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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[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, 1996
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from N/A
_____________________ to ____________________
Commission file number 1-10959
STANDARD PACIFIC CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0475989
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1565 W. MACARTHUR BLVD., 92626
COSTA MESA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code (714) 668-4300
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
COMMON STOCK, $.01 PAR VALUE
(AND ACCOMPANYING PREFERRED SHARE NEW YORK STOCK EXCHANGE AND
PURCHASE RIGHTS) PACIFIC STOCK EXCHANGE
10 1/2% SENIOR NOTES DUE 2000 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO .
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THE FORM 10-K. [_]
As of March 5, 1997, the aggregate market value of voting stock held by non-
affiliates of the registrant was $197,528,333.
Documents incorporated by reference:
Portions of the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the Company's 1997 Annual Meeting
of Stockholders are incorporated by reference into Part III hereof.
As of March 5, 1997, there were 29,495,181 shares of common stock
outstanding.
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STANDARD PACIFIC CORP.
PART I
ITEM 1. BUSINESS
Standard Pacific Corp. was incorporated in the State of Delaware in 1991.
Through its predecessors, Standard Pacific Corp. commenced its homebuilding
operations in 1966 with a single tract of land in Orange County, California.
As used herein, "Company" refers to Standard Pacific Corp. and its
predecessors.
HOMEBUILDING
The Company operates primarily as a geographically diversified builder of
medium-priced, single-family homes for use as primary residences with
operations throughout the major metropolitan markets in California and Texas.
For the year ended December 31, 1996, approximately 79 percent and 21 percent
of the Company's home deliveries (including unconsolidated joint ventures)
were in California and Texas, respectively. Approximately 91 percent, 89
percent and 90 percent of the total sales and revenues for the years ended
December 31, 1996, 1995 and 1994, respectively, were derived from homebuilding
activities. The Company also owns a savings and loan subsidiary, Standard
Pacific Savings, F.A. ("Savings"). In addition, the Company manufactures and
markets high quality office furniture systems through its subsidiary, Panel
Concepts, Inc.
STRATEGY-HOMEBUILDING
The principal components of the Company's long-term homebuilding strategy
include:
(1) Concentration on the Development and Construction of High Quality,
Medium-Priced, Single-Family Homes for Use as Primary Residences. The
Company has historically concentrated, and at present concentrates, on the
construction of high quality, medium-priced, single-family homes for use as
primary residences. The Company believes that the market for primary
residences is more resistant to economic downturns than the market for
second or vacation homes. The average selling price of the Company's homes
decreased in 1996 to approximately $262,000 from $272,000 in 1995.
Currently, the Company expects to concentrate its efforts on acquiring land
which is suitable for the construction and sale of homes generally in the
price range of $150,000 to $350,000, which represents a broad market
segment in the Company's market areas. However, the Company has and is
currently constructing and selling homes in the $400,000 to $800,000 price
range in certain of its California markets.
(2) Keeping Construction in Line with Anticipated Demand. The Company
customarily acquires unimproved land zoned for residential use which
appears suitable for the construction of 50 to 300 homes in increments of
10 to 30 homes. The number of homes built in the first increment of a
project is based upon market studies. The timing and size of subsequent
increments depends to a large extent upon sales rates experienced in the
earlier increments. By developing projects in increments, the Company has
been able to respond to local market conditions to control the number of
its completed and unsold homes.
(3) Retention of an Inventory of Building Sites Sufficient for a Three to
Five Year Period. In order to ensure an adequate supply of land for future
homebuilding activities, the Company generally attempts to maintain an
inventory of building sites sufficient for construction of homes over a
period of approximately three to five years. The Company believes that its
6,527 owned or controlled building sites at December 31,
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1996, in addition to any land sites for which the Company may enter into
negotiations, will be sufficient for its operations over this period.
Additionally, an increasing percentage of the Company's lots are
represented by lots controlled through its unconsolidated joint ventures.
(4) Geographic Diversification. The Company has concentrated its
California homebuilding activities in Orange, Riverside, San Bernardino,
San Diego and Ventura Counties in Southern California, and in the San
Francisco Bay region. Additionally, the Company has projects in the
Houston, Dallas and Austin markets in Texas. The Company's policy of
diversifying among different geographic areas has enabled it to reduce the
impact of adverse local economic conditions.
(5) Use of Local Managers for the Homebuilding Divisions. The Company
employs local managers who initiate land purchases, work with local
subcontractors and generally manage the Company's homebuilding divisions as
separate profit centers. The use of local managers enables the Company to
benefit from the advantages of in-depth local expertise.
(6) Continuing Emphasis on the Control of Overhead and Operating
Expenses. Throughout its history, the Company has sought to minimize
overhead expenses in an effort to control costs and to be more flexible in
responding to the cyclical nature of its business. In addition, the Company
controls its land acquisition expenses by generally completing a purchase
of a land only when it can reasonably project commencement of construction
within a specified time period. Additionally, the Company has been able to
reduce overhead and carrying costs related to large land inventories by
utilizing joint ventures and controlling certain lots through purchase
options. The closing of a land purchase is generally made contingent upon
satisfaction of certain conditions relating to the property and the
Company's ability to obtain requisite approvals from the appropriate
governmental agencies.
