoing, Agent
(a) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (b) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this agreement; (c) shall not
have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this agreement on the part of
the Companies or to inspect the property (including the books and records) of
the Companies (except as specifically set forth in Section 11.7); (d) shall
not be responsible to any Lender for the due execution (by any party hereto
other than Agent), legality, validity, enforceability, genuineness,
sufficiency or value of this agreement or any other instrument or document
furnished pursuant hereto (except as specifically set forth in Section 11.7);
and (e) shall incur no liability under or in respect of this agreement by
acting in accordance with this agreement upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or
parties. Agent shall not be compelled to do any act or to take any action
toward the execution or enforcement of the powers hereby created, or to
prosecute or defend any suit in respect hereof, unless indemnified to its
satisfaction against any and all loss, cost, liability, and expense it may
incur. Subject to the foregoing limitations and to any direction of the
Determining Lenders to take action in accordance with Section 10, Agent shall
perform the duties imposed upon it under this agreement with respect to the
Collateral with the same amount of diligence and using the same amount of
judgment and discretion as if Agent were acting solely for its own account,
and, in connection therewith, Agent is hereby authorized (a) to settle,
compromise, and release claims against the makers of, and any Person obligated
with respect to, any Collateral, (b) to foreclose on, and enforce security
interests in, any Collateral or property secured thereby, (c) to sell
Collateral and property acquired as the result of foreclosure under this
agreement and the Security Documents, and (d) to do all other acts and things
as Agent, in its sole discretion, may deem necessary or appropriate to protect
the Rights and interests of itself and the Lenders and to realize the benefits
of the Collateral.
11.3 Agent and Affiliates . With respect to its Commitment,
Borrowings extended by it and the Notes issued to it, Bank One, Texas, N.A.,
shall have the same Rights under this agreement as any other Lender and may
exercise the same as though it were not Agent; and the term "Lender" or
"Lenders," unless otherwise expressly indicated, include Bank One, Texas,
N.A., in its individual capacity. Bank One, Texas, N.A., and its Affiliates
may accept deposits from, lend money to, act as trustee under indentures of,
and generally engage in any kind of business with, the Companies or any of
their respective Subsidiaries and any Person who may do business with or own
securities of either Company or any such Subsidiary, all as if Bank One,
Texas, N.A., were not Agent and without any duty to account therefor to
Lenders. Each Lender and its Affiliates may accept deposits from, lend money
to, act as trustee under indentures of, and generally engage in any kind of
business with, the Companies or any of their respective Subsidiaries and any
Person who may do business with or own securities of either Company or any
such Subsidiary, all as if each Lender were not a Lender under this agreement
and without any duty to account therefor to any other Lender.
<PAGE>
11.4 Lender Credit Decision . Each Lender acknowledges that it
has, independently and without reliance upon Agent or any other Lender and
based on the Financials referred to in Section 6.6 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this agreement. Each Lender also acknowledges that it
will, independently and without reliance upon Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this agreement.
11.5 Indemnification . LENDERS AGREE TO INDEMNIFY AGENT
SEVERALLY AND NOT JOINTLY (TO THE EXTENT NOT REIMBURSED BY THE COMPANIES),
RATABLY ACCORDING TO THEIR TERMINATION PERCENTAGES (OR IF NO OBLIGATION IS
AT THE TIME OUTSTANDING, RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT
PERCENTAGE), FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS OF ANY OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED
BY, OR ASSERTED AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY AGENT UNDER THIS AGREEMENT,
PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS RESULTING FROM AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT (OR, WITH RESPECT TO AGENT'S DUTIES AS CUSTODIAN, SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM CUSTODIAN'S
NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITATION OF THE FOREGOING,
EACH LENDER AGREES TO REIMBURSE AGENT PROMPTLY UPON DEMAND ITS RATABLE SHARE
OF ANY OUT-OF-POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY AGENT IN
CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL
PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR
RESPONSIBILITIES UNDER, THIS AGREEMENT, TO THE EXTENT THAT AGENT IS NOT
REIMBURSED FOR SUCH EXPENSES BY THE COMPANIES. AFTER SUCH AMOUNTS HAVE BEEN
IMPOSED UPON OR INCURRED BY ANY LENDER, SUCH AMOUNTS SHALL BE PAYABLE BY THE
COMPANIES UPON DEMAND AND SHALL BEAR INTEREST, FROM THE DATE OF DEMAND UNTIL
PAID, AT A FLUCTUATING INTEREST RATE PER ANNUM EQUAL FOR EACH DAY DURING SUCH
PERIOD TO THE DEFAULT RATE. IF ANY OR ALL OF THE INDEMNIFIED FUNDS PAID BY
LENDERS TO AGENT ARE SUBSEQUENTLY RECOVERED BY AGENT FROM SOME SOURCE OTHER
THAN LENDERS, THEN AGENT SHALL DISTRIBUTE THE RECOVERED FUNDS TO EACH LENDER
IN ACCORDANCE WITH THE PROPORTION THAT ALL SUCH PAYMENTS BY IT TO AGENT BEAR
TO ALL SUCH PAYMENTS BY ALL LENDERS TO AGENT.
11.6 Successor Agent . Agent may resign at any time by giving
written notice to Lenders and the Companies and may be removed at any time
with or without cause by Determining Lenders other than Agent. Any
resignation of Agent will become effective upon the appointment of a
successor. Upon any such resignation or removal, Determining Lenders shall
have the right to appoint a successor Agent. If no successor Agent shall have
been so appointed by Lenders, and shall have accepted that appointment, within
30 days after the retiring Agent's giving of notice of resignation or Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of
Lenders, appoint a successor Agent, which shall be a commercial or savings
bank organized under the laws of the United States of America or of any of its
states and having a combined capital and surplus of at least $250,000,000. No
resignation or removal of Agent shall become effective until a successor Agent
is appointed pursuant to the provisions of, and has accepted the appointment
as provided in, this Section 11.6.
<PAGE>
Any successor Agent appointed as provided in this Section 11.6 shall execute
and deliver to the Companies and their predecessor Agent an instrument
accepting such appointment, and thereupon the resignation or removal of the
predecessor Agent shall become effective and that successor Agent, without any
further act, deed or conveyance, shall become vested with all the Rights and
obligations of its predecessor under this agreement, with like effect as if
originally named as Agent; but, nevertheless, on the written request of either
Company or of the successor Agent, the Agent ceasing to act shall execute and
deliver an instrument transferring to that successor Agent all the Rights of
Agent so ceasing to act and shall execute and deliver to that successor Agent
such instruments as are necessary (including assignments of all Collateral and
Security Documents) to transfer the Collateral to that successor Agent. Upon
request of any successor Agent, the Companies shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming
to that successor Agent all such Rights. No successor Agent shall accept
appointment as provided in this section unless at the time of such acceptance
that successor Agent shall be eligible under the provisions of this
Section 11.6. Any Person into which Agent may be merged or converted or with
which it may be consolidated, or any Person surviving or resulting from any
merger, conversion, or consolidation to which Agent shall be a party, or any
Person succeeding to the corporate trust business of Agent, shall be the
successor Agent under this agreement without the execution or filing of any
paper or any further act on the part of any of the parties hereto. After any
retiring Agent's resignation or removal as Agent, the provisions of this
Section 11 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this agreement.
11.7 Agent as Custodian . Each Lender hereby appoints Agent to
act as custodian to take such action as custodian on its behalf and to
exercise such powers under this agreement as are delegated to the custodian by
the terms hereof, together with such powers as are reasonably incidental
thereto. Custodian's duties hereunder shall include (a) review of the
Collateral delivered to custodian and verification that such Collateral meets
the definitional requirements for such Collateral set forth in this agreement
and that such Collateral meets the requirements of Schedules 1.1(c) and
1.1(d), (b) storage of such Collateral in an area standard in the industry or
other area as requested Lenders, (c) determination of the Market Value of such
Collateral on a daily basis, (d) preparation of periodic reports whenever
required by any Lender regarding the status of such Collateral, (e) release of
such Collateral in accordance with the terms of Section 4.8 or Section 4.9,
and (f) such other duties as may be imposed upon Agent under this agreement.
Neither Agent acting in its capacity as custodian nor any of its
Representatives shall be liable for any action taken or omitted to be taken by
it or them under or in connection with this agreement, except for its or their
own negligence or willful misconduct. Custodian shall incur no liability
under or in respect of this agreement by acting in accordance with this
agreement upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 12. MISCELLANEOUS .
12.1 Nonbusiness Days . Any action that is due under any Loan
Paper on a non-Business Day may be delayed until the next Business Day.
However, interest accrues on any payment until it is made.
12.2 Communications . Unless otherwise stated, a communication
under any Loan Paper to a party to this agreement must be written to be
effective and is deemed given:
- For Credit Requests, Conversion Requests, and Collateral Delivery-
Notices, only when actually received by Agent.
<PAGE>
- Otherwise, if by fax, when transmitted to the appropriate fax
number -- but, without affecting the date deemed given, the fax
must be promptly confirmed by telephone.
- Otherwise, if by mail, on the third Business Day after enclosed in a
properly addressed, stamped, and sealed envelope deposited in the
appropriate official postal service.
- Otherwise, when actually delivered.
Until changed by notice, the address and fax number are stated for (a) the
Companies and Agent, beside their names on the signature pages below, and (b)
each Lender, beside its name on Schedule 1.1(a).
12.3 Form and Number of Documents . The form, substance, and
number of counterparts of each writing to be furnished under the Loan Papers
must be satisfactory to Agent and its counsel.
12.4 Exceptions to Covenants . An exception to any Loan-Paper
covenant does not permit violation of any other Loan-Paper covenant.
12.5 Survival . All Loan-Paper provisions survive all closings
and are not affected by any investigation made by any party.
12.6 Governing Law . Unless otherwise stated, each Loan Paper
must be construed -- and its performance enforced -- under the Laws of the
State of Texas and the United States of America.
12.7 Invalid Provisions . If any provision of a Loan Paper is
judicially determined to be unenforceable, all other provisions of it remain
enforceable. If the provision determined to be unenforceable is a material
part of that Loan Paper, then, to the extent lawful, it shall be replaced by a
judicially-construed provision that is enforceable but otherwise as similar in
substance and content to the original provision as the context of it
reasonably allows.
12.8 Conflicts Between Loan Papers . The provisions of this
agreement control if in conflict (i.e., the provisions contradict each other
as opposed to a Loan Paper containing additional provisions not in conflict)
with the provisions of any other Loan Paper.
12.9 Venue and Service of Process . Each Company (A)
Irrevocably Submits To The Nonexclusive Jurisdiction Of Texas State And
Federal Courts, (B) Irrevocably Waives -- To The Fullest Extent Permitted By
Law -- Any Objection That It May Now Or In The Future Have To The Laying Of
Venue Of Any Litigation Brought In Connection With Any Loan Paper Or The
Obligation Brought In District Courts Of Dallas County, Texas, Or In The
United States District Court For The Northern District Of Texas, Dallas
Division, (C) Irrevocably Waives Any Claims That Any Litigation Brought In Any
Of Those Courts Has Been Brought In An Inconvenient Forum, (D) Irrevocably
Consents To The Service Of Process Out Of Any Of Those Courts In Any Litiga-
tion By The Mailing Of Copies Thereof By Certified Mail, Return Receipt
Requested, Postage Prepaid, By Hand-Delivery, Or By Delivery By A Nationally
Recognized Courier Service, And Service Is Deemed Complete Upon Delivery Of
The Legal Process At Its Address In This Agreement, And (E) Irrevocably Agrees
That Any Legal Proceeding Against Any Party To Any Loan Paper Arising Out Of
Or In Connection With The Loan Papers Or The Obligation May Be Brought In One
Of Those Courts. The scope of each of these waivers is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction -- including, without
limitation, contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. These waivers are a material inducement to
the agreement by Agent and each Lender to enter into this agreement, and they
have each relied -- and may continue to rely -- on these waivers in its
dealings with the Companies. Each Company represents and warrants that it has
reviewed these waivers with its legal counsel, and that it knowingly and
voluntarily agrees to each waiver following consultation with legal counsel.
These waivers are irrevocable, may not be modified either orally or in
writing, and apply to any renewals, extensions, amendments, and replacements
of any Loan Paper.
<PAGE>
12.10 Discharge and Certain Reinstatement . The Companies'
obligations under the Loan Papers remain in full force and effect until no
Lender has any commitment to extend credit under the Loan Papers and the
Obligation is fully paid (except for provisions under the Loan Papers which by
their terms expressly survive payment of the Obligation and termination of the
Loan Papers). If any payment under any Loan Paper is ever rescinded or must
be restored or returned for any reason, then all Rights and obligations under
the Loan Papers in respect of that payment are automatically reinstated as
though the payment had not been made when due.
12.11 Amendments, Consents, Conflicts, and Waivers . An amendment
of -- or an approval, consent, or waiver by Agent or by one or more Lenders
under -- any Loan Paper must be in writing and must be:
(a) Executed by the Companies and Agent if it purports to (i)
remove as a party to this agreement any Lender whose Commitment has
been fully terminated under Section 2.5 or (ii) reduce or increase any
fees payable to Agent by the Companies.
(b) Executed by the Companies and the particular Depositary if it
purports to change -- subject to the terms of this agreement -- the
terms of that Depositary's Balance-Carry-Forward Agreement.
(c) Executed by the Companies, Agent, and the particular Lender if
it purports to partially terminate or -- subject to Section 2.5 --
increase that Lender's Commitment under Section 2.5 and is accompanied,
as applicable, by the prepayment to that Lender due because of that
partial termination and by either an Interim Note payable to that
Lender in the amount of that Lender's Commitment increase under Section
2.5(a) or a replacement Associates Note payable to that Lender in the
amount of its reduced or increased Commitment.
(d) Executed by the Companies and Agent and executed or approved in
writing by all Lenders if action of all Lenders is specifically
provided in any Loan Paper or if it purports to (i) except as otherwise
stated in this Section 12.11, extend the due date or decrease the
scheduled amount of any payment under -- or reduce the rate or amount
of interest, fees, or other amounts payable to Agent or any Lender
under -- any Loan Paper, (ii) change the definition of Borrowing Base
(or any component of it), Commitment Percentage, Determining Lenders,
Eligible-Foreclosure Receivable, Eligible-Gestation Collateral,
Eligible-Mortgage Collateral, Eligible-P&I Receivable, Eligible-T&I
Receivable, Market Value, Stated-Termination Date, or Termination
Percentage, (iii) partially or fully release any guaranty or any
Collateral except releases of Collateral contemplated in this
agreement, or (iv) change or waive compliance with Sections 3.2, 3.5,
3.6, 4.5, 4.8, 4.9, 5, 9, 10.1, 10.2, 10.9, 10.10, 12.1,or 12.11.