(7) Use of Extensive Marketing and Sales Efforts. The Company's homes are
generally sold by its own staff of sales personnel through the use of model
homes which are usually maintained at each project site. The Company also
makes extensive use of advertisements in local newspapers, illustrated
brochures, billboards and on-site displays.
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The table below sets forth certain information for each homebuilding
division and for the Company as a whole for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED AS OF
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
------------------ ----------------------------------------------------
TOTAL NUMBER
NUMBER OF BUILDING
AVERAGE OF PROJECTS PROJECTS SITES
HOME HELD FOR IN SALES OWNED OR HOMES UNDER PRESOLD
HOMES SELLING DEVELOPMENT STAGE CONTROLLED CONSTRUCTION HOMES
DELIVERED PRICE (2) (3) (4) (5) (6)
--------- -------- ----------- -------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Orange County........... 472 $303,679 17 14 679 195 145
San Diego County........ 109 336,293 9 3 723 21 21
Ventura County.......... 184 248,165 6 6 433 49 31
San Francisco Bay
Region................. 366 285,808 19 11 1,558 185 172
Houston................. 127 144,536 7 6 679 52 30
Dallas/Austin........... 211 210,351 12 10 1,133 70 62
----- -------- --- --- ----- --- ---
Total Consolidated...... 1,469 267,529 70 50 5,205 572 461
Unconsolidated Joint
Ventures-California.... 154 208,882 7 3 1,322 27 24
----- -------- --- --- ----- --- ---
Totals for and as of the
year ended December 31,
1996................... 1,623 $261,681 77 53 6,527 599 485
===== ======== === === ===== === ===
Totals for and as of the
year ended December 31,
1995................... 1,436 $271,936 69 49 6,091 486 312
===== ======== === === ===== === ===
</TABLE>
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(1) Does not include: at December 31, 1996, 135 model homes and 206 completed
and unsold homes, and at December 31, 1995, 112 model homes and 239
completed and unsold homes.
(2) The total number of projects held for development as of the end of each
period shown includes projects with homes in the sales stage, under
construction and projects in various stages of planning.
(3) The number of projects in the sales stage includes projects where the
sales office has opened and/or the Company has begun to enter into sales
contracts for the sale of its homes.
(4) Includes homes reflected in Homes Under Construction and Presold Homes.
(5) Includes certain homes reflected in Presold Homes.
(6) See "Marketing and Sales" for information concerning cancellation rates
and contractual arrangements under which homes are presold.
OPERATIONS
The Company currently conducts homebuilding activities in California and
Texas through a total of six geographic divisions, which are currently
responsible for developing 77 projects.
Each homebuilding division is run by a local manager. One of the essential
criteria in the selection of a divisional manager is the person's in-depth
familiarity with the geographic areas within which the division operates. The
decisions regarding selection of parcels of land for purchase and development
are made in conjunction with the officers of the Company, and thereafter, each
manager conducts the operations of the division relatively autonomously as a
separate profit center.
Substantially all of the Company's homes sold are single-family detached
dwellings, although during the past few years approximately 5 percent to 10
percent have been townhouses or condominiums generally attached in varying
configurations of two, three, four and six dwelling units.
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The Company's homes are designed to suit the particular area of the country
in which they are located and are available in a variety of models, exterior
styles and materials depending upon local preferences. Homes built by the
Company are targeted for occupancy as primary residences. While the homes
built by the Company typically range in size from approximately 1,800 to 2,800
square feet and typically include three or four bedrooms, two or three baths,
a living room, kitchen, dining room, family room and a two or three-car
garage, the Company also has built single-family attached and detached homes
ranging from 1,100 to 5,500 square feet. Gas fireplaces and built-in
appliances are usually included. For the years ended December 31, 1996, 1995
and 1994, the average selling prices of the Company's homes, including sales
of the unconsolidated joint ventures, were $261,681, $271,936, and $295,772,
respectively.
LAND ACQUISITION, DEVELOPMENT AND CONSTRUCTION
In considering the purchase of land for the development of a homebuilding
project, the Company reviews such factors as proximity to existing developed
areas; population growth patterns; availability of existing community services
such as water, gas, electricity and sewers; school districts; employment
growth rates; the expected absorption rate for new housing; environmental
condition of the land; transportation availability and the estimated costs of
development. Generally, if all requisite governmental agency approvals are not
in place, the Company enters into a conditional agreement to purchase a parcel
of land, making only a nominal deposit on the property. The general policy of
the Company is to complete a purchase of land only when it can reasonably
project commencement of construction within a specified period of time.
Closing of the land purchase is, therefore, generally made contingent upon
satisfaction of conditions relating to the property and to the Company's being
able to obtain all requisite approvals from governmental agencies within a
certain period of time. The Company customarily acquires unimproved or
improved land zoned for residential use which appears suitable for the
construction of 50 to 300 homes, which construction is accomplished in smaller
sized increments. The number of homes built in the first increment of a
project is based upon the Company's market studies. The timing and size of
subsequent increments depends on the sales rates of earlier increments. The
Company's development work on a homebuilding project includes obtaining any
necessary zoning, environmental and other regulatory approvals, and
constructing, as necessary, roads, sewer and drainage systems, recreational
facilities and other improvements.
The Company typically uses both its equity (internally generated funds) and
unsecured financing in the form of bank debt and other unsecured debt to fund
land acquisitions. The Company occasionally uses purchase money trust deeds to
finance the acquisition of land. Generally, with the exception of joint
ventures, specific project financing is not used.
The Company has entered into joint venture arrangements to develop certain
parcels of land. During 1993, the Company's Orange County division entered
into a joint venture agreement to develop and deliver 469 homes. For the years
ended December 31, 1996, 1995 and 1994, the Company delivered 151, 195 and 108
homes, respectively, through this unconsolidated joint venture. In 1995, the
Company's Orange County division entered into a new joint venture arrangement
to develop 209 lots in the city of Orange, California. Additionally, in 1996
the Company's Orange County division entered into another joint venture to
develop and deliver approximately 800 homes in Fullerton and Brea, California.
During 1996, the Company delivered three new homes in this unconsolidated
joint venture.
The Company essentially functions as a general contractor with its
supervisory employees coordinating all work on the project. The services of
independent architectural, design, engineering and other consulting firms are
engaged to assist in project planning, and subcontractors are employed to
perform all of the physical development and construction work on the project.
The Company does not have long-term contractual commitments with any of its
subcontractors, consultants or suppliers of materials. However, because of its
market presence and long-term relationships, the Company has generally been
able to obtain sufficient materials and commitments from subcontractors and
consultants during times of market shortages. These types of agreements are
generally entered into on an increment-by-increment basis at a fixed price
after competitive bidding. The Company believes that the low fixed labor
expense resulting from conducting its homebuilding
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operations in this manner has been instrumental in enabling it to retain the
necessary flexibility to react to increases or decreases in demand for
housing.
Although the construction time for the Company's homes varies from project
to project depending on the time of year, local labor situations, certain
governmental approval processes, availability of materials and supplies and
other factors, the Company can typically complete the construction phase of an
increment within one of its projects in approximately four to six months.
MARKETING AND SALES
The Company's homes are generally sold by its own staff of sales personnel.
Furnished and landscaped model homes are usually maintained at each project
site. Changes in house design are generally not permitted, but homebuyers are
afforded the opportunity to select, at additional costs, various optional
amenities such as air conditioning, prewiring options, upgraded carpet
quality, varied interior and exterior color schemes, additional appliances and
occasionally some room configurations. The Company makes extensive use of
advertisements in local newspapers, illustrated brochures, billboards and on-
site displays.
The Company's homes are typically sold during construction using sales
contracts which are usually accompanied by a small cash deposit, although some
of the Company's homes are sold after completion of construction. In some
cases, purchasers are permitted to cancel these contracts if they are unable
to sell their existing homes or fail to qualify for financing and under
certain other circumstances. During each of the years ended December 31, 1996,
1995 and 1994, the Company experienced cancellation rates of 24 percent, 25
percent and 29 percent, respectively. Although cancellations can delay the
delivery of the Company's homes, they have not, during the last few years, had
a material negative impact on sales, operations or liquidity because of the
Company's policy of closely monitoring the progress of prospective buyers in
obtaining financing and monitoring and adjusting its start plan to better
match the level of demand for its homes. Sales are recorded after construction
is completed, required down payments are received and title passes. At
December 31, 1996, 1995 and 1994, the Company had an inventory of completed
and unsold homes of 206, 239 and 260, respectively.
FINANCING
Until July 1994, the Company offered assistance to a limited number of its
homebuyers in obtaining financing for home purchases by arranging mortgage
financing through its wholly owned subsidiary, Standard Pacific Savings, F.A.
("Savings"). Such financing was at rates and on terms comparable to other
similar mortgage loans originated by Savings for other customers. During 1994,
in response to extremely competitive market forces, Savings eliminated its
mortgage banking operations and, as a result, has generally not originated any
loans for its portfolio for Standard Pacific homebuyers since 1994.
During the year ended December 31, 1994, approximately one percent of the
homes delivered by the Company were financed with funds provided through
Savings. The Company's decision to cease its mortgage origination business has
not had a significant impact on the sales of its homes.
Home purchase financing from local lending institutions generally averages
80 percent or more of the purchase price of the homes. During periods of high
mortgage rates or difficult economic times, the Company may assist its
homebuyers by "buying-down" the interest rates on mortgage loans or
subsidizing all or a part of the homebuyers' up front financing fees. The
amounts of such "buy-downs" or subsidies is dependent upon prevailing market
conditions and interest rate levels.
COMPETITION, BUSINESS RISKS AND REGULATION
Homebuilding. The homebuilding industry is highly cyclical and competitive,
with homebuilders competing for customers, desirable properties, financing,
raw materials and skilled labor. In each of the areas in which it operates,
the Company competes in terms of location, design, quality, price and
available mortgage financing
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with numerous other residential construction firms, including large national
and regional firms, some of which have greater financial resources than the
Company. In addition, the Company competes with resales of existing
residential housing by individuals, financial institutions and others.
Competition is particularly intense when the Company enters a new market area
until its reputation becomes firmly established in that area.
The development, construction and sale of homes are subject to various risks
including, among others, the continued availability of suitable undeveloped
land at reasonable prices and adverse local market conditions resulting from
changes in economic conditions or competitive over-building. As a result of
the national and California recessions which began in 1990, the Company
recorded in the fourth quarter of 1991 aggregate writedowns of approximately
$3 million on several of the Company's California projects to value the
remaining homes in these projects at estimated net realizable value.