(e) Otherwise (i) for this agreement, executed by the Companies,
Agent, and Determining Lenders, or (ii) for other Loan Papers, approved
in writing by Determining Lenders and executed by the Companies, Agent,
and any other party to that Loan Paper.
<PAGE>
Amendments under clauses (a)(i) and (c) above shall be in substantially the
form of Exhibit F-1 and under clause (d) above shall be in the form acceptable
to the Companies and Agent. Upon any amendment or change under clauses (a)(i)
or (c) that results in the change of Lenders under this agreement or any of
their Commitments, Schedule 1.1(a) is deemed automatically to be amended to
reflect those changes, and Agent shall circulate to the parties to this
agreement an amended Schedule 1.1(a) reflecting those changes. No course of
dealing or any failure or delay by Agent, any Lender, or any of their
respective Representatives with respect to exercising any Right of Agent or
any Lender under the Loan Papers operates as a waiver of that Right. An
approval, consent, or waiver is only effective for the specific instance and
purpose for which it is given. The Loan Papers may only be supplemented by
agreements, documents, and instruments delivered according to their respective
express terms.
12.12 Multiple Counterparts . Any Loan Paper may be executed
in any number of counterparts with the same effect as if all signatories had
signed the same document, and all of those counterparts must be construed
together to constitute the same document. This agreement is effective when
counterparts of it have been executed and delivered to Agent by each Lender,
Agent, and the Companies, or, in the case only of those Lenders, when Agent
has received faxed or other evidence satisfactory to it that each Lender has
executed and is delivering to Agent a counterpart of it.
12.13 Parties . This agreement binds and inures to the
Companies, each Lender, Agent, and their respective successors and permitted
assigns. Only those Persons may rely upon or raise any defense about this
agreement.
(a) Assignment by Companies. No Company may assign any Rights or
obligations under any Loan Paper without first obtaining the written
consent of Agent and all Lenders.
(b) Assignment by Lender. Any Lender may assign, pledge, and
otherwise transfer all or any of its Rights and obligations under the
Loan Papers either (i) to a Federal Reserve Bank without the consent of
any party to this agreement so long as that Lender is not released from
its obligations under the Loan Papers, or (ii) otherwise in the
ordinary course of its lending business, in accordance with all Laws,
and in accordance with Sections 12.14 and 12.15 so long as (A) at least
51% of each Lender's original Commitment remains collectively held by
it or its Affiliates not subject to any participating interests or
assigned interests, (B) except for assignments, pledges, and other
transfers by a Lender to its Affiliates, the written consent of the
Companies and Agent, which may not be unreasonably withheld, must be
first obtained, (C) the assignment or transfer (other than a pledge)
does not involve a purchase price that directly or indirectly reflects
a discount from face value unless that Lender first offered that
assignment or transfer to the other Lenders on ratable basis according
to their Commitment Percentages, (D) neither the Companies nor Agent
are required to incur any cost or expense incident to any assignment,
pledge, or other transfer by any Lender, all of which are for the
account of the assigning, pledging, or transferring Lender and its
assignee, pledgee, or transferee as they may agree, and (E) if the
Participant or Purchaser is organized under the Laws of any
jurisdiction other than the United States of America or any of its
states, it complies with Section 3.17.
(c) Otherwise Void. Any purported assignment, pledge, or other
transfer in violation of this section is void from beginning and not
effective.
<PAGE>
12.14 Participations . Subject to Section 12.13(b) and this
section, a Lender may at any time sell to one or more Persons (each a
"Participant") participating interests in its Commitment and its share of the
Obligation.
(a) Additional Conditions. For each participation (i) the selling
Lender must remain -- and the Participant may not become -- a "Lender"
under this agreement, (ii) the selling Lender's obligations under the
Loan Papers must remain unchanged, (iii) the selling Lender must remain
solely responsible for the performance of those obligations, (iv) the
selling Lender must remain the holder of its one or more Notes and its
share of the Obligation for all purposes under the Loan Papers, and (v)
the Companies and Agent may continue to deal solely and directly with
the selling Lender in connection with those Rights and obligations.
(b) Participant Rights. The selling Lender may obtain for each of
its Participants the benefits of the Loan Papers related to
participations in its share of the Obligation, but Associates is never
obligated to pay any greater amount that would be due to the selling
Lender under the Loan Papers calculated as though no participation had
been made. Otherwise, Participants have no Rights under the Loan
Papers except certain permitted voting Rights described below.
(c) Participation Agreements. An agreement for a participating
interest (i) may only provide to a Participant voting Rights in respect
of any amendment of or approval, consent, or waiver under any Loan
Paper related to the matters in Section 12.11(d)(i) and (iii) if it
also provides for a voting mechanism that a majority of that Lender's
Commitment Percentage or Termination Percentage, as the case may be
(whether directly held by that Lender or participated) controls the
vote for that Lender, and (ii) may not permit a Participant to assign,
pledge, or otherwise transfer its participating interest in the
Obligation to any Person except any Lender or its Affiliates.
12.15 Transfers . Subject to Section 12.13(b) and this section
and only if no Default exists, a Lender may at any time sell to one or more
financial institutions (each a "Purchaser") up to 49% of its Rights and
obligations under the Loan Papers.
(a) Additional Conditions. The sale (i) may not occur if a Default
exists, (ii) may not involve less than $15,000,000 of a Lender's
Commitment, (iii) must be accomplished by the selling Lender and
Purchaser executing and delivering to Agent and the Companies an
Assignment, and (iv) may not occur until the selling Lender pays to
Agent an administrative-transfer fee of $2,500.
(b) Procedures. Upon satisfaction of the foregoing conditions and
as of the Effective Date in the Assignment, which may not be before
delivery of the Assignment to Agent and the Companies, then (i) a
Purchaser is for all purposes a Lender party to -- with all the Rights
and obligations of a Lender under -- this agreement, with a Commitment
as stated in the Assignment, (ii) the selling Lender is released from
its obligations under the Loan Papers to a corresponding extent, (iii)
Schedule 1.1(b) is automatically deemed to reflect the name, address,
and Commitment of the Purchaser and the reduced Commitment of the
selling Lender, and Agent shall deliver to the Companies and Lenders an
amended Schedule 1.1(b) reflecting those changes, (iv) the Companies
shall execute and deliver to each of the selling Lender and the
Purchaser a Lender Note, Ryland Note, and, if applicable, an Interim
Note, each based upon their respective Commitments or Commitment
Percentages of the Receivable/Working-Capital Sublimit, as the case may
be, following the transfer, (v) upon delivery of the one or more Notes
under clause (iv) above, the selling Lender shall return to the
appropriate Company all Notes previously delivered to it under this
agreement, and (vi) the Purchaser is subject to all the provisions in
the Loan Papers, the same as if it were a Lender that executed this
agreement on its original date.
<PAGE>
12.16 Existing-Loan Agreement and Entireties .
(a) Existing-Loan Agreement. The Companies, Agent, and each Lender
that is party to it agree that, effective as of the Closing Date, the
Existing-Loan Agreement is terminated and no lender under it has any
further commitment to extend any credit under it. However, any
commitment or other fees paid to those lenders for periods through June
16, 1995, are earned and are not reimbursable to either Company.
(b) Entire Agreement. THE LOAN PAPERS AND INTERCOMPANY NOTE 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.
<PAGE>
<TABLE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
December 31, December 31, December 31,
PRIMARY: 1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Net (loss) earnings from
continuing operations $(25,474) $16,417 $(9,567)
Discontinued operations 22,856 5,974 6,911
--------------------------------------------
Net (loss) earnings before
cumulative effect of
a change in accounting
principle (2,618) 22,391 (2,656)
Cumulative effect
of a change in
accounting principle 0 2,076 0
-------------------------------------------
Net (loss) earnings (2,618) 24,467 (2,656)
Adjustment for dividends
on convertible
preferred shares (2,193) (2,441) (2,589)
--------------------------------------------
Adjusted net (loss)
earnings $ (4,811) $22,026 $(5,245)
============================================
Weighted average
common shares
outstanding 15,585,254 15,404,994 15,326,748
Common stock
equivalents (1):
Stock Options 0 39,313 0
Employee incentive plans 0 116,739 0
---------------------------------------------
Total 15,585,254 15,561,046 15,326,748
=============================================
Net (loss) earnings
per share from
continuing operations $ (1.78) $ 0.90 $ (0.79)
Discontinued operations 1.47 0.39 0.45
--------------------------------------------
Net (loss) earnings
per share before
cumulative effect
of a change in
accounting principle (0.31) 1.29 (0.34)
Cumulative effect
of a change in
accounting principle 0.00 0.13 0.00
--------------------------------------------
Net (loss) earnings
per share $ (0.31) $ 1.42 $ (0.34)
=============================================
FULLY DILUTED:
Net (loss) earnings from
continuing operations $(25,474) $16,417 $(9,567)
Discontinued operations 22,856 5,974 6,911
--------------------------------------------
Net (loss) earnings before
cumulative effect of
a change in accounting
principle (2,618) 22,391 (2,656)
Cumulative effect
of a change in
accounting principle 0 2,076 0
-------------------------------------------
Net (loss) earnings (2,618) 24,467 (2,656)
Adjustment for dividends
on convertible
preferred shares (2) (2,193) 0 (2,589)
Adjustment for
incremental dividends
on convertible
preferred shares 0 (1,076) 0
---------------------------------------------
Adjusted net (loss)
earnings $ (4,811) $23,391 $(5,245)
============================================
Weighted average
common shares
outstanding 15,585,254 15,404,994 15,326,748
Common stock
equivalents (1):
Stock options 0 39,313 0
Compensation
unit plan 0 116,739 0
Convertible
preferred stock 0 1,114,757 0
---------------------------------------------
Total 15,585,254 16,675,803 15,326,748
=============================================
Net (loss) earnings
per share from
continuing operations $ (1.78) $ 0.92 $ (0.79)
Discontinued operations 1.47 0.36 0.45
---------------------------------------------
Net (loss) earnings
per share before
cumulative effect
of a change in
accounting principle (0.31) 1.28 (0.34)
Cumulative effect
of a change in
accounting principle 0.00 0.12 0.00
---------------------------------------------
Net (loss) earnings
per share $ (0.31) $ 1.40 $ (0.34)
=============================================
<FN>
(1) For 1995 and 1993, average shares outstanding have not been increased by
the common stock equivalents relating to the employee stock option and
employee incentive plans as the effect would be anti-dilutive.
(2) For 1995 and 1993, the net loss was adjusted for dividends on convertible
preferred shares as the adjustment for incremental dividends on convertible
preferred shares would be anti-dilutive.
</FN>
</TABLE>
<PAGE>
The Ryland Group, Inc. and Subsidiaries
<TABLE>
SELECTED FINANCIAL DATA
(dollar amounts in millions, except unit and per share data) unaudited
<CAPTION>
1995 1994 1993 1992 1991
----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Annual Results:
Revenues
Homebuilding $1,458 $1,443 $1,204 $1,077 $ 859
Financial services
and limited-purpose
subsidiaries 127 176 247 347 334
------ ----- ----- ------ -----
Total 1,585 1,619 1,451 1,424 1,193
Cost of sales-homebuilding 1,280 1,262 1,059 940 744
Interest expense 91 105 162 249 302
Selling, general and
administrative expenses 211 225 201 200 126
Impairment of inventories
and joint venture
investments(1) 45 0 45 0 13
------- ----- ------ ------ -----
(Loss) earnings from
continuing operations
before taxes (42) 27 (16) 35 8
Tax (benefit) expense (17) 11 (6) 12 3
------- ------ ------ ----- -----
Net (loss) earnings from
continuing operations (25) 16 (10) 23 5
Discontinued operations,
net of taxes(2)
Earnings from
discontinued operations 3 6 7 5 4
Gain on sale of
discontinued operations 19 0 0 0 0
------- ------ ------ ------ -----
Net (loss) earnings before
cumulative effect
of accounting change (3) 22 (3) 28 9
Cumulative effect of
accounting change,
net of taxes(3) 0 2 0 0 0
------ ------ ------ ------- -------
Net (loss) earnings $ (3) $ 24 $ (3) $ 28 $ 9
====== ====== ====== ====== ======
Year-End Position:
Assets
Housing inventories $ 538 $ 600 $ 492 $ 485 $ 355
Mortgage loans
held for sale 285 215 536 393 178
Mortgage-backed
securities and
notes receivable 113 171 192 241 174
Collateral for bonds
payable of
limited-purpose
subsidiaries 375 459 798 1,560 2,674
Other assets 270 259 298 218 178
------ ------ ------ ------ ------
Total assets $1,581 $1,704 $2,316 $2,897 $3,559
====== ====== ====== ====== ======
Liabilities
Long-term debt $ 397 $ 409 $ 381 $ 318 $ 219
Short-term notes payable 367 378 717 588 348
Bonds payable of
limited-purpose
subsidiaries 365 447 778 1,533 2,617
Other liabilities 151 158 147 152 156
------ ------ ------ ------ ------
Total liabilities $1,280 $1,392 $2,023 $2,591 $3,340
====== ====== ====== ====== ======
Stockholders' equity $ 301 $ 312 $ 293 $ 306 $ 219
====== ====== ====== ====== ======
Per Common Share Data:
Primary net (loss)
earnings from
continuing operations $(1.78) $ 0.90 $(0.79) $ 1.36 $ 0.18
Primary net (loss)
earnings before
cumulative effect of
accounting change $(0.31) $ 1.29 $(0.34) $ 1.66 $ 0.53
Primary net (loss) earnings $(0.31) $ 1.42 $(0.34) $ 1.66 $ 0.53
Dividends declared $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.60
Stockholders' equity $18.69 $19.56 $18.61 $19.43 $17.34
<FN>
(1) 1995 and 1993 reflect $45 million pretax charges related to homebuilding
inventories and investments in unconsolidated joint ventures, and 1991
reflects a $13 million pretax charge related to investments in unconsolidated
joint ventures.
(2) The Company sold its institutional mortgage-securities administration
business in the second quarter of 1995.
(3) The Company adopted Statement of Financial Accounting Standards No. 115-
"Accounting for Certain Investments in Debt and Equity Securities" in 1994.
</FN>
</TABLE>
<PAGE>
THE COMPANY
Operations of The Ryland Group, Inc. and subsidiaries (the "Company") consist
of two business segments: homebuilding and financial services. The Company's
homebuilding segment constructs and sells single-family attached and detached
homes in 26 markets in 19 states throughout the United States. The financial
services segment provides various mortgage-related products and services for
retail customers and conducts investment activities.
RESULTS OF OPERATIONS
CONSOLIDATED
The Company reported a consolidated net loss of $2.6 million, or $.31 per
share, for 1995, compared with consolidated net earnings of $24.5 million, or
$1.42 per share, for 1994, and a consolidated net loss of $2.7 million, or
$.34 per share, for 1993.
The Company's results for 1995 include an after-tax impairment charge of $27
million (pretax $45 million), primarily related to the Company's early
adoption of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FASB 121") that resulted in reducing the carrying value of
certain inventories and joint venture investments to fair value. In 1993, the
Company had a pretax impairment charge of $45 million caused by a decline in
economic and market conditions that resulted in reducing the carrying value of
certain inventories and joint venture investments to net realizable value
based on accounting rules in effect prior to the adoption of FASB 121. The
1994 results include $2.1 million, or $.13 per share, for the cumulative
impact of an accounting change to adopt Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as of January 1, 1994.
The Company's 1995 results also include a net after-tax gain of $19.5 million
related to the second-quarter sale of the Company's institutional mortgage-
securities administration business. The sale of this business is consistent
with the Company's long-term strategy to focus on its core homebuilding and
retail mortgage-finance operations. Earnings for the financial services
segment for the second half of 1995 were, and future results will continue to
be, negatively impacted by the sale of this business. For financial reporting
purposes, net operating earnings of the institutional mortgage-securities
administration business, amounting to $3.3 million for the six months ended
June 30, 1995 (when the sale closed), $6.0 million for 1994 and $6.9 million
for 1993, as well as the $19.5 million gain on the sale, have been reported as
discontinued operations.
The Company's continuing operations, which exclude the gain on the sale and
the results of the institutional mortgage-securities administration business,
reported a consolidated net loss of $25.5 million, or $1.78 per share, for
1995 compared with consolidated net earnings of $16.4 million, or $.90 per
share, for 1994 and a consolidated net loss of $9.6 million, or $.79 per
share, for 1993.
The homebuilding segment recorded a pretax loss of $47.5 million for 1995
compared with pretax earnings of $10.9 million for 1994 and a pretax loss of
$45.9 million for 1993. Homebuilding results in 1995, excluding the impairment
charge, declined from 1994 primarily due to lower closing volume and gross
profit margins.
The financial services segment reported pretax earnings of $17.9 million in
1995, compared with pretax earnings of $33.5 million for 1994. The decline
from 1994 is primarily attributable to lower gains from sales of mortgages and
mortgage servicing rights and a lower level of investment earnings.
Corporate expenses represent the costs of corporate functions which support
the business segments. Corporate expenses totaling $12.9 million for 1995 were
down $4.3 million from 1994 primarily as a result of staff reductions which
occurred in the latter part of 1994 and lower payouts under the company's
performance-based incentive plans.
Consolidated net earnings for 1994 reflected improved performance compared
with 1993, when the Company recorded the aforementioned pretax impairment
charge of $45 million. Homebuilding operations recorded pretax earnings of
$10.9 million for 1994 compared with a pretax loss of $45.9 million for 1993.
Homebuilding results for 1994, as compared with 1993 excluding the impairment
charge, improved primarily due to higher closing volume and improved gross
profit margins. The financial services segment reported pretax earnings of
$33.5 million for 1994, a decrease of 23.4 percent from the $43.8 million
reported a year earlier. The impact of a 40 percent decline in loan
originations and lower gains from the sale of mortgage-backed securities were
partially offset by higher gains from the sale of mortgage servicing rights.
Corporate expenses totaling $17.2 million for 1994 were up $2.9 million from
1993 primarily as a result of increases in
<PAGE>
systems costs and higher employee-related costs associated with severance
agreements and performance-based incentive plans.
The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities. They do continue to
hold collateral for previously issued mortgage-backed bonds in which the
Company maintains a residual interest. Revenues of the limited-purpose
subsidiaries consist primarily of interest on mortgage collateral subject to
bond indebtedness. Expenses consist primarily of interest on the outstanding
bonds and amortization of deferred costs. Revenues, expenses, and portfolio
balances for the limited-purpose subsidiaries continue to decline as the
mortgage collateral pledged to secure the bonds decreases due to scheduled
principal payments, prepayments and exercises of early redemption provisions.
Revenues have approximated expenses for the last three years. The Ryland
Group, Inc. has not guaranteed the debt of the limited-purpose subsidiaries.
HOMEBUILDING SEGMENT
Results of operations for the homebuilding segment are summarized as follows
(amounts in thousands except average closing price):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues $1,458,174 $1,443,212 $1,203,563
Gross profit 178,428 181,391 144,734
Impairment of
inventories and
joint venture
investments 45,000 0 45,000
Selling, general and
administrative
expenses 151,087 142,254 119,546
Interest expense 29,807 28,209 26,118
--------- ---------- ----------
Homebuilding pretax
(loss) earnings $ (47,466) $ 10,928 $ (45,930)
========== ========== ==========
Average closing price $ 164,000 $ 160,000 $ 148,000
========== ========== ==========
</TABLE>
The Company's homebuilding segment reported a pretax loss of $47.5 million in
1995 compared with pretax earnings of $10.9 million in 1994 and a pretax loss
of $45.9 million in 1993. The 1995 and 1993 losses were primarily related to
pretax impairment charges of $45 million taken in each of the respective
periods. The 1995 impairment charge was primarily related to the Company's
early adoption of FASB 121, which affected its valuation of homebuilding
inventories and investments in joint ventures. Of the $45 million pretax
impairment charge taken in 1995, $31 million related to California
inventories, and $14 million related to assets to be disposed of, including
certain joint venture investments and subdivision lots.
FASB 121 provides that when events or changes in circumstances indicate that
the carrying amount of assets might not be recoverable, companies should
evaluate the need for an impairment writedown. In the fourth quarter of 1995,
in response to competitive market pressures in California, the Company
determined that some product repositioning, increased homebuyer incentives and
reduced selling prices would be necessary in certain of its California
subdivisions. The land inventory in most of these subdivisions was acquired in
1988 and 1989 and had a cost basis substantially in excess of current market
values. Accordingly, the Company evaluated the affected California
subdivisions and determined that certain subdivision inventories were
impaired. Under FASB 121, a writedown of $31 million was required to state the
impaired inventories at their fair value. Fair value was based upon an
evaluation of comparable market prices, discounted cash flow analysis and
expected returns for comparable properties.
In addition, the Company decided in the fourth quarter of 1995 to dispose of
certain joint venture investments and certain other subdivision inventories
because the Company believes that it can achieve higher returns on alternative
uses of capital. As a result, the Company recorded a reserve of $14 million in
the fourth quarter of 1995 to reduce the carrying value of these assets to
their fair value less cost to sell. Of the total reserve, $7 million pertained
to joint venture investments in the Washington, D.C. metropolitan area which
the Company plans to dispose of in 1996. The remaining $7 million reserve
primarily pertained to certain subdivision lots that the Company plans to
dispose of during 1996, including lots in the Columbus, Dallas, and
Washington, D.C. metropolitan areas.
<PAGE>
The 1993 pretax impairment charge of $45 million was caused by a decline in
economic and market conditions in California and the Mid-Atlantic and resulted
in the reduction of the carrying value of certain inventories and joint
venture investments to net realizable value. Of the total charge taken in
1993, $40 million related to properties in California and $5 million primarily
related to inventories and joint venture investments in the Washington, D.C.
metropolitan area.
Excluding the pretax impairment charges of $45 million in 1995 and 1993, the
Company's homebuilding segment reported a pretax loss of $2.5 million for 1995
as compared with pretax earnings of $10.9 million for 1994 and a pretax loss
of $.9 million for 1993. The decline in 1995 earnings was due to lower closing
volume and gross profit margins, and the improvement in 1994, as compared with
1993, was due to an increase in closings and higher gross profit margins.
Homebuilding revenues increased 1.0 percent in 1995 compared with 1994
primarily due to a $4,000 increase in average closing price. The positive
impact of the increase in closing price was partially offset by a .9 percent
decline in wholly owned closings. Closing volume was down in 1995, primarily
due to slower sales earlier in the year, particularly in the Mid-Atlantic
region. Homebuilding revenues increased 19.9 percent in 1994 compared with
1993, due to a 11.7 percent increase in wholly owned closings and a $12,000
increase in average closing price. The increased volume in 1994 was in large
part due to growth in new markets and higher sales in California. Also
contributing to the increase was the impact of a full-year's sales from Scott
Felder Homes in Texas, which was acquired in March 1993.
Gross profit margins, excluding the impairment charge, decreased to 12.2
percent for the year 1995, down from 12.6 percent for 1994. However, for the
fourth quarter of 1995, gross margins improved to 13.1 percent compared with
12.2 percent for the fourth quarter of 1994. The sale of older inventories in
the California and Mid-Atlantic regions and the Company's focus on reducing
unsold homes under construction negatively impacted gross margins during 1995,
particularly in the first half of the year. Gross profit margins increased to
12.6 percent in 1994 from 12.0 percent in 1993, excluding the 1993 impairment
charge. The improvement in gross profit margins during 1994 was primarily
attributable to a greater volume of closings from new, higher-margin
communities, which more than offset the impact of higher closings from low-
margin California communities.
The Company's gross profit margins during 1995 and 1994 were negatively
impacted by the build-out of inventory in California that was affected by a
decline in economic and market conditions. In conjunction with the
implementation of FASB 121 and the resultant impairment charge taken in 1995,
the affected California lots are now carried at fair value. As a result, the
Company does not anticipate that gross profit margins for 1996 and beyond will
be negatively impacted by the build-out and sale of homes on these lots.
In the Mid-Atlantic region, since the latter part of 1994 and throughout the
first nine months of 1995, the Company had taken actions to close-out older
communities with high-cost land positions. Closings on homes from these Mid-
Atlantic close-out communities negatively affected margins through the first
nine months of 1995. As of December 31, 1995, there were no remaining homes to
be sold from these close-out communities.
Selling, general and administrative expenses, as a percent of revenues, were
10.4 percent for 1995 and 9.9 percent for 1994 and 1993. Included in selling,
general, and administrative expenses for 1995 were $2.2 million of
reorganization costs associated with the Company's initiatives to restructure
its Mid-Atlantic and Southwest divisional operations. General and
administrative expenses, excluding selling expenses and the reorganization
costs, as a percentage of revenue, were unchanged for 1995 as compared with
1994. General and administrative expenses as a percentage of revenue, declined
in 1994, as compared with 1993, due to the higher revenue base. Selling
expenses as a percentage of revenues increased in 1995 and 1994 primarily due
to costs associated with expansion into new markets and higher costs
associated with the Company's new marketing and merchandising programs
initiated in 1994.
Interest expense increased in 1995 and 1994 due to increases in the average
homebuilding debt outstanding required to fund higher average inventories and
increases in the average cost of funds. Increases in interest expense were
mitigated by an increase in the amount of interest capitalized due to an
increase in land under development.
<PAGE>
<TABLE>
HOMEBUILDING OPERATIONAL DATA
<CAPTION>
Three months ended
December 31,
--------------------------------------------
New Orders % Closings %
(Units) Change (Units) Change
---------- ------ -------- ------
1995
<S> <C> <C> <C> <C>
Mid-Atlantic 337 (28) 542 (25)
Midwest 256 64 359 24
Southeast 286 28 374 28
Southwest 440 31 455 (4)
West 214 10 347 (4)
California 227 17 389 12
----- --- ----- ----
Total wholly-owned 1,760 12 2,466 (1)
Unconsolidated
joint ventures 2 (91) 5 (67)
----- --- ----- ----
Total 1,762 11 2,471 (2)
===== === ===== =====
Year ended
December 31,
--------------------------------------------
New Orders % Closings %
(Units) Change (Units) Change
---------- ------ -------- ------
1995
<S> <C> <C> <C> <C>
Mid-Atlantic 1,994 (19) 2,363 (6)
Midwest 1,307 31 1,112 6
Southeast 1,399 21 1,260 3
Southwest 1,923 5 1,794 1
West 1,255 6 1,195 (1)
California 1,244 5 1,182 (2)
----- --- ----- ----
Total wholly-owned 9,122 3 8,906 (1)
Unconsolidated
joint ventures 19 (84) 44 (67)
----- -----
Total 9,141 2 8,950 (2)
===== ==== ===== ====
Outstanding Contracts
December 31,
--------------------------------------------
% Dollars in Average
Units Change Millions Price
----- ------ ---------- -------
1995
<S> <C> <C> <C> <C>
Mid-Atlantic 645 (36) $ 125 $ 193,660
Midwest 494 65 79 159,917
Southeast 449 45 74 164,209
Southwest 562 30 92 163,308
West 355 20 63 176,194
California 238 35 45 189,227
----- --- ------ ---------
Total wholly-owned 2,743 9 477 173,899
Unconsolidated
joint ventures 1 (96) 0.4 356,000
----- ---- ------ ---------
Total 2,744 7 $ 477 $ 173,965
===== ==== ====== =========
</TABLE>
<TABLE>
<CAPTION>
Three months ended Year ended
December 31, December 31,
------------------------ -------------------------
New Orders Closings New Orders Closings
(Units) (Units) (Units) (Units)
--------- -------- ---------- --------
1994
<S> <C> <C> <C> <C>
Mid-Atlantic 466 719 2,472 2,520
Midwest 156 290 1,001 1,054
Southeast 223 293 1,161 1,221
Southwest 336 474 1,829 1,776
West 194 362 1,186 1,212
California 194 348 1,190 1,206
----- ----- ----- -----
Total wholly-owned 1,569 2,486 8,839 8,989
Unconsolidated
joint ventures 22 15 116 132
----- ----- ----- -----
Total 1,591 2,501 8,955 9,121
===== ===== ===== =====
Outstanding Contracts
December 31,
---------------------------------------
Dollars in Average
Units Millions Price
----- ---------- -------
1994
<S> <C> <C> <C>
Mid-Atlantic 1,014 $ 171 $ 168,691
Midwest 299 46 153,288
Southeast 310 48 156,345
Southwest 433 66 151,284
West 295 50 170,784
California 176 33 184,710
----- ----- ---------
Total wholly-owned 2,527 414 163,732
Unconsolidated
joint ventures 26 11 412,077
----- ------ ---------
Total 2,553 $ 425 $ 166,261
===== ====== =========
</TABLE>
During 1995 sales increased 2 percent compared with 1994, with increases in
all regions except the Mid-Atlantic. The Company experienced particularly
strong growth during 1995 in the Midwest and Southeast regions in both new and
existing markets. In the Midwest, the increase was driven by the new markets
of Chicago and Minneapolis combined with increases in the existing markets of
Cincinnati and Indianapolis. In the Southeast region, more than half the
growth was attributable to new markets as the Company increased its presence
in Greenville, South Carolina and entered Tampa, Florida. Sales growth in
Charlotte and Atlanta also contributed to the increase. Due to economic
uncertainties and competitive pressures in the Mid-Atlantic, earlier this year
the Company began redistributing capital to other regions where the Company
believes it can achieve higher returns.