Additionally, during the third quarter of 1992 and the fourth quarter of 1993
adjustments totaling approximately $2.5 million and $3.1 million,
respectively, were recorded to reduce the carrying value of certain California
projects to the lower of cost or market and to provide for reserves to cover
potential price concessions. At December 31, 1995, and as a result of
continued adverse trends experienced in some of the Company's markets,
particularly in San Diego, coupled with the adoption of Financial Accounting
Standards No. 121 (FAS 121), the Company recorded a $46.5 million noncash
pretax charge against operations. FAS 121 required a change in method of
valuing long-lived assets, including in particular assets such as the
Company's real estate holdings (See Note 2 of Notes to Consolidated Financial
Statements).
Other risks include changing governmental regulations; increases in
prevailing interest rates; the level of real estate taxes and energy costs;
the cost of materials and labor; the availability of construction financing
and home mortgage financing attractive to the purchasers of the Company's
homes; and inclement weather. See "Financing" above and "Economic Conditions
and Interest Rates" below for further discussions of the adverse effects of
high interest rates.
In addition, the housing industry is subject to environmental, building,
worker health and safety, zoning and real estate regulations by various
Federal, state and local authorities. The environmental laws that apply to a
given homebuilding site depend upon the site's location, its environmental
condition and the present and former uses of the site, as well as adjoining
properties. 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 regions or areas. In addition, certain new developments,
particularly in Southern California, are subject to various assessments for
schools, parks, streets and highways and other public improvements, the costs
of which can be substantial. By raising the cost of the Company's homes to its
customers, an increase in such assessments could have a negative impact on the
Company's sales.
In developing a project, the Company must obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of density, the installation of utility services, such as water and
waste disposal, and the dedication of acreage for open space, parks, schools
and other community purposes. Furthermore, changes in prevailing local
circumstances or applicable law may require additional approvals or
modifications of approvals previously obtained, including environmental,
zoning and other entitlement issues. Prior to acquiring a parcel of land, the
Company may utilize deposit arrangements which allow the Company ample time to
perform proper diligence and investigate and resolve necessary issues.
Although the Company believes that it has acquired a sufficient number of lots
to provide for its home construction activities for the near term, no
assurances can be given that the Company will be able to sell the homes it
produces on a profitable basis.
The Company is not presently experiencing any serious material or labor
shortages; however, the residential construction industry in the past has,
from time to time, experienced serious material and labor shortages with
shortages in insulation, drywall, certain carpentry work and cement and
fluctuating lumber prices and supply. Delays in construction of homes due to
these shortages could have an adverse effect upon the Company's homebuilding
operations.
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PROPOSED LEGISLATION
In past years, several cities and counties in which the Company has
delivered a significant number of homes have approved the inclusion of "slow
growth" initiatives and other election ballot measures which could impact the
affordability and availability of homes and land within those localities.
Although some of these initiatives have been defeated, the Company believes
that if, in the future, similar initiatives are introduced and approved,
future residential construction by the Company could be negatively impacted.
ECONOMIC CONDITIONS AND INTEREST RATES
The Company's business is affected by national, world and local economic
conditions and events and the effect such conditions and events have on the
markets it serves in California and Texas and in particular by the level of
mortgage interest rates and consumer confidence in those regions. The Company
cannot predict whether interest rates will be at levels attractive to
prospective homebuyers. If interest rates increase, and in particular mortgage
interest rates, the Company's operating results could be adversely impacted.
OTHER CONSIDERATIONS
Dependence on California Economy and Housing Markets. The Company presently
conducts most of its business in California. There have been periods of time
in California where economic growth has slowed and the average sales price of
homes in certain areas in California in which the Company does business have
declined. There can be no assurance that home sales prices will not decline
further in the future.
Unexpected climatic conditions, such as unusually heavy or prolonged rain or
other natural disasters such as earthquakes or fires, may affect operations in
certain areas. Periodically, the state of California has experienced drought
conditions resulting in water conservation measures and in some cases
rationing by local municipalities in which the Company does business.
Restrictions by governmental agencies on future construction activity could
have an adverse effect upon the Company's operations.
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STANDARD PACIFIC SAVINGS, F.A.
In March 1987, the Company acquired certain assets and assumed certain
liabilities of a then troubled savings and loan association from the Federal
Savings and Loan Insurance Corporation (the "FSLIC"), by contributing cash and
all of the common stock of the Company's former mortgage banking subsidiary to
Savings. To facilitate the acquisition, the FSLIC created Savings and
transferred certain assets and liabilities of the predecessor association to
Savings. In connection with the acquisition of Savings, the FSLIC and the
Company entered into, among other agreements, an assistance agreement with the
FSLIC (the "Assistance Agreement"). At December 31, 1996, Savings, operating
out of one branch location, had total assets of $265 million, including
approximately $199 million of loans receivable and accrued interest and
savings deposits of $133 million.
In connection with the acquisition, Savings obtained regulatory approval to
purchase from the Company loans made by the Company to finance the purchase of
its homes. Beginning January 1, 1990, in lieu of purchasing loans from the
Company, Savings commenced originating loans directly to buyers of the
Company's homes based on Savings' position, which was based on the advice of
counsel, that such loans to home buyers should not be treated as loans by
Savings to the Company for purposes of applicable affiliate transaction
limitations, primarily Section 23A of the Federal Reserve Act. Such loans were
made in accordance with Savings' standard loan underwriting and pricing
guidelines. Savings has not originated any Standard Pacific loans for its
portfolio since 1994.