Except for the Mid-Atlantic region, all regions reported increases in sales
for the fourth quarter, reflecting the Company's entry into several new
markets as well as growth in many existing markets. The increase in sales in
existing markets during the fourth quarter is attributable to a relatively
favorable interest rate environment and the opening of new communities. As of
December 31, 1995, the Company had outstanding contracts for 2,744 units, up 7
percent from year-end 1994. Outstanding contracts represent the Company's
backlog of sold but not closed homes, which generally are built and closed,
subject to cancellation, over the next two quarters. The $477 million value of
outstanding contracts increased 13 percent from year-end 1994.
The Company has recently consolidated the West and California regions into a
new West region. In addition, the Company recently announced that it will
close its operations in Columbus, Ohio, by the end of 1996.
<PAGE>
FINANCIAL SERVICES SEGMENT
The Company's financial services segment, which excludes the results of the
discontinued institutional mortgage-securities administration business,
recorded pretax earnings of $17.9 million in 1995, compared with $33.5 million
in 1994 and $43.8 million in 1993.
Pretax earnings by line of business were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Retail $ 9,672 $ 21,484 $ 20,642
Investments 8,198 12,042 23,109
-------- -------- --------
Total $ 17,870 $ 33,526 $ 43,751
======== ======== ========
</TABLE>
The decline in pretax earnings in 1995 was primarily related to lower gains
from sales of mortgages and mortgage servicing rights and a lower level of
investment earnings. The decline in investment earnings will likely continue
as the Company's investment portfolio declines. In 1994, the financial
services segment recorded lower earnings as compared with 1993 primarily due
to the decline in earnings from investment operations. Results of investment
operations in 1993 included a nonrecurring gain of $5.3 million from the sale
of the Company's remaining interest in a real estate investment trust and
higher gains from sales of mortgage-backed securities. The Company's retail
operations were adversely affected by rising interest rates in 1994, as loan
originations declined by 40 percent. The impact of this decline was offset by
higher gains from the sale of mortgage servicing rights.
Revenues and expenses for the financial services segment were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Retail revenues:
Interest and
net origination fees $ 16,727 $ 19,468 $ 28,335
Gains on sales of mortgages
and servicing rights 17,362 37,191 28,308
Loan servicing 32,650 37,578 43,635
Title/escrow 5,246 4,597 3,610
------ ------ -------
Total retail revenues 71,985 98,834 103,888
Revenues from investment
operations 17,626 24,797 32,641
------ ------- ------
Total revenues 89,611 123,631 136,529
Expenses:
Interest 23,750 26,694 30,631
General and administrative 47,991 63,411 62,147
------ ------ ------
Total expenses 71,741 90,105 92,778
------ ------ ------
Pretax earnings $ 17,870 $ 33,526 $ 43,751
====== ====== ======
</TABLE>
Revenues for the financial services segment decreased 27.5 percent in 1995
primarily due to lower gains from sales of mortgages and servicing rights and
lower revenues from investment operations due to a decline in the investment
portfolio. Revenues for the financial services segment decreased 9.4 percent
in 1994 as compared with 1993 in large part due to an industry-wide decline in
mortgage originations resulting from rising interest rates. During 1993,
interest rates were at historically low levels, resulting in a high level of
refinancing activity. In addition, investment revenues declined in 1994
primarily due to a nonrecurring 1993 gain on the sale of the Company's
interest in a real estate investment trust. Retail loan servicing revenue
declined in both 1995 and 1994 due to reductions in the Company's loan
servicing portfolio.
Declines in interest expense for 1995, 1994, and 1993 were directly related to
the level of borrowings required to fund mortgage loan originations and
investment portfolio balances in those periods. General and administrative
expenses for the financial services segment declined 24 percent in 1995 as a
result of cost reduction measures in retail operations initiated in the latter
part of 1994. General and administrative expenses for the financial services
segment increased slightly in 1994, as the cost reduction measures implemented
in response to the decline in loan origination activity during the year were
offset by the costs of downsizing.
In February 1996, the Company announced the sale of its wholesale mortgage
operations. The sale of this business, which was part of the retail operations
of the financial services segment, could result in a decline in mortgage
originations in 1996. However, the sale of this business is not expected to
have a significant impact on the future operating results of the financial
services segment.
RETAIL OPERATIONS
Retail operations include mortgage origination, loan servicing and
title/escrow services for retail customers.
A summary of mortgage origination activities is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 1,952 $ 2,055 $ 3,596
Number of mortgages
originated 15,330 16,740 27,872
Percentage
Ryland home settlements 35% 28% 20%
Other settlements 65% 72% 80%
---- ---- ----
Total settlements 100% 100% 100%
==== ==== ====
</TABLE>
<PAGE>
Mortgage origination volume in 1995 was down as compared with 1994, although
declines early in the year were offset by increases later in the year. The
more favorable interest rate environment in the latter part of 1995 resulted
in a 34 percent increase in originations in the fourth quarter as compared
with the fourth quarter of 1994. The 40 percent decline in mortgage
origination volume in 1994 as compared with 1993 was due to an industry-wide
decline in mortgage originations caused by rising interest rates.
The Company earns interest on mortgages held for sale and pays interest on
borrowings secured by mortgages. significant data related to these activities
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Net interest earned
(in thousands) $ 5,766 $ 9,598 $ 12,159
Average balance of
mortgages held for sale
(in millions) $ 211 $ 293 $ 418
Net interest spread 2.7% 3.3% 2.9%
</TABLE>
Net interest earned decreased in 1995 due to a lower average balance of
mortgages held for sale combined with a lower net interest spread. Net
interest earned decreased in 1994 primarily due to the lower average balance
of mortgages held for sale.
The Company services loans that it originates, as well as loans originated by
others. Loan servicing portfolio balances were as follows at December 31
(amounts in billions):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Originated $ 2.4 $ 2.8 $ 4.0
Acquired 3.5 4.0 4.6
Subserviced .3 .1 1.2
----- ----- ----
Total serviced $ 6.2 $ 6.9 $9.8
===== ===== ====
</TABLE>
The decrease in the portfolio balance in 1995 as compared with 1994 was
primarily attributable to normal mortgage prepayment activity. The decrease in
the portfolio balance in 1994 is primarily attributable to the decline in
origination volume combined with higher sales of servicing rights.
INVESTMENT OPERATIONS
The Company's investment operations hold certain assets, primarily mortgage-
backed securities and notes receivable, which were obtained as a result of the
exercise of redemption rights on various mortgage-backed bonds previously
owned by the Company's limited-purpose subsidiaries. Pretax earnings were
comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Sale of interest in real estate
investment trust $ 0 $ 0 $ 5,322
Sale of mortgage-backed
securities 4,839 2,349 5,635
Net interest earned and other 3,359 9,693 12,152
------- -------- --------
Pretax earnings $ 8,198 $ 12,042 $ 23,109
======= ======== ========
</TABLE>
Pretax earnings for 1995 decreased as compared with 1994 due to decreases in
the net interest earned on mortgage-backed securities and notes receivable.
These decreases are attributable to lower average investment balances along
with lower net interest spread. Partially offsetting the lower net interest
earned in 1995 were higher gains from sales of mortgage-backed securities.
Pretax earnings in 1994 declined substantially as compared with 1993 primarily
due to lower gains on the sale of mortgage-backed securities and the
nonrecurring gains on the 1993 sale of the Company's remaining interest in a
real estate investment trust.
Significant data from investment operations are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ -----
<S> <C> <C> <C>
Net interest earned
(in thousands) $ 4,433 $ 12,989 $ 13,413
Average balance outstanding
(in millions) $ 122 $ 205 $ 207
Net interest spread 3.6% 6.3% 6.5%
</TABLE>
The Company earns a net interest spread on the investment portfolio from the
difference between the interest rates on the mortgage-backed securities and
notes receivable and the related borrowing rates. The 1995 decrease in the net
interest earned is primarily due to a decline in the average investment
portfolio balance outstanding combined with a lower net interest spread
resulting from an increase in borrowing rates. The decrease in the net
interest earned in 1994 as compared with 1993 primarily reflects the lower net
interest spread.
<PAGE>
DISCONTINUED INSTITUTIONAL OPERATIONS
In the second quarter of 1995, the Company sold its institutional mortgage-
securities administration business, which included master servicing,
securities administration, investor information services, and tax calculation
and reporting. The current and prior period results for this business
(formerly reported as institutional financial services), as well as the gain
on the sale of the business, have been reported as discontinued operations in
the accompanying consolidated statements of earnings. Revenues from operations
of the discontinued business were $11.4 million, $23.6 million, and $24.0
million for 1995, 1994, and 1993, respectively. Net earnings from operations
of the discontinued business were $3.3 million (net of taxes of $2.2 million)
for 1995, $6.0 million (net of taxes of $4.0 million) for 1994, and $6.9
million (net of taxes of $4.6 million) for 1993.
The Company reported a net gain from the sale of the institutional mortgage-
securities administration business of $19.5 million in the second quarter of
1995. Proceeds from the sale were used to repay long-term debt of the
homebuilding segment and short-term notes payable of the Financial services
segment. The Company's future earnings will no longer benefit from the results
of these operations.
FINANCIAL CONDITION AND LIQUIDITY
The Company generally provides for the cash requirements of the homebuilding
and financial services businesses from outside borrowings and internally
generated funds. Proceeds from the sale of the Company's institutional
mortgage-securities administration business on June 30, 1995, were used to
repay long-term debt of the homebuilding segment and short-term notes payable
of the financial services segment. The Company believes that its current
sources of cash are sufficient to finance its current requirements.
The homebuilding segment borrowings include an unsecured revolving credit
facility, senior notes, senior subordinated notes, and nonrecourse secured
notes payable. The Company primarily uses its unsecured revolving credit
facility to finance increases in its homebuilding inventory. This facility was
renewed in July 1995 for a three-year period, and total borrowing capacity was
increased from $250 million to $400 million. As of December 31, 1995, the
outstanding borrowings under this facility were $137.0 million, compared with
$127.5 million as of December 31, 1994. In addition, the Company had letters
of credit outstanding under this facility totaling $23.0 million and $7.4
million at December 31, 1995 and 1994, respectively. To finance land
purchases, the Company may also use seller-financed, non-recourse secured
notes payable. At December 31, 1995 and 1994, such notes payable outstanding
amounted to $4.5 million and $25.6 million, respectively.
Housing inventories decreased to $537.9 million as of December 31, 1995, from
$600.1 million as of the end of 1994. Of this reduction, $38 million was due
to the noncash charge related to the adoption of FASB 121. For further
information regarding FASB 121, refer to the Homebuilding section of
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." The remaining decrease is due to a lower investment in unsold
homes under construction.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. In June 1995, the Company
renewed its bank facility, which provides up to $325 million for mortgage
warehouse funding and $40 million for working capital advances, and extended
the maturity of the facility to May 1997. Other borrowing arrangements as of
year-end 1995 included repurchase agreement facilities aggregating $800
million, a new $100 million revolving credit facility used to finance
investment portfolio securities, and a $35 million credit facility to be used
for the short-term financing of optional bond redemptions. At December 31,
1995 and 1994, the combined borrowings under these agreements were $367.5
million and $377.6 million, respectively.
Mortgage loans, notes receivable, and mortgage-backed securities held by the
limited-purpose subsidiaries are pledged as collateral for the issued bonds,
the terms of which provide for the retirement of all bonds from the proceeds
of the collateral. The source of cash for the bond payments is cash received
from the mortgage loans, notes receivable, and mortgage-backed securities.
The Ryland Group, Inc. has not guaranteed the debt of the financial services
segment or the limited-purpose subsidiaries.
<PAGE>
<TABLE>
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Homebuilding $1,458,174 $1,443,212 $1,203,563
Financial services 89,611 123,631 136,529
Limited-purpose subsidiaries 37,267 52,293 110,392
---------------------------------------
Total revenues 1,585,052 1,619,136 1,450,484
---------------------------------------
Expenses:
Homebuilding:
Cost of sales 1,279,746 1,261,821 1,058,829
Interest 29,807 28,209 26,118
Selling, general and
administrative 151,087 142,254 119,546
Impairment of inventories
and joint venture investments 45,000 0 45,000
---------------------------------------
Total homebuilding
expenses 1,505,640 1,432,284 1,249,493
Financial services:
Interest 23,750 26,694 30,631
General and administrative 47,991 63,411 62,147
---------------------------------------
Total financial
services expenses 71,741 90,105 92,778
Limited-purpose subsidiaries
expenses 37,215 52,197 110,234
Corporate expenses 12,913 17,187 14,240
---------------------------------------
Total expenses 1,627,509 1,591,773 1,466,745
---------------------------------------
(Loss) earnings from continuing
operations before taxes (42,457) 27,363 (16,261)
Tax (benefit) expense (16,983) 10,946 (6,694)
---------------------------------------
Net (loss) earnings from
continuing operations (25,474) 16,417 (9,567)
Discontinued operations:
Earnings from discontinued
operations (net of taxes in
1995 $2,212, 1994 $3,982,
1993 $4,607) 3,318 5,974 6,911
Gain on sale of discontinued
operations (net of taxes-$13,025) 19,538 0 0
---------------------------------------
Net (loss) earnings before
cumulative effect of a change
in accounting principle (2,618) 22,391 (2,656)
Cumulative effect of a change in
accounting principle
(net of taxes-$1,384) 0 2,076 0
---------------------------------------
Net (loss) earnings $ (2,618) $ 24,467 $ (2,656)
=======================================
Preferred dividends $ 2,193 $ 2,441 $ 2,589
Net (loss) earnings applicable to
common stockholders $ (4,811) $ 22,026 $ (5,245)
Net (loss) earnings per common
share:
Primary:
Net (loss) earnings from
continuing operations $ (1.78) $ 0.90 $ (0.79)
Discontinued operations 1.47 0.39 0.45
---------------------------------------
Net (loss) earnings before
cumulative effect of a change
in accounting principle (0.31) 1.29 (0.34)
Cumulative effect of a change in
accounting principle 0.00 0.13 0.00
---------------------------------------
Net (loss) earnings per
common share $ (0.31) $ 1.42 $ (0.34)
=======================================
Fully Diluted:
Net (loss) earnings from
continuing operations $ (1.78) $ 0.92 $ (0.79)
Discontinued operations 1.47 0.36 0.45
---------------------------------------
Net (loss) earnings before
cumulative effect of a change
in accounting principle (0.31) 1.28 (0.34)
Cumulative effect of a change
in accounting principle 0.00 0.12 0.00
---------------------------------------
Net (loss) earnings
per common share $ (0.31) $ 1.40 $ (0.34)
=======================================
Average common shares outstanding
Primary 15,585,000 15,561,000 15,327,000
Fully diluted 15,585,000 16,676,000 15,327,000
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (AMOUNTS IN THOUSANDS)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 54,518 $ 25,963
Housing inventories:
Homes under construction 332,272 404,346
Land under development
and improved lots 205,646 195,767
---------------------------------
Total inventories 537,918 600,113
Investment in/advances to
unconsolidated joint ventures 2,527 11,500
Property, plant and equipment 34,662 24,001
Purchase price in excess of
net assets acquired 21,575 22,607
Other assets 45,376 56,062
---------------------------------
696,576 740,246
---------------------------------
FINANCIAL SERVICES:
Cash and cash equivalents 1,474 863
Mortgage loans held
for sale, net 285,001 214,772
Mortgage-backed securities
and notes receivable, net 112,544 171,120
Mortgage servicing and
administration rights, net 7,814 12,014
Other assets 42,586 56,251
---------------------------------
449,419 455,020
---------------------------------
OTHER ASSETS:
Collateral for bonds payable
of limited-purpose
subsidiaries 375,146 459,044
Net deferred taxes 41,259 27,822
Other 18,389 22,356
-----------------------------------
TOTAL ASSETS $ 1,580,789 $ 1,704,488
===================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (amounts in thousands, except share data)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
LIABILITIES
HOMEBUILDING:
Accounts payable and
other liabilities $ 78,853 $ 95,551
Long-term debt 396,607 408,744
---------------------------------
475,460 504,295
---------------------------------
FINANCIAL SERVICES:
Accounts payable and
other liabilities 27,219 21,040
Short-term notes payable 367,469 377,629
---------------------------------
394,688 398,669
---------------------------------
OTHER LIABILITIES:
Bonds payable of limited
purpose subsidiaries 364,672 446,752
Other 44,845 42,650
--------------------------------
TOTAL LIABILITIES 1,279,665 1,392,366
=================================
STOCKHOLDERS' EQUITY
Convertible preferred stock,
$1 par value:
Authorized-1,400,000 shares
Issued-943,097 shares
(1,072,903 for 1994) 943 1,073
Common stock,
$1 par value:
Authorized-78,600,000 shares
Issued-15,681,891 shares
(15,475,242 for 1994) 15,682 15,475
Paid-in capital 115,611 115,863
Retained earnings 179,937 193,635
Net unrealized gain on
mortgage-backed securities 2,550 1,763
Due from RSOP Trust (13,599) (15,687)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 301,124 312,122
================================
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,580,789 $ 1,704,488
================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
<CAPTION>
Preferred Common Paid-In Retained
Stock Stock Capital Earnings
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $ 1,199 $15,390 $119,100 $196,203
Net loss (2,656)
Preferred stock
dividends
(per share $2.21) (2,589)
Common stock dividends
(per share $0.60) (9,196)
Common stock repurchased
and retired (99) (2,115)
Conversion of preferred
stock (45) 45 (415)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable (1,987)
RSOP debt repayments
Restricted stock (110) (2,145)
Employee stock plans
(116,529 shares) 117 1,833 704
---------------------------------------------------
Balance at
December 31, 1993 1,154 15,343 116,386 180,351
---------------------------------------------------
Adjustment to beginning
balance for change in
accounting principle,
net of taxes of $5,063
Net earnings 24,467
Preferred stock
dividends
(per share $2.21) (2,441)
Common stock dividends
(per share $0.60) (9,262)
Conversion of preferred
stock (81) 81 (814)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable (470)
RSOP debt repayments
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $3,888
Employee stock plans
(51,869 shares) 51 761 520
----------------------------------------------
Balance at
December 31, 1994 $ 1,073 15,475 115,863 193,635
---------------------------------------------
Net loss (2,618)
Preferred stock
dividends
(per share $2.21) (2,193)
Common stock dividends
(per share $0.60) (9,358)
Conversion of preferred
stock (130) 130 (1,387)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable 151
RSOP debt repayments
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $525
Employee stock plans
(77,181 shares) 77 984 471
--------------------------------------------
Balance at
December 31, 1995 $ 943 $15,682 $115,611 $179,937
==============================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
<CAPTION>
Total
Net Unrealized Deferred Stock-
Gain on Mortgage- Due From Compen- holders'
Backed Securities RSOP Trust sation Equity
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $ 0 $(24,058) $(2,145) $305,689
Net loss (2,656)
Preferred stock
dividends
(per share $2.21) (2,589)
Common stock dividends
(per share $0.60) (9,196)
Common stock repurchased
and retired (2,214)
Conversion of preferred
stock (415)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable 1,114 (873)
RSOP debt repayments 2,957 2,957
Restricted stock 2,145 (110)
Employee stock plans
(116,529 shares) 2,654
------------------------------------------------
Balance at
December 31, 1993 0 (19,987) 0 293,247
------------------------------------------------
Adjustment to beginning
balance for change in
accounting principle,
net of taxes of $5,063 7,594 7,594
Net earnings 24,467
Preferred stock
dividends
(per share $2.21) (2,441)
Common stock dividends
(per share $0.60) (9,262)
Conversion of preferred
stock (814)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable (584) (1,054)
RSOP debt repayments 4,884 4,884
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $3,888 (5,831) (5,831)
Employee stock plans
(51,869 shares) 1,332
------------------------------------------------
Balance at
December 31, 1994 1,763 (15,687) 0 312,122
------------------------------------------------
Net loss (2,618)
Preferred stock
dividends
(per share $2.21) (2,193)
Common stock dividends
(per share $0.60) (9,358)
Conversion of preferred
stock (1,387)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable 251 402
RSOP debt repayments 1,837 1,837
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $525 787 787
Employee stock plans
(77,181 shares) 1,532
------------------------------------------------
Balance at
December 31, 1995 $ 2,550 $(13,599) $ 0 $301,124
================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, (AMOUNTS IN THOUSANDS)
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) earnings $ (2,618) $ 24,467 $ (2,656)
Adjustments to reconcile
net (loss) earnings
to net cash (used for)
provided by operating
activities:
Depreciation and
amortization 34,512 25,640 26,091
Cumulative effect of a
change in accounting
principle 0 (3,460) 0
Gain on sale of
discontinued operations (32,563) 0 0
Gain on sale of investment 0 0 (5,322)
Gain on sale of mortgage
backed securities-available-
for-sale (4,772) (2,349) 0
Decrease (increase) in
inventories 62,195 (105,267) (4,362)
Net change in other assets,
payables and other
liabilities (16,953) 6,387 (77,572)
Equity in losses (earnings)
of/distributions from
unconsolidated joint
ventures 8,973 11,319 11,623
(Increase) decrease in
mortgage loans held for
sale, net (70,229) 320,907 (143,146)
Decrease in mortgage-
backed securities, net 0 0 48,685
--------------------------------------
Net cash (used for)
provided by operating
activities (21,455) 277,644 (146,659)
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property,
plant and equipment (30,152) (19,019) (12,641)
Proceeds from sale of
discontinued operations 47,000 0 0
Principal reduction of
mortgage collateral 57,039 155,277 694,789
Principal reduction of
mortgage-backed
securities-available-
for-sale 5,264 36,887 0
Sales of mortgage-backed
securities-available-
for-sale 68,539 33,066 0
Principal reduction of
mortgage-backed
securities-held-to-
maturity 19,401 81,049 0
(Increase) decrease in
funds held by trustee (853) 79,530 73,914
Other investing activities,
net (470) 1,200 6,710
--------------------------------------
Net cash provided by investing
activities 165,768 367,990 762,772
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in
short-term notes payable (10,160) (339,304) 129,061
Cash proceeds of
long-term debt 14,747 55,074 114,858
Reduction of long-term
debt (26,884) (27,370) (51,384)
Bond principal payments (83,279) (348,047) (763,357)
Common and preferred
stock dividends (11,551) (11,703) (11,785)
Other financing
activities, net 1,980 6,052 2,571
---------------------------------------
Net cash used for
financing activities (115,147) (665,298) (580,036)
--------------------------------------
Net increase (decrease)
in cash and cash
equivalents 29,166 (19,664) 36,077
Cash and cash
equivalents at
beginning of year 26,826 46,490 10,413
-------------------------------------
CASH AND CASH EQUIVALENTS AT
AT END OF PERIOD $ 55,992 $ 26,826 $ 46,490
-------------------------------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest
(net of capitalized
interest) $ 104,630 $ 117,305 $ 168,761
Cash paid for income
taxes (net of refund
received in 1995) $ 17,026 $ 26,555 $ 26,540
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, in all notes unless otherwise noted)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Ryland Group, Inc. is a leading national homebuilder and mortgage-related
financial services firm. The Company builds homes in 26 markets in 19 states
and is one of the largest single-family on-site homebuilders in the United
States. The Company's homebuilding segment specializes in the sale and
construction of single-family attached and detached housing. The financial
services segment provides mortgage-related products and services for retail
customers including loan origination, loan servicing, and title and escrow
services, and also conducts investment activities.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Ryland
Group, Inc. and its wholly owned subsidiaries (the "Company"). Intercompany
transactions have been eliminated in consolidation. Certain amounts in the
consolidated statements of prior years have been reclassified to conform to
the 1995 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
PER SHARE DATA
Primary net (loss) earnings per common share is computed by dividing net
(loss) earnings, after considering preferred stock dividend requirements, by
the weighted average number of common shares outstanding considering dilutive
common equivalent shares. Common equivalent shares relating to stock options
are computed using the treasury stock method. Common equivalent shares were
not dilutive for the years ended December 31, 1995 and 1993.
Fully diluted net (loss) earnings per common share additionally gives effect
to the assumed conversion of the preferred shares held by The Ryland Group,
Inc. Retirement and Stock Ownership Plan Trust (RSOP Trust) into common stock,
as well as the amount of the additional RSOP Trust contribution required to
fund the difference between the RSOP Trust's earnings from preferred share
dividends and the RSOP Trust's potential earnings from common share dividends
after an assumed conversion. The effect of the RSOP Trust was not dilutive for
the years ended December 31, 1995 and 1993.
INCOME TAXES
The Company files a consolidated federal income tax return. Certain items of
income and expense are included in one period for financial reporting purposes
and another for income tax purposes. Deferred income taxes are provided in
recognition of these differences. Deferred tax assets and liabilities are
determined based on the enacted tax rates and are subsequently adjusted for
changes in these rates. A change in the deferred tax assets or liabilities
results in a charge or credit to deferred tax expense.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, which includes model home furnishings, are
carried at cost, less accumulated depreciation and amortization. Depreciation
is provided for, principally, by the straight-line method over the estimated
useful lives of the assets. Model home furnishings are amortized over the life
of the community as homes are closed.
HOMEBUILDING REVENUES
Homebuilding revenues are recognized when home sales are completed and title
passes to the customer at closing.
SERVICE LIABILITIES
Service and warranty costs are estimated and accrued for at the time a home
closes.
HOUSING INVENTORIES
Housing inventories consist principally of homes under construction and land
under development, and improved lots. The Company adopted Statement of
Financial Accounting Standards No. 121 (FASB 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
in the fourth quarter of 1995. Prior to the adoption of FASB 121, inventories
were stated at the lower of cost or net realizable value and were reported net
of valuation reserves. As part of the implementation of FASB 121, the carrying
basis of inventories to be held and used was written down by the amount of
reserves provided under prior accounting rules.
Under FASB 121, inventories to be held and used are stated at cost unless a
subdivision is determined to be impaired, in which case the impaired
inventories are written down to fair value. Writedowns of impaired inventories
to fair value are recorded as adjustments to the cost basis of the respective
inventory.
Inventories to be disposed of are stated at the lower of cost or fair value
less cost to sell and are reported net of valuation reserves. Valuation
reserves related to inventories to be disposed of amounted to $8.3 million at
December 31, 1995, and included $7.0 million that was provided in the fourth
quarter of 1995.
<PAGE>
Costs of inventory include direct costs of land, material acquisition, home
construction, and related direct overhead expenses. Real estate taxes,
insurance, and interest are capitalized during the land development stage. The
costs of acquiring and developing land and constructing certain related
amenities are allocated to the parcels to which these costs relate.
The following table is a summary of capitalized interest:
<TABLE>
<CAPTION>
1995 1994
------ -----
<S> <C> <C>
Capitalized interest as of January 1, $ 22,243 $ 25,539
Interest capitalized 17,543 12,282
Interest amortized (12,137) (15,578)
-------- ---------
Capitalized interest as of December 31, $ 27,649 $ 22,243
======== ========
</TABLE>
PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets of acquired businesses (goodwill) is being
amortized on a straight-line basis over 30 years. On a periodic basis, the
Company evaluates the businesses to which goodwill relates in order to insure
that the carrying value of goodwill has not been impaired.
LOAN ORIGINATION FEES, COSTS, AND MORTGAGE DISCOUNTS
Loan origination fees, net of the related direct origination costs, and loan
discount points are deferred as an adjustment to the carrying value of the
related mortgage loans held for sale and are recognized into income upon the
sale of the mortgage loans.
Discounts on mortgage collateral for the bonds of the limited-purpose
subsidiaries primarily represent loan origination discount points and purchase
price discounts. These discounts are deferred as an adjustment to the recorded
book value of the related mortgage loans. They are amortized into interest
income over their respective lives using the interest method, which is
adjusted for the effect of prepayments.
HEDGING CONTRACTS
The Company enters into forward delivery contracts, options on forward
delivery contracts, futures contracts, and options on futures contracts
(collectively referred to as hedging contracts), as an end-user, for the
purpose of minimizing its exposure to movements in interest rates on mortgage
loan commitments and mortgage loans held for sale. These hedging contracts
primarily represent commitments or options to purchase or sell mortgages or
securities generally within 90 days and at a specified price or yield. Forward
delivery contracts and futures are commitments only and, as such, are not
recorded on the Company's balance sheet or statements of earnings. Option
premiums are deferred when paid and recognized as an adjustment to gains on
sales of mortgages over the lives of the options on a straight-line basis.
Changes in the market value of hedging contracts are deferred and included in
mortgage loans held for sale. Changes in market value are recognized in income
as an adjustment to gains on sales of mortgages when the loans and securities
are sold.
DEFERRED FINANCING COSTS
Financing costs incurred in connection with the issuance of bonds by the
limited-purpose subsidiaries are capitalized and amortized over the respective
lives of the bonds using the interest method.
MORTGAGE SERVICING RIGHTS
Retained mortgage servicing rights on originated loans are capitalized by
allocating the total cost of the mortgage loans between the mortgage servicing
rights and the loans based on their relative fair values. Capitalized
servicing rights, which include purchased servicing rights, are amortized in
proportion to and over the period of estimated servicing revenues.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are reported net of discounts and are valued at
the lower of cost or market determined on an aggregate basis. Any gain or loss
on the sale of the loans is recognized at the time of the sale.
MORTGAGE-BACKED SECURITIES
The Company classifies its mortgage-backed securities into three categories:
held-to-maturity, available-for-sale, and trading. Management determines the
appropriate classification of investment securities at the time of purchase
and reevaluates such designations as of each balance sheet date.
Investment securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity.
Securities classified as held-to-maturity are stated at amortized cost. Those
securities which are held-to-maturity are currently held in a limited-purpose
subsidiary and are collateral for bonds payable whose indentures prohibit
liquidation of the collateral unless the corresponding bonds are redeemed.