Prior to commencing direct loans to buyers of homes from the Company,
Savings advised the Office of Thrift Supervision ("OTS") of its intention to
directly fund such loans. In addition, in April 1990, the Company and Savings
made a formal submission to the General Counsel of the Board of Governors of
the Federal Reserve System ("FRB") requesting concurrence with Savings'
interpretation of Section 23A. Until October, 1995 neither the FRB nor the OTS
responded to the Company's and Savings' request for advice. In October 1995,
the Company was notified by the OTS (the "Notice") that in its opinion Section
23A of the Federal Reserve Act applies to loan transactions between Standard
Pacific Savings and unaffiliated purchasers of homes constructed by the
Company. Under the OTS's interpretation of Section 23A, Savings may not make
loans to unaffiliated purchasers of the Company's homes if the aggregate
amount of such transactions in Savings' portfolio at any point in time would
exceed 10% of Savings' unimpaired capital and unimpaired surplus, or
approximately $2.1 million. As of December 31, 1996, Savings had in its
portfolio, from prior years' transactions, an aggregate principal balance of
loans made to unaffiliated purchasers of the Company's homes of $4.4 million.
The OTS granted Savings until September 30, 1997 to dispose of a sufficient
quantity of those loans to come into compliance with this 10% limitation. As a
result of the effect of complying with the Notice, the Company has determined
that Savings no longer provides synergy to the ongoing operations of the
Company and accordingly, the Company is evaluating its options with respect to
Savings.
COMPETITION
Savings experiences intense competition in both attracting and retaining
deposits. The competition for deposits comes from other savings and loan
associations, commercial banks, credit unions, thrift and loan associations
and money market mutual funds. Most of the nation's largest savings and loan
associations and many large commercial banks are headquartered and have a
significant number of branch offices in the area in which Savings operates.
Additional competition for consumer savings comes from issuers of corporate
and government securities. In addition to offering competitive interest rates,
the principal methods used to attract deposits include the additional services
offered by Savings, the quality of service rendered and the hours of service
that Savings' office is open to the public.
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REGULATION AND SUPERVISION OF SAVINGS
GENERAL
Savings is a federally-chartered savings association, a member of the
Federal Home Loan Bank of San Francisco, and is subject to regulation by the
OTS and the FDIC. Savings' deposits are insured by the FDIC through the
Savings Association Insurance Fund ("SAIF"). As a result of its ownership of
Savings, the Company is a savings and loan holding company subject to
regulation and examination by the OTS. As described in more detail below,
statutes and regulations applicable to Savings govern such matters as the
amount of capital Savings must hold; dividends, mergers and changes of
control; establishment and closing of branch offices; and the investments and
activities in which Savings can engage. Statutes and regulations applicable to
the Company govern such matters as changes of control of the Company and
transactions between Savings and the Company and affiliates of the Company.
The Company and Savings are subject to the examination, supervision and
reporting requirements of the OTS, their primary federal regulator, including
a requirement for Savings of at least one full scope, on-site examination
every year. The Director of the OTS imposes assessments on Savings to fund OTS
operations, including the cost of examinations. Savings is also subject to
examination and supervision by the FDIC, and the FDIC has "back-up" authority
to take enforcement action against Savings if the OTS fails to take such
action after a recommendation by the FDIC. The FDIC may impose assessments on
Savings to cover the cost of FDIC examinations. In addition, Savings is
subject to regulation by the Board of Governors of the Federal Reserve System
("FRB") with respect to certain aspects of its business.
FIRREA CAPITAL REQUIREMENTS
The OTS's capital regulations, as required by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), include three
separate minimum capital requirements for savings associations--a "tangible
capital requirement," a "leverage limit" and a "risk-based capital
requirement." These capital standards must be no less stringent than the
capital standards applicable to national banks. The OTS also has the
authority, after giving the affected institution notice and an opportunity to
respond, to establish individual minimum capital requirements ("IMCR") for a
savings institution which are higher than the regulatory requirements, upon a
determination that an IMCR is necessary or appropriate in light of the
institution's particular circumstances. An IMCR may be appropriate, for
example, to the extent that a savings association has a high degree of
exposure to interest-rate risk, prepayment risk, credit risk, concentration of
credit risk, certain risks arising from nontraditional activities or a high
proportion of off-balance sheet risk.
A savings association that fails to meet one or more of the applicable
capital requirements is subject to various regulatory limitations and
sanctions, including a prohibition on growth and the issuance of a capital
directive by the OTS Director requiring one or more of the following: an
increase in capital; a reduction of rates paid on savings accounts; cessation
of or limitations on operational expenditures; an increase in liquidity; and
such other actions as may be deemed necessary or appropriate by the OTS
Director. In addition, a conservator or receiver may be appointed under
appropriate circumstances.
The regulatory capital requirements are as follows:
Tangible capital of at least 1.5% of adjusted total assets. Tangible capital
is composed of (1) an institution's common stock, perpetual non-cumulative
preferred stock, and retained earnings, and (2) the amount, if any, of equity
investment by others in the institution's subsidiaries, after deducting (a)
intangible assets other than purchased mortgage servicing rights, (b) certain
of the institution's investments in subsidiaries engaged as principal in
activities not permissible for national banks, and (c) certain deferred tax
assets. In general, adjusted total assets equal the institution's consolidated
total assets, minus any assets that are deducted in calculating capital. At
December 31, 1996, Savings' tangible capital ratio was 7.9 percent.