Prepayment risk is the only significant risk associated with the mortgage-
backed securities classified as held-to-maturity.
Securities classified as available-for-sale are measured at fair value with
the unrealized gains and losses, net of tax, reflected as a component of
stockholders' equity. Securities classified as trading are measured at fair
value with gains and losses, both realized and unrealized, recognized in the
statement of earnings. At December 31, 1995 and 1994, there were no
securities classified as trading.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
FASB 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (FASB 121). The
Company adopted this new standard for its inventories, joint venture
investments, and other long-lived assets in the fourth quarter of 1995. In
accordance with FASB 121, prior period financial statements have not been
restated to reflect the change in accounting principle.
FASB 121 provides that when events or changes in circumstances indicate that
the carrying amount of assets might not be recoverable, companies should
evaluate the need for an impairment writedown. In the fourth quarter of 1995,
in response to competitive market pressures in California, the Company
determined that some product repositioning, increased homebuyer incentives,
and reduced selling prices would be necessary in certain of its California
subdivisions. The land inventory in most of these subdivisions was acquired
in 1988 and 1989 and had a cost basis substantially in excess of current
market values. Accordingly, the Company evaluated the affected California
subdivisions and determined that certain subdivision inventories were
impaired. Under FASB 121, a writedown of $31 million was required to state
the impaired inventories at their fair value. Fair value was based upon an
evaluation of comparable market prices, discounted cash flow analysis, and
expected returns for comparable properties.
In addition, the Company decided in the fourth quarter of 1995 to dispose of
certain joint venture investments and certain other subdivision inventories
because the Company believes that it can achieve higher returns on alternative
uses of its capital. As a result, the Company recorded a reserve of $14
million in the fourth quarter of 1995 to reduce the carrying value of these
assets to their fair value less cost to sell. Of the total reserve, $7
million pertained to joint venture investments that the Company plans to
dispose of in 1996. The Company's carrying value for all of its joint venture
investments has now been reduced to $2.5 million. The remaining $7 million
reserve primarily pertained to certain subdivision lots that the Company plans
to dispose of during 1996 with a carrying value of $11.4 million.
FASB 122
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 (FASB 122), "Accounting for Mortgage
Servicing Rights an amendment of FASB Statement No. 65." This statement
requires a mortgage banking enterprise to capitalize retained mortgage
servicing rights on originated or purchased loans by allocating the total cost
of the mortgage loans between the mortgage servicing rights and the loans
(without the servicing rights) based on their relative fair values.
Previously, only the cost of mortgage servicing rights acquired through a
purchase transaction could be capitalized. The new statement also specifies
new procedures for assessing impairment of capitalized mortgage servicing
rights, whenever capitalized, and requires that impairment shall be recognized
through a valuation allowance for individual portfolio stratifications based
on the fair value of those rights. The adoption of FASB 122 resulted in a
favorable after-tax impact of $.7 million for the year ended December 31,
1995. In accordance with FASB 122, prior period financial statements have not
been restated.
The book value of the capitalized mortgage servicing rights at December 31,
1995, was $7.8 million, and the aggregate fair value totaled $9.5 million.
Comparable market values and a valuation model that calculates the present
value of future cash flows were used to estimate fair value. For purposes of
measuring impairment, risk characteristics including product type, investor
type, and interest rates were used to stratify the post-implementation
originated mortgage servicing rights.
FASB 115
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (FASB 115), "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for investments held as of or acquired after
January 1, 1994. In accordance with FASB 115, prior period financial
statements have not been restated to reflect the change in accounting
principle.
The cumulative effect of adopting FASB 115 as of January 1, 1994, increased
net income by $2.1 million (net of $1.4 million in deferred income taxes).
This cumulative effect adjustment related to unearned income of discount
points on mortgage-backed securities, which can now be amortized into income
during the period that the mortgage-backed securities are held. The January
1, 1994 balance of stockholders' equity was increased by $7.6 million (net of
$5.1 million in deferred income taxes) to reflect the net unrealized holding
gains on securities classified as available-for-sale, which were previously
carried at the lower of amortized cost or market.
In November 1995, the Financial Accounting Standards Board issued Special
Report No. 155-B, "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities," as an aid in
understanding and implementing Statement 115. The effect of adopting this
implementation guidance as of December 31, 1995, has resulted in the
reclassification of $74,184 of mortgage-backed securities from the held-to-
maturity classification to the available-for-sale classification. The related
increase in net unrealized gains recorded in stockholders' equity at December
31, 1995, totaled $2,185, net of deferred taxes of $1,456. Restatement of
prior periods to reflect the effects of initially adopting this implementation
guidance is not permitted.
NOTE B: SEGMENT INFORMATION
Segment information in the following table is presented on the basis of
continuing operations and excludes amounts related to the institutional
mortgage-securities administration business, which was sold in 1995 and is
reported as discontinued operations. For additional information, refer to Note
C: Discontinued Operations. In addition, the Company is no longer in the
securities issuance business and, therefore, the limited-purpose subsidiaries
are no longer reported as a separate business segment. Amounts related to the
limited-purpose subsidiaries are combined with corporate expenses and
corporate assets in the following table as "Other."
<TABLE>
<CAPTION>
SEGMENT INFORMATION 1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
REVENUES:
Homebuilding $ 1,458,174 $ 1,443,212 $ 1,203,563
Financial services 89,611 123,631 136,529
Other (limited-purpose
subsidiaries) 37,267 52,293 110,392
------------ ------------ ------------
Total $ 1,585,052 $ 1,619,136 $ 1,450,484
============ ============ ============
PRETAX (LOSS) EARNINGS:
Homebuilding $ (47,466) $ 10,928 $ (45,930)
Financial services 17,870 33,526 43,751
Corporate and other (12,861) (17,091) (14,082)
------------ ------------ -------------
Total $ (42,457) $ 27,363 $ (16,261)
============ ============ =============
DEPRECIATION AND AMORTIZATION:
Homebuilding $ 28,410 $ 17,911 $ 8,743
Financial services 4,846 4,250 7,132
Corporate and other 1,256 3,479 10,216
------------ ------------ ------------
Total $ 34,512 $ 25,640 $ 26,091
============ ============ ============
IDENTIFIABLE ASSETS:
Homebuilding $ 696,576 $ 740,246 $ 646,784
Financial services 449,419 455,020 820,931
Corporate and other 434,794 509,222 847,978
------------ ------------ ------------
Total $ 1,580,789 $ 1,704,488 $ 2,315,693
============ ============ ============
</TABLE>
NOTE C: DISCONTINUED OPERATIONS
On June 30, 1995, pursuant to an Asset Purchase Agreement dated April 10,
1995, the Company completed the sale of its institutional mortgage-securities
administration business to Norwest Bank Minnesota, National Association for a
purchase price of $47 million in cash. The Company's institutional mortgage-
securities administration business included master servicing, securities
administration, investor information services, and tax calculation and
reporting. The current and prior period results for this business (formerly
reported as institutional financial services) as well as the gain on the sale
of the business have been reported as discontinued operations in the
accompanying consolidated statements of earnings.
There were no operating results from the discontinued business for the
second half of 1995 as the sale occurred in the second quarter. Revenues from
operations of the discontinued business were $11.4 million, $23.6 million and
$24.0 million, for 1995, 1994 and 1993, respectively. Net earnings from
operations of the discontinued business were $3.3 million (net of taxes of
$2.2 million) for 1995, $6.0 million (net of taxes of $4.0 million) for 1994
and $6.9 million (net of taxes of $4.6 million) for 1993.
<PAGE>
The Company reported a net gain from the sale of the institutional mortgage-
securities administration business of $19.5 million (net of taxes of $13.0
million) in the second quarter of 1995. Proceeds from the sale were used to
repay long-term debt of the homebuilding segment and short-term notes payable
of the financial services segment. The gain reported reflects the proceeds
from the sale less the book value of the net assets of the institutional
mortgage-securities administration business, transaction costs, accrued
expenses, other costs directly related to the transaction, and income taxes.
NOTE D: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
The Company participates in homebuilding joint ventures primarily in its
California and Mid-Atlantic regions. Summarized financial information for all
joint venture entities accounted for under the equity method is as follows:
<TABLE>
STATEMENTS OF EARNINGS
<CAPTION>
Year ended December 31, 1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Revenues $ 23,045 $ 38,900 $ 72,527
Cost of sales 21,287 36,718 67,912
Expenses 894 2,544 3,930
-------- --------- ---------
Pretax earnings (losses) $ 864 $ (362) $ 685
======== ========= ========
The Company's share of
pretax earnings (losses) $ 406 $ (37) $ 460
Impairment
valuation reserve (7,000) 0 (2,400)
--------- ---------- ---------
Pretax losses $ (6,594) $ (37) $ (1,940)
========= ========= =========
</TABLE>
<TABLE>
BALANCE SHEETS
<CAPTION>
December 31, 1995 1994
------ -----
<S> <C> <C>
Assets:
Housing inventories $ 15,521 $ 31,698
Other assets 8,449 9,636
-------- --------
Total assets $ 23,970 $ 41,334
======== ========
Liabilities and Partners' Equity:
Debt $ 11,892 $ 14,219
Other liabilities 7,261 9,286
Due to the Company 7,905 8,195
------ ------
Total liabilities 27,058 31,700
The Company's equity (5,378) 3,305
Other partners' equity 2,290 6,329
------- ------
Total equity (3,088) 9,634
------- ------
Total liabilities and equity $ 23,970 $ 41,334
======= =======
</TABLE>
The Company generally has a 50 percent interest in these joint ventures and
records its interest in their operating results using the equity method. The
Company's share of operating results is not always in proportion to its
ownership interest. The Company's equity and the pretax earnings (losses)
reflected in the above table included charges to earnings of $7,000 and $2,400
in 1995 and 1993, respectively, related to joint venture investments in the
Mid-Atlantic region.
The joint ventures primarily use non-recourse Financing arrangements
collateralized by joint venture land and improvements. The Company had
guaranteed $1,400 and $2,535 of joint venture debt at December 31, 1995 and
1994, respectively.
NOTE E: ASSETS OF FINANCIAL SERVICES AND THE LIMITED-PURPOSE SUBSIDIARIES
FINANCIAL SERVICES
Mortgage loans held for sale consist of loans collateralized by first
mortgages or first deeds of trust on single-family attached or detached
houses. Mortgage-backed securities and notes receivable consist of GNMA
certificates, FNMA mortgage pass-through certificates, FHLMC participation
certificates, notes receivable secured by mortgage-backed securities, and
whole loans.
Mortgage loans held for sale and mortgage-backed securities were reported
net of mortgage (premiums)/discounts of ($547) and $4,175 at December 31, 1995
and 1994, respectively. Mortgage loans held for sale, mortgage-backed
securities, and notes receivable are pledged as collateral for certain short-
term notes payable (see Note F).
The financial services segment serviced 81,000 loans with principal balances
totaling $6.2 billion and $6.9 billion at December 31, 1995 and 1994,
respectively. As a mortgage servicer, the Company may incur risk with respect
to mortgages that are delinquent or in foreclosure to the extent that losses
are not covered by a mortgage insurer or guarantor. At December 31, 1995 and
1994, $2,409 and $2,201, respectively, were reserved for potential losses on
the servicing portfolio. These reserves are established based on the current
economic environment and historical experience for foreclosures and
delinquencies.
LIMITED-PURPOSE SUBSIDIARIES
Collateral for bonds payable consists of notes receivable secured by mortgage-
backed securities, fixed-rate mortgage loans, and mortgage-backed securities
secured by first liens on single-family residential housing. Mortgage-backed
securities consist of GNMA certificates, FNMA mortgage pass-through
certificates, and FHLMC participation certificates. All principal and interest
on the collateral is remitted directly to a trustee and is available for
payment on the bonds.
<PAGE>
The components of collateral for bonds payable at December 31 are summarized
as follows:
<TABLE>
<CAPTION>
1995 1994
------ -----
<S> <C> <C>
Notes receivable $ 158,352 $ 192,657
Mortgage-backed securities 147,532 185,726
Mortgage loans 51,917 66,197
Funds held by trustee 26,231 25,378
Mortgage discounts (8,886) (10,914)
------- --------
Total $ 375,146 $ 459,044
======= ========
</TABLE>
Cash reserves totaling $189 and $1,701 as of December 31, 1995 and 1994,
respectively, provide additional security for the bonds and will be available
for payment on the bonds in the event of certain circumstances as described in
the trust indentures.
Neither The Ryland Group, Inc. nor its homebuilding and financial services
subsidiaries have guaranteed or are otherwise obligated with respect to these
bond issues.
MORTGAGE-BACKED SECURITIES: UNREALIZED GAINS AND LOSSES
Mortgage-backed securities are held by the financial services segment and
reported in the balance sheet caption, "Mortgage-backed securities and notes
receivable," and are also held by the limited-purpose subsidiaries in the
balance sheet caption, "Collateral for bonds payable."
The following is a consolidated summary of mortgage-backed securities as of:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------ ------- --------- --------
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Available-for-sale $ 79,133 $ 4,659 $ 409 $ 83,383
Held-to-maturity 110,007 8,754 0 118,761
--------- -------- ------- ---------
Total $ 189,140 $ 13,413 $ 409 $ 202,144
========= ======== ======= =========
DECEMBER 31, 1994
<S> <C> <C> <C> <C>
Available-for-sale $ 60,709 $ 3,082 $ 144 $ 63,647
Held-to-maturity 215,487 6,502 2,050 219,939
--------- -------- ------- --------
Total $ 276,196 $ 9,584 $ 2,194 $ 283,586
========= ======== ======= =========
</TABLE>
NOTE F: FINANCIAL SERVICES SHORT-TERM NOTES PAYABLE
Financial services had outstanding borrowings at December 31 as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mortgage warehouse and
working capital facility $ 244,254 $ 199,500
Repurchase agreements 82,653 178,129
Revolving credit agreement 34,260 0
Bond redemption
Financing agreement 6,302 0
--------- ---------
Total outstanding borrowings $ 367,469 $ 377,629
</TABLE>
During 1995, the Company renewed its bank facility which provides up to $325
million for mortgage warehouse funding and $40 million for working capital
advances, and extended the maturity of the facility to May 1997. The working
capital advances are secured by the common stock of one of the Company's
subsidiaries within the financial services segment, certain loan-servicing
rights, and the related loan-servicing advances. Borrowings outstanding under
this bank facility totaling $244,254 at December 31, 1995, were collateralized
by mortgage loans held for sale with outstanding principal balances of
$263,544. The outstanding warehouse borrowings totaling $199,500 at December
31, 1994, were collateralized by mortgage loans held for sale with outstanding
principal balances of $197,366 and loan servicing advances of $17,600. The
effective interest rates on these borrowings were 4.1 percent, 2.1 percent,
and 2.4 percent for 1995, 1994, and 1993, respectively. The agreement contains
certain financial covenants, which the Company met at December 31, 1995.