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Core capital of at least 3% of adjusted total assets (the "leverage limit").
Core capital consists of tangible capital plus certain purchased credit card
relationships and core deposit premium (the premium paid for acquisition of
deposits from other institutions). At December 31, 1996, Savings' core capital
ratio was 7.9 percent.
Total capital of at least 8% of risk-weighted assets (the "risk-based
capital requirement"). Total capital includes both core capital and
"supplementary" capital items deemed less permanent than core capital, such as
subordinated debt and general loan loss allowances (subject to certain
limits). Effective September 30, 1994, institutions with above-normal exposure
to interest rate risk may be required to take deductions from total capital to
perfect such risk. At least half of total capital must consist of core
capital. Risk-weighted assets are determined by multiplying each category of
an institution's assets, including off balance sheet asset equivalents, by an
assigned risk weight based on the credit risk associated with those assets,
and adding the resulting sums. The four risk weight categories range from zero
percent for cash and government securities to 100% for assets (including past-
due loans and real estate owned) that do not qualify for preferential risk-
weighting. At December 31, 1996, Savings' risk-based capital ratio was 18.2
percent, and accordingly Savings exceeded all three regulatory capital
requirements.
The OTS has adopted regulations that, upon implementation, will require the
maintenance of additional risk-based capital equal to half of the amount by
which the decline in its "net portfolio value" that would result from the
impact of a hypothetical 200 basis point change in interest rates on its
assets and liabilities exceeds 2 percent of the estimated "economic value" of
its assets. In computing its compliance with the risk-based capital standards,
that dollar amount is subtracted from the institution's total capital. An
institution's "net portfolio value" is defined for this purpose as the
difference between the aggregate expected future cash inflows from an
institution's assets and the aggregate expected future cash outflows on its
liabilities, plus the net expected cash inflows from existing off-balance
sheet contracts, each discounted to present value. The estimated "economic
value" of an institution's assets is defined as the discounted present value
of the estimated future cash flows from its assets. The OTS has deferred
implementation of the interest rate risk regulations. Had they been in effect
at December 31, 1996, this provision would not have resulted in any required
adjustment to Savings' regulatory capital at that date.
PROMPT CORRECTIVE ACTION REQUIREMENTS
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required the OTS to implement a system of regulatory sanctions against
institutions that are not adequately capitalized, with the sanctions growing
more severe the lower the institution's capital. The OTS was required to and
has established specific capital ratios for five separate capital categories:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." An
institution that is undercapitalized or lower must submit a capital
restoration plan to the OTS within 45 days after becoming undercapitalized,
and the plan can be accepted only if the institution's performance under the
plan is guaranteed by every company that controls the institution. An
institution that is undercapitalized is also subject to mandatory limits on
expansion, on the ability to make capital distributions, and on the ability to
accept brokered deposits and certain benefit plan deposits. In addition, an
undercapitalized institution is subject to numerous other restrictions which
the OTS may impose in its discretion, including restrictions on transactions
with affiliates and interest rates, and to the ability of the OTS to order a
sale of the institution, the replacement of directors and management, and the
appointment of a conservator or receiver.
Under the OTS regulations implementing FDICIA, an institution is treated as
well capitalized if its ratio of total capital to risk-weighted assets is at
least 10.0 percent, its ratio of core capital to total assets is at least
6.0 percent, its ratio of tangible capital to total assets is at least 5.0
percent, and it is not subject to any order or directive by the OTS to meet a
specific capital level. An institution will be adequately capitalized if its
ratio of total capital to risk-weighted assets is at least 8.0 percent, its
ratio of core capital to total assets is at least 4.0 percent, and its ratio
of tangible capital to total assets (leverage ratio) is at least 4.0 percent
(3.0 percent for
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certain highly-rated institutions). An institution is "undercapitalized" if
its ratio of total capital to risk-weighted assets is less than 8.0 percent or
has either a core capital or leverage ratio that is less than 4.0 percent. An
institution is "significantly undercapitalized" if the ratio of total capital
to risk-weighted assets is less than 6.0 percent or has either a core capital
or leverage ratio that is less than 3.0 percent. An institution is "critically
undercapitalized" if its "tangible equity" is equal to or less than 2.0
percent of its total assets. The OTS also has authority, after an opportunity
for a hearing, to downgrade an institution from "well capitalized" to
"adequately capitalized," or to subject an "adequately capitalized" or
"undercapitalized" institution to the supervisory actions applicable to the
next lower category, for supervisory concerns. At December 31, 1996, Savings'
capital qualified it for the well-capitalized category.
ACTIVITIES RESTRICTIONS NOT RELATED TO CAPITAL COMPLIANCE
Qualified Thrift Lender Test. The qualified thrift lender ("QTL") test
requires that, in at least nine out of every twelve months on an averaging
"look-back" basis, at least 65 percent of a savings institution's "portfolio
assets" must be invested in a limited list of "qualified thrift investments,"
primarily investments related to housing loans. If Savings fails to satisfy
the QTL test and does not requalify as a QTL within one year, the Company must
register and be regulated as a bank holding company, and Savings must either
convert to a commercial bank charter or become subject to restrictions on
branching, business activities and dividends as if it were a national bank. At
December 31, 1996, Savings was a qualified thrift lender, and approximately
96.9 percent of Savings' portfolio assets constituted qualified thrift
investments.
Investments and Loans. In general, federal savings institutions, such as
Savings, may not invest directly in equity securities or debt securities that
are not rated investment grade, or real estate, other than real estate used
for the institution's offices and related facilities. Indirect equity
investment in real estate through a subsidiary is permissible, but subject to
limitations based on the amount of the institution's assets, and the
institution's investment in such a subsidiary must be deducted from regulatory
capital.
Loans by a savings institution to a single borrower (including certain
related persons or entities of such borrower) are generally limited to 15
percent of the institution's "unimpaired capital and unimpaired surplus," plus
an additional 10 percent for loans fully secured by readily marketable
collateral. Real estate is not included in the definition of "readily
marketable collateral" for this purpose. The OTS has amended its loan to one
borrower limitation, among other things, to define the term "unimpaired
capital and unimpaired surplus" by reference to an institution's regulatory
capital, and also to include in the basic 15 percent of capital lending limit
that portion of an institution's general valuation allowances that is not
includable in the institution's regulatory capital. At December 31, 1996, the
maximum amount that Savings could lend to any one borrower (including related
persons and entities) under the current loan to one borrower limit was $3.2
million. At December 31, 1996, the largest aggregate amount of loans which
Savings had outstanding to any one borrower consisted of two loans in the
amount of $1.9 million. All loans to this borrower were current.
Aggregate loans secured by nonresidential real property are generally
limited to 400 percent of the institution's total capital. Commercial loans
may not exceed 10 percent of Savings' total assets, and consumer loans may not
exceed 35 percent of Savings' total assets. At December 31, 1996, Savings was
in compliance with the above investment limits.
Activities of Subsidiaries. A savings institution seeking to establish a new
subsidiary, acquire control of an existing company or conduct a new activity
through an existing subsidiary must provide 30 days prior notice to the FDIC
and OTS. Federal regulations permit federal savings institutions to invest in
the capital stock, obligations or other securities of certain types of
subsidiaries (referred to as "service corporations") that engage in certain
prescribed activities and to make loans to these corporations (and the
projects in which they participate) in an aggregate amount not to exceed 2
percent of the institution's assets, plus an additional 1 percent of assets if
such investment is used for community development or inner city purposes.
Additionally, federal regulations permit an institution having regulatory
capital in an amount at least equal to the minimum requirements set forth in
the applicable OTS regulations to make additional loans to such subsidiaries
in an aggregate amount which,
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generally, may not exceed 100 percent of regulatory capital in the case of
subsidiaries of which the institution owns or controls not more than 10
percent of the capital stock of certain limited partnership joint ventures and
50 percent of regulatory capital in the case of certain other subsidiaries or
joint ventures. Federal savings institutions also are permitted to invest in
and maintain so-called "operating subsidiaries" (generally, subsidiaries that
are engaged solely in activities the parent institution could conduct directly
and meeting certain other criteria) free of such investment limitations. The
OTS has the power to require a savings institution to divest any subsidiary or
terminate any activity conducted by a subsidiary that the OTS determines to be
a serious threat to the financial safety, soundness or stability of such
savings institution or to be otherwise inconsistent with sound banking
practices.
Real Estate Lending Standards. The OTS and the other federal banking
agencies have adopted regulations which require institutions to adopt and at
least annually review written real estate lending policies. The lending
policies must include diversification standards, underwriting standards
(including loan-to-value limits), loan administration procedures, and
procedures for monitoring compliance with the policies. The policies must
reflect consideration of guidelines adopted by the banking agencies. Among the
guidelines adopted by the agencies are maximum loan-to-value ratios for land
loans (65 percent); development loans (75 percent); construction loans (80
percent-85 percent); loans on owner-occupied 1-4 family property, including
home equity loans (no limit, but loans at or above 90 percent require private
mortgage insurance or readily marketable collateral); and loans on other
improved property (85 percent).
The guidelines permit institutions to make loans in excess of the
supervisory loan-to-value limits if such loans are supported by other credit
factors, but the aggregate of such nonconforming loans should not exceed the
institution's total risk-based capital, and the aggregate of nonconforming
loans secured by real estate other than 1-4 family property should not exceed
30 percent of total risk-based capital. Savings believes that its current
lending policies and practices are consistent with the guidelines, although
Savings generally has not originated any new loans since June 1995.
DEPOSIT INSURANCE
General. Savings' deposits are insured by the FDIC to a maximum of $100,000
for each insured depositor. Under FIRREA, the FDIC administers two separate
deposit insurance funds: the Bank Insurance Fund (the "BIF") which insures the
deposits of commercial banks and institutions that were insured by the FDIC
prior to FIRREA, and the SAIF which maintains a fund to insure the deposits of
institutions, such as Savings, that were insured by the Federal Savings and
Loan Insurance Corporation ("FSLIC") prior to FIRREA. Savings is a member of
the SAIF.
The FDIC has the authority to set the respective deposit insurance premiums
of the SAIF and of the BIF at levels it determines to be appropriate to
maintain the SAIF or BIF reserves at their designated reserve ratios or to
fund the administration of the FDIC. In addition, FDICIA authorizes emergency
special assessments applicable to BIF and SAIF members. The OTS Director also
is authorized to impose assessments on savings institutions to fund certain of
the costs of administration of the OTS.