The repurchase agreements represent short-term borrowings. The collateral
for these borrowings consists of mortgage loans held for sale and mortgage-
backed securities with outstanding balances on December 31, 1995 and 1994, of
$84,113 and $183,260, respectively. The effective interest rates were 6.4
percent, 4.6 percent, and 3.7 percent for 1995, 1994, and 1993, respectively.
The following table provides additional information relating to the mortgage
loans and mortgage-backed securities collateralizing the repurchase agreements
at December 31, 1995:
<TABLE>
<CAPTION>
Assets
--------------------------------
Carrying Accrued Fair Repurchase Interest
Maturity Value Interest Value Liability Rate
- ------------- -------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Up to 30 days $ 27,323 $ 193 $ 27,579 $ 26,544 6.5%
31 to 90 days 37,764 322 38,795 37,094 6.3%
Demand 19,026 175 20,817 19,015 6.0%
-------- ----- -------- --------
Total $ 84,113 $ 690 $ 87,191 $ 82,653
======== ===== ======== ========
</TABLE>
<PAGE>
In September 1995, the Company entered into a $100 million revolving credit
facility to be used for financing investment securities in the financial
services segment. The agreement carries a one-year term, bears interest at
market rates, and is collateralized by investment portfolio securities with
outstanding balances of $34,426 at December 31, 1995. The effective interest
rate on the revolving credit agreement was 6.24 percent for 1995.
The Company also has a secured $35 million credit agreement to be used for
the short-term financing of optional bond redemptions, which was renewed in
January 1996. The agreement carries a one-year term and bears interest at
market rates. The effective interest rates for this credit agreement during
1995 and 1994 were 6.5 percent and 1.3 percent, respectively.
The weighted-average interest rates at the end of the period on all short-
term borrowings were 4.6 percent, 4.6 percent, and 3.1 percent for 1995, 1994,
and 1993, respectively. The weighted-average interest rates during the period
on all short-term borrowings were 4.8 percent, 3.5 percent, and 3.1 percent
for 1995, 1994, and 1993, respectively.
NOTE G: OFF BALANCE SHEET FINANCIAL INSTRUMENTS RELATED TO MORTGAGE LOAN
ORIGINATIONS
The Company is a party to financial instruments in the normal course of
business. The financial services segment uses financial instruments to meet
the financing needs of its customers and reduce its exposure to fluctuations
in interest rates. These instruments involve, to varying degrees, elements of
credit and market risk not recognized in the consolidated balance sheets. The
Company has no derivative Financial instruments that are held for trading
purposes.
The contract or notional amounts of these financial instruments as of December
31 are as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Commitments to originate
mortgage loans $ 64,393 $ 85,466
Hedging contracts:
Forward delivery contracts $ 157,850 $ 146,900
Options on forward
delivery contracts $ 45,000 $ 5,000
</TABLE>
In addition, to protect against exposure to interest rate fluctuations on
adjustable-rate mortgage-loan commitments, at December 31, 1995 and 1994, the
Company contracted with various parties to deliver $154,200 and $205,466,
respectively, in adjustable- and fixed-rate mortgage loans for a specified
price on a primarily best efforts basis.
Commitments to originate mortgage loans represent loan commitments with
customers at current market rates up to 120 days before settlement. Loan
commitments have no carrying value on the balance sheet. These commitments
expose the Company to market risk as a result of increases in mortgage
interest rates. The amount of risk is limited to the difference between the
contract price and current market value, and is mitigated by fees collected
from the customer and by the Company's hedging activities. Loan commitments
had interest rates ranging from 6.3 percent to 11.0 percent as of December 31,
1995, and 5.3 percent to 11.9 percent as of December 31, 1994.
Hedging contracts are regularly entered into by the Company for the purpose
of mitigating its exposure to movements in interest rates on mortgage
commitments and mortgage loans held for sale. The selection of these hedging
contracts is based upon the Company's marketing strategy, which establishes a
risk tolerance level. The major factors influencing the use of the various
hedging contracts include general market conditions, interest rate, types of
mortgages originated, and the percentage of mortgage loan commitments expected
to be funded. The market risk assumed while holding the hedging contracts
generally mitigates the market risk associated with the mortgage loan
commitments and mortgage loans held for sale. Exposure to credit risk in the
event of nonperformance by the other parties to the hedging contracts would be
limited to the difference between the contract price and current market value
of the hedged item, which would be a small percentage of the outstanding
commitments, and would be limited to those instances where the Company was in
a net unrealized gain position. The Company manages this credit risk by
entering into agreements with counterparties meeting the credit standards of
the Company and monitoring position limits. Net deferred hedging
(losses)/gains included with mortgage loans held for sale on the Company's
balance sheet at December 31, 1995 and 1994, amounted to ($2,463) and $423,
respectively.
<PAGE>
NOTE H: FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments, both on and off the balance sheet, are
held for purposes other than trading. The fair values of these financial
instruments are based on quoted market prices, where available, or are
estimated using present value or other valuation techniques. Estimated fair
values are significantly affected by the assumptions used, including the
discount rate and estimates of cash flow. In that regard, the derived fair-
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument.
The table below sets forth the carrying values and fair values of the
Company's financial instruments, except for those financial instruments noted
below for which the carrying values approximate fair values at the end of the
year. It excludes non-financial instruments and, accordingly, the aggregate
fair-value amounts presented do not represent the underlying value of the
Company.
The Company used the following methods and assumptions in estimating fair
values:
Cash and cash equivalents, industrial revenue bonds, bank credit agreement,
loan servicing receivables, and short-term notes payable: The carrying amounts
reported in the balance sheet approximate fair values.
Secured notes payable: The fair values of the Company's secured notes payable
are estimated using discounted cash flow analyses based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
Senior notes, senior subordinated notes, mortgage loans held for sale,
mortgage-backed securities, the various hedging contracts if settled on
December 31, 1995, and mortgage loan commitments: The fair values of these
financial instruments are estimated based on quoted market prices for similar
financial instruments.
Call right options: In estimating the fair value, current mortgage prepayment
speeds and mortgage collateral balances were used to estimate when the call
rights would be exercisable. Based on year-end 1995 and 1994 collateral
prices, the implied net gains that could be realized on exercise of the
options and sale of the mortgage collateral were estimated. These net gains
were then discounted using a current long-term market interest rate.
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------ ------------------
HOMEBUILDING
<S> <C> <C> <C> <C>
Liabilities:
Secured notes payable $ 4,498 $ 4,498 $ 25,560 $ 25,527
Senior notes 53,000 55,490 53,000 51,869
Senior subordinated notes 200,000 201,500 200,000 171,220
FINANCIAL SERVICES
Assets:
Mortgage loans
held for sale, net $285,001 $286,176 $214,772 $215,876
Mortgage-backed securities,
held-to-maturity, net - - 32,620 34,558
Mortgage-backed securities,
available-for-sale, net 47,911 47,911 63,647 63,647
Notes receivable and other 64,633 68,332 74,853 76,124
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
Forward delivery contracts - (1,447) - (453)
Options on forward
delivery contracts - - - 13
Commitments to
originate mortgage loans - 296 - (61)
Call right options - 5,012 - 2,547
Other Assets:
Collateral for bonds
payable of
the limited-purpose
subsidiaries $375,146 $395,760 $459,044 $468,179
Other Liabilities:
Bonds payable of
limited-purpose
subsidiaries $364,672 $394,175 $446,752 $466,714
</TABLE>
<PAGE>
NOTE I: LIMITED-PURPOSE SUBSIDIARIES BONDS PAYABLE
The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities. Previously, they
issued mortgage-backed bonds and the Company retained residual interests in
some of these bonds. Payments are made on the bonds on a periodic basis as a
result of, and in amounts relating to, corresponding payments received on the
underlying mortgage collateral.
The following table sets forth information with respect to the limited-
purpose subsidiaries' bonds payable outstanding at December 31:
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Bonds payable, net of discounts:
1995-$6,662; 1994-$7,862 $ 364,672 $ 446,752
Range of interest rates 7.25-12.625% 7.25%-12.625%
Stated maturities 2006-2019 2006-2021
</TABLE>
NOTE J: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
----- ------
<S> <C> <C>
Bank credit agreement $ 137,000 $ 127,500
Senior subordinated notes 200,000 200,000
Senior notes 53,000 53,000
Secured notes payable 4,498 25,560
Industrial revenue bonds 2,109 2,684
--------- --------
396,607 408,744
Less current portion (35,073) (18,062)
--------- ---------
$ 361,534 $ 390,682
========= =========
</TABLE>
The Company has an unsecured credit agreement with a group of banks, which
was renewed in 1995 for a three-year period. The total borrowing capacity
under this agreement, which matures in July 1998, was increased from $250
million to $400 million. Borrowings under the agreement bear interest at
variable short-term rates. The effective interest rates for 1995, 1994, and
1993 were 8.0 percent, 6.6 percent, and 5.0 percent, respectively.
The Company has $100,000 of 10.5 percent senior subordinated notes
outstanding, due July 15, 2002, with interest payable semi-annually, which may
be redeemed at the option of the Company, in whole or in part, at any time on
or after July 15, 1997. The Company also has $100,000 of 9.625 percent senior
subordinated notes, due 2004, with interest payable semi-annually, which may
be redeemed at the option of the Company, in whole or in part, at any time on
or after December 1, 2000. Senior subordinated notes are subordinated to all
existing and future senior debt of the Company.
At December 31, 1995, the Company had $53,000 of senior notes outstanding.
The notes bear a fixed interest rate of 10.5 percent and mature in the years
1996 through 2000. Senior notes amounting to $15,000 matured and were paid off
in January 1996.
The Company's secured notes payable bear interest at 5.0 to 9.5 percent and
are secured by land included in inventories with carrying values of
approximately $8,694 and $38,037 as of December 31, 1995 and 1994,
respectively. These notes are scheduled to be repaid in 1996.
Industrial revenue bonds (IRBs), due in 1999, were issued in connection with
the construction of manufacturing plants and bear interest at rates
approximating short-term, tax-exempt rates. The combined effective interest
rates for 1995, 1994, and 1993 were 4.5 percent, 3.3 percent, and 3.1 percent,
respectively. The IRBs are collateralized with a first lien on all real and
personal property at the respective sites, having a net carrying value on
December 31, 1995 and 1994, of $4,774 and $5,143, respectively.
Maturities of long-term debt for each of the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 35,073
1997 15,575
1998 137,650
1999 309
2000 8,000
</TABLE>
The bank credit agreement, senior subordinated indenture agreements, senior
note agreements, and IRB loan agreements contain certain financial covenants.
Under the loan covenants the Company has $13,662 of retained earnings
available for dividends at December 31, 1995. At December 31, 1995, the
Company is in compliance with its covenants.
<PAGE>
NOTE K: INCOME TAXES
The Company's (benefit) expense for income taxes relating to (losses) earnings
from continuing operations for the years ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
CURRENT:
<S> <C> <C> <C>
Federal $ (1,257) $ 5,671 $ 17,382
State (266) 1,203 3,566
-------- ------- --------
Total current (1,523) 6,874 20,948
DEFERRED:
Federal (12,754) 3,359 (22,936)
State (2,706) 713 (4,706)
-------- ------- --------
Total deferred (15,460) 4,072 (27,642)
-------- ------- --------
Total (benefit) expense $(16,983) $10,946 $ (6,694)
======== ======= ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
A reconciliation between the total income tax (benefit) expense and the
income tax (benefit) expense computed by applying the statutory federal income
tax rate to (losses) earnings from continuing operations before income taxes
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
Computed income taxes at
statutory rate (35%) $ (14,860) $ 9,577 $ (5,691)
Applicable state taxes (1,932) 1,245 (740)
Goodwill amortization 408 408 408
RSOP dividend (401) (401) (328)
Other, net (198) 117 (343)
--------- ------- --------
Total actual income
tax (benefit) expense $ (16,983) $10,946 $ (6,694)
========= ======= ========
</TABLE>
Significant components of the Company's deferred tax liabilities and assets as
of December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS:
Inventory valuation provisions
and operational reserves $ 37,278 $ 24,070
Employee benefit plans 5,472 4,479
Capitalization of
costs to inventory 5,809 6,756
Recognition of joint
venture income 847 2,474
Other 2,531 2,676
------- ------
Total deferred tax assets 51,937 40,455
======= ======
DEFERRED TAX LIABILITIES:
Gross profit from sales
reported on the
installment method (5,091) (6,082)
Preconstruction interest (2,307) (3,039)
Unrealized market gain (1,354) (1,690)
Other (1,926) (1,822)
------- -------
Total deferred tax liabilities (10,678) (12,633)
------- -------
Net deferred tax asset $ 41,259 $ 27,822
======= =======
</TABLE>
The Company has determined that no valuation allowance for the deferred tax
asset is required due to tax carrybacks currently available. The Company had a
current tax asset of $7,750 as of December 31, 1995, and a current tax asset
of $11,614 as of December 31, 1994.
<PAGE>
NOTE L: STOCKHOLDERS' EQUITY
PREFERRED STOCK
On August 31, 1989, the Company sold 1,267,327 shares of non-transferable
convertible preferred stock, par value $1.00, to the RSOP Trust for $31.5625
per share, or an aggregate purchase price of approximately $40,000 (see Note
M).
Each share of preferred stock pays an annual cumulative dividend of $2.21.
During 1995, 1994, and 1993, the Company paid $2,193, $2,441, and $2,589,
respectively, in dividends on the preferred stock. Each share of preferred
stock is entitled to a number of votes equal to the shares into which it is
convertible, and the holders of the preferred stock generally vote together
with the common stockholders on all matters.
Under the RSOP Trust, at the option of the trustee, the Company may be
obligated to redeem the preferred stock to satisfy distribution obligations to
or investment elections of participants. For purposes of these redemptions,
the value of each share of preferred stock is determined monthly by an
independent appraiser, with a minimum guaranteed value of $25.25 per share.
The Company may issue common stock to satisfy this redemption obligation, with
any excess redemption price to be paid in cash. At December 31, 1995 and 1994,
the maximum cash obligation for such redemptions was shown outside of
stockholders' equity as part of other liabilities. This obligation is
calculated assuming that all preferred shares outstanding were submitted for
redemption.
Based upon the appraised value of each share of preferred stock ($25.50,
$25.25, and $29.125) and the market value of each share of common stock
($14.00, $15.00, and $20.00) at December 31, 1995, 1994, and 1993,
respectively, and the application of a proportionate amount of the note due
from the RSOP Trust, the net amounts of this obligation at December 31, 1995,
1994, and 1993 were $3,051, $3,453, and $2,398, respectively. During 1995 and
1994, 129,806 and 80,749 shares of preferred stock, respectively, were
converted into shares of common stock.
COMMON SHARE PURCHASE RIGHTS
On December 17, 1986, the Company declared a dividend of one common share
purchase right for each share of common stock outstanding on February 9, 1987.
Each right entitles the holder to purchase one share of common stock at an
exercise price of $70. The rights become exercisable 20 business days after
any party acquires or announces an offer to acquire 20 percent or more of the
Company's common stock. The rights expire January 11, 1997, and are redeemable
at $0.05 per right at any time before 20 business days following the time that
any party acquires 20 percent or more of the Company's common stock.
In the event the Company enters into a merger or other business combination,
or if a substantial amount of its assets are sold after the time that the
rights become exercisable, the rights provide that the holder will receive,
upon exercise, shares of the common stock of the surviving or acquiring
Company having a market value of twice the exercise price. Until the earlier
of the time that the rights become exercisable, are redeemed or expire, the
Company will issue one right with each new share of common stock issued.
NOTE M: EMPLOYEE INCENTIVE AND STOCK PLANS
The Company's employee incentive and stock plans are as follows:
RETIREMENT AND STOCK OWNERSHIP PLAN
On August 16, 1989, the Company established an employee stock ownership plan,
known as the RSOP Trust. The RSOP Trust's purchase of shares of preferred
stock was Financed by a loan to the RSOP Trust by the Company in an amount of
$40,000. The loan bears interest at the rate of 9.99 percent and is expected
to be repaid by the RSOP Trust through dividends received on the preferred
stock and Company contributions. The RSOP Trust incurred interest on this loan
in 1995, 1994, and 1993 of $2,229, $2,637, and $3,045, respectively. Preferred
shares are collateral for the loan and are released to the RSOP Trust as debt
payments are made. As of December 31, 1995, 428,001 shares under the RSOP
Trust have been allocated to participants and 515,096 shares remain
unallocated.
There are two components within the RSOP: a 401(k) plan and a Profit sharing
plan. All full-time employees with one year of service are eligible to
participate in the RSOP. Pursuant to Section 401(k) of the Internal Revenue
Code, the plan permits deferral of a portion of a participant's income into a
variety of investment options. Compensation expense reflects the Company's
matching contributions of the employee 401(k) contributions and any
discretionary profit sharing contribution. Total compensation expense amounted
to $5,072, $4,986, and $5,042 in 1995, 1994, and 1993, respectively.
EQUITY INCENTIVE PLAN AND OTHER RELATED PLANS
The Company's 1992 Equity Incentive Plan permits the Company to provide equity
incentives in the form of stock options, stock appreciation rights,
performance shares, restricted stock, and other stock-based awards to
employees. Under the Company's 1992 Equity Incentive Plan, options are granted
to purchase shares at prices not less than the fair-market value of the shares
at the date of grant. The options are exercisable at various dates over one-
to 10-year periods.
The Company uses the intrinsic value method to measure compensation expense
related to the award of stock options. Since stock option awards are granted
at prices no less than the fair-market value of the shares at the date of
grant, no compensation expense is recognized.
<PAGE>
Pursuant to the Equity Incentive Plan, the Company has long-term incentive
plans for officers and key employees. After each fiscal year, restricted
shares of the Company's common stock and cash are credited to the accounts of
the participants according to a prescribed formula. Total compensation expense
relating to these plans amounted to $1,404 in 1995 and $2,504 in 1994. There
was no compensation expense relating to this plan in 1993.
Under the Company's Non-employee Director Equity Plan, stock options are
granted to directors to purchase shares at prices not less than the fair-
market value of the shares at the date of grant. A maximum of 100,000 shares
of common stock has been reserved for issuance under this plan.
On November 29, 1993, the Company entered into a Stock Unit Agreement with
an officer, pursuant to the Equity Incentive Plan. The Company granted to the
officer 75,000 stock units. Each stock unit is payable in one share of the
Company's common stock. The units vest in increments of 15,000 units for five
years beginning November 1, 1994. For 1995 and 1994, the Company recognized
compensation expense of $267 and $315, respectively, under this plan
The following is a summary of the transactions relating to all stock option
plans for each year ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Options outstanding
Beginning of year 1,262,599 1,040,530 1,034,792
Granted 620,270 507,600 240,800
Exercised (47,600) (45,030) (94,622)
Canceled (289,569) (240,501) (140,440)
--------- --------- ----------
Options outstanding
end of year 1,545,700 1,262,599 1,040,530
Available for
future grant 530,729 708,157 737,351
--------- --------- ---------
Total shares reserved 2,076,429 1,970,756 1,777,881
========= ========= =========
Options exercisable
at December 31 701,262 656,827 600,500
========= ========= =========
Prices related
to options
exercised during
the year $10.94-$15.25 $10.13-$20.75 $10.13-$23.25
Prices related to options outstanding on December 31, 1995, ranged from $13.50
to $26.00.
</TABLE>
NOTE N: COMMITMENTS AND CONTINGENCIES
COMMITMENTS
In the normal course of business, the Company acquires rights under option
agreements to purchase land for use in future homebuilding operations. As of
December 31, 1995, the Company had deposits and letters of credit outstanding
of $29,761 for options and land purchase contracts having a total purchase
price of $334,462.
Rent expense primarily relates to office facilities, model home furniture,
and equipment. Total rent expense amounted to $11,681, $13,973, and $10,544
for the years ended December 31, 1995, 1994 and 1993, respectively. Future
minimum rental commitments under non-cancelable leases with remaining terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 9,559
1997 8,704
1998 6,091
1999 4,044
2000 3,395
After 2000 2,883
--------
Total lease commitments $ 34,676
========
</TABLE>
CONTINGENCIES
Contingent liabilities may arise from the obligations incurred in the ordinary
course of business, or from the usual obligations of on-site housing producers
for the completion of contracts.
Some municipalities require the Company to issue development bonds or
maintain letters of credit to assure completion of public facilities within a
project. Total development bonds at December 31, 1995, were $85,859, and total
letters of credit at December 31, 1995, were $4,077.
One current and two former officers of Ryland Mortgage Company ("RMC") have
been notified that they are targets of a federal grand jury investigation
concerning alleged misappropriation of funds from the Resolution Trust
Corporation ("RTC"). The Company has been advised that the investigation
relates to alleged overpayments to RMC of approximately $3 million under two
mortgage-servicing contracts with the RTC. The Company is investigating this
matter, and at this time cannot predict how it will be resolved or whether the
Company or RMC will incur any liability.
The Company is also party to various legal proceedings generally incidental
to its businesses. Based on evaluation of these matters and discussions with
counsel, management believes that liabilities to the Company arising from
these matters will not have a material adverse effect on the financial
condition of the Company.
<PAGE>
The Ryland Group, Inc. and Subsidiaries
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
The Ryland Group, Inc.
We have audited the accompanying consolidated balance sheets of The Ryland
Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Ryland
Group, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note A to the financial statements, in the fourth quarter of
1995, the Company changed its method of accounting for impairment of long-
lived assets in accordance with the adoption of FASB No. 121 and, effective
January 1, 1994, the Company also changed its method of accounting for
investments in debt securities in accordance with the adoption of FASB No.
115.
/s/ Ernst & Young LLP
Baltimore, Maryland
February 5, 1996
<PAGE>
<TABLE>
The Ryland Group, Inc. and Subsidiaries
QUARTERLY FINANCIAL DATA
(amounts in thousands, except per share data) unaudited
<CAPTION>
1995
QUARTER ENDED Dec. 31(1) Sept. 30 June 30 March 31
- ----------------------------------------------------------------------------
Consolidated Results:
<S> <C> <C> <C> <C>
Revenues $448,040 $402,587 $389,228 $345,197
(Loss) earnings from
continuing operations
before taxes (39,588) 1,130 (1,536) (2,463)
Income tax (benefit)
expense (15,835) 452 (614) (986)
--------- -------- --------- --------
Net (loss) earnings from
continuing operations (23,753) 678 (922) (1,477)
Discontinued operations,
net of taxes(2)
Earnings from
discontinued operations 0 0 1,168 2,150
Gain on sale of
discontinued operations 0 0 19,538 0
--------- -------- -------- --------
Net (loss) earnings before
cumulative effect
of a change in
accounting principle (23,753) 678 19,784 673
Cumulative effect
of a change in
accounting principle
(net of taxes of $1,384) 0 0 0 0
--------- -------- -------- --------
Net (loss) earnings $(23,753) $ 678 $ 19,784 $ 673
Net (loss) earnings per
common share (primary) $ (1.55) $ 0.01 $ 1.22 $ 0.01
Weighted average common
shares outstanding 15,667 15,812 15,764 15,676
<FN>
(1) Reflects a $27 million after-tax charge related to homebuilding
inventories and investments in unconsolidated joint ventures.
(2) The Company sold its institutional mortgage-securities administration
business in the second quarter of 1995.
(3) Includes the effect of a change in accounting principle of $0.13 per
share.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1994
QUARTER ENDED Dec. 31(1) Sept. 30 June 30 March 31
- ----------------------------------------------------------------------------
Consolidated Results:
<S> <C> <C> <C> <C>
Revenues $439,720 $441,975 $410,649 $326,792
(Loss) earnings from
continuing operations
before taxes 1,343 11,378 10,026 4,616
Income tax (benefit)
expense 538 4,551 4,010 1,847
-------- -------- -------- --------
Net (loss) earnings from
continuing operations 805 6,827 6,016 2,769
Discontinued operations,
net of taxes(2)
Earnings from
discontinued operations 1.460 1,562 1,566 1,386
Gain on sale of
discontinued operations 0 0 0 0
-------- -------- ------- --------
Net (loss) earnings before
cumulative effect
of a change in
accounting principle 2,265 8,389 7,582 4,155
Cumulative effect
of a change in
accounting principle
(net of taxes of $1,384) 0 0 0 2,076
Net (loss) earnings $ 2,265 $ 8,389 $ 7,582 $ 6,231
Net (loss) earnings per
common share (primary) $ 0.11 $ 0.50 $ 0.45 $ 0.36(3)
Weighted average common
shares outstanding 15,572 15,554 15,553 15,574
<FN>
(1) Reflects a $27 million after-tax charge related to homebuilding
inventories and investments in unconsolidated joint ventures.
(2) The Company sold its institutional mortgage-securities administration
business in the second quarter of 1995.
(3) Includes the effect of a change in accounting principle of $0.13 per
share.
</FN>
</TABLE>
The Ryland Group, Inc. and Subsidiaries
COMMON STOCK PRICES AND DIVIDENDS
The Ryland Group, Inc., lists its common shares on the New York Stock
Exchange, trading under the symbol RYL. The table below
presents the high and low market prices and dividend information for the
Company. The number of common stockholders of record as
of February 7, 1996, was 3,252. (See Note J for dividend restrictions.)
<TABLE>
<CAPTION>
Dividends
Declared
1995 High Low Per Share
- ---------------------------------------------------- ---------------------
<S> <C> <C> <C>
First quarter $15 $ 13 3/8 $0.15
Second quarter 17 1/4 14 3/8 0.15
Third quarter 17 1/4 14 5/8 0.15
Fourth quarter 15 5/8 12 3/8 0.15
</TABLE>
<TABLE>
<CAPTION>
Dividends
Declared
1994 High Low Per Share
- --------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $25 5/8 $19 3/4 $0.15
Second quarter 21 17 3/8 $0.15
Third quarter 19 1/8 15 7/8 $0.15
Fourth quarter 16 3/8 12 7/8 $0.15
</TABLE>
<PAGE>
EXHIBIT 21 LIST OF SUBSIDIARIES OF REGISTRANT
Ryland Mortgage Company (an Ohio Corporation)
M.J. Brock & Sons, Inc. (a Delaware Corporation)
LPS Holdings Corporation (a Maryland Corporation)
<PAGE>
EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Ryland Group, Inc., of our report dated February 5, 1996, included in
the 1995 Annual Report to the Shareholders of The Ryland Group, Inc.
Our audits also included the financial statement schedule of The Ryland
Group,, Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-16774, Form S-3 No. 33-28692, Form S-8 No. 33-
32431, Form S-3 No. 33-48071, Form S-3 No. 33-50933, Form S-8 No. 33-56905,
Form S-8 No. 33-56917) of The Ryland Group, Inc., and in the related
Prospectuses of our report dated February 5, 1996, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of The Ryland
Group, Inc.
/s/Ernst & Young LLP
Baltimore, Maryland
March 22, 1996
<PAGE>
EXHIBIT 24 - POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of
The Ryland Group, Inc., a Maryland corporation, constitute and appoint R. Chad
Dreier and Michael D. Mangan and either of them, the true and lawful agents
and attorneys-in-fact of the undersigned with full power and authority in said
agents and attorneys-in-fact, and in either of them, to sign for the
undersigned in their respective names as directors and officers of The Ryland
Group, Inc., the Annual Report on Form 10-K of The Ryland Group, Inc., for the
fiscal year ended December 31, 1995, to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. We hereby
confirm all acts taken by such agents and attorneys-in-fact, or either of
them, as herein authorized.
DATED: February 21, 1996
/s/ R. Chad Dreier
--------------------------------------
R. Chad Dreier, Chairman of the Board,
President, and Chief Executive Officer
(Principal Executive Officer)
/s/ Andre W. Brewster
--------------------------------------
Andre W. Brewster, Director
/s/ James A. Flick, Jr.
--------------------------------------
James A. Flick, Jr., Director
/s/ Robert J. Gaw
--------------------------------------
Robert J. Gaw, Director
/s/ Leonard M. Harlan
--------------------------------------
Leonard M. Harlan, Director
/s/ L.C. Heist
--------------------------------------
L.C. Heist, Director
/s/ William L. Jews
--------------------------------------
William L. Jews, Director
/s/ William G. Kagler
--------------------------------------
William G. Kagler, Director
/s/ John H. Mullin, III
--------------------------------------
John H. Mullin, III, Director
/s/ Charlotte St. Martin
--------------------------------------
Charlotte St. Martin, Director
/s/ John O. Wilson
--------------------------------------
John O. Wilson, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE RYLAND GROUP, INC. FORM 10-K FOR THE PERIOD ENDED
12/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 55,992
<SECURITIES> 112,544
<RECEIVABLES> 285,001
<ALLOWANCES> 0
<INVENTORY> 537,918
<CURRENT-ASSETS> 0
<PP&E> 34,662
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,580,789
<CURRENT-LIABILITIES> 0
<BONDS> 732,141
<COMMON> 15,682
0
943
<OTHER-SE> 284,499
<TOTAL-LIABILITY-AND-EQUITY> 1,580,789
<SALES> 1,458,174
<TOTAL-REVENUES> 1,585,052
<CGS> 1,324,746
<TOTAL-COSTS> 1,523,893
<OTHER-EXPENSES> 12,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,703
<INCOME-PRETAX> (42,457)
<INCOME-TAX> (16,983)
<INCOME-CONTINUING> (25,474)
<DISCONTINUED> 22,856
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,618)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
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