Insurance Premium Assessments. FDICIA directed the FDIC to establish by
January 1, 1994 a risk-based system for setting deposit insurance assessments.
The FDIC has implemented such a system, under which an institution's insurance
assessments will vary depending on capital ratios, supervisory evaluations by
the institution's primary federal regulatory agency and other information
determined by the FDIC to be relevant to the institution's financial condition
and the risk posed to the insurance funds. Under the FDIC's system, the
assessment rate for SAIF deposits varies from 0.23 percent of covered deposits
for well-capitalized institutions that are deemed to have no more than a few
minor weaknesses, to 0.31 percent of covered deposits for less than adequately
capitalized institutions that pose substantial supervisory concern. The FDIC
can act by regulation to change the assessment rates, or the parity of BIF and
SAIF rates, based on the condition of the BIF and the SAIF, provided that SAIF
rates are not less than BIF rates.
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The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted on
September 30, 1996, required the FDIC to take immediate steps to recapitalize
the SAIF and to change the basis on which funds are raised to make the
scheduled payments on the FICO bonds issued in 1987 to replenish the FSLIC.
The new legislation, combined with regulations issued by the FDIC immediately
after enactment of the Funds Act provides for the following:
(i) A special assessment in the amount of 65.7 basis points on SAIF-insured
deposits held by depository institutions on March 31, 1995. The special
assessment was required by the Funds Act to recapitalize the SAIF to the
designated reserve ratio of 1.25 percent of the deposits insured by
SAIF. Payments of this assessment were made in November 1996, but were
accrued by financial institutions in the third calendar quarter of 1996.
Savings recorded a charge in the third quarter of 1996 in the amount of
a pproximately $1.3 million to cover this special one-time assessment.
(ii) As a result of the Funds Act, the assessment rate for SAIF deposits,
effective January 1, 1997, will range from 0.0 percent to 0.27 percent,
a reduction from the prior assessment rate as discussed above.
(iii) Commencing January 1, 1997, BIF-insured institutions will be responsible
for a portion of the annual carrying costs of the FICO bonds. Such
institutions will be assessed at 20 percent of the rate applicable to
SAIF-insured institutions until December 31, 1999. As of January 1997
BIF-insured institutions will pay 1.29 basis points versus the SAIF-
insured institutions' rate of 6.44 basis points. Additionally, pursuant
to the Funds Act, if the reserves in BIF at the end of any semiannual
assessment period exceed 1.25 percent of insured deposits, the FDIC is
required to refund the excess to the BIF-insured institutions.
(iv) The merger of the BIF and the SAIF on January 1, 1999 to create the
Deposit Insurance Fund, but only if no more savings associations are in
existence at that time. The Funds Act also directs the Secretary of the
Treasury to conduct a study and submit recommendations to Congress
regarding the establishment of a common charter for depository
institutions.
LEGISLATIVE MATTERS
Substantial alterations in the current banking regulatory structure and the
deposit insurance system are contemplated by several bills introduced in the
Congress. Generally, the bills would eliminate the federal savings association
charter and convert all federal savings associations to either national banks
or state-chartered banks or savings associations. As a consequence, the Home
Owners' Loan Act, the primary body of laws governing the incorporation and
operation of Federal savings associations, would be repealed and the Office of
Thrift Supervision (the "OTS"), the primary regulator of Federal and state
savings associations, would be eliminated and its responsibilities transferred
to the Office of the Comptroller of the Currency (the "OCC"), the Federal
Deposit Insurance Corporation (the "FDIC"), and the Federal Reserve Board (the
"FRB").
Savings cannot predict whether or when any of the proposed legislation will
be enacted or what provisions any enacted legislation may contain.
SAVINGS AND LOAN HOLDING COMPANY REGULATION
Affiliate and Insider Transactions. The ability of the Company and its non-
depository subsidiaries to engage in transactions with Savings is limited by
the affiliate transaction rules, including Sections 23A and 23B of the Federal
Reserve Act which also govern BIF-insured banks. These rules generally require
that all transactions between Savings and an affiliate must be on arms length
terms. The term "affiliate" covers any company that controls or is under
common control with Savings, but generally does not include individuals or
Savings' subsidiaries.
Under Section 23A and Section 11 of the Home Owners' Loan Act, specific
restrictions apply to transactions in which Savings provides funding to its
affiliates: Savings may not purchase the securities of an affiliate, make a
loan to any affiliate that is engaged in activities not permissible for a bank
holding company, or
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acquire from an affiliate any "low-quality asset," defined as any asset that
has been classified, a nonaccrual loan, a restructured loan, or a loan that is
more than 30 days past due, among others. As to affiliates engaged in bank
holding company-permissible activities, the aggregate of "covered
transactions," including loans, guarantees, and letters of credit provided by
the savings association for the benefit of any one affiliate, and purchases of
assets by the savings association from the affiliate, may not exceed 10
percent of the savings association capital stock and surplus (20 percent for
the aggregate of permissible transactions with all affiliates). All loans to
affiliates must be secured by collateral equal to at least 100 percent of the
amount of the loan (130 percent if the collateral consists of equity
securities, leases or real property).
Loans by Savings to its directors, executive officers, and 10 percent
shareholders of Savings, the Company, or the Company's subsidiaries
(collectively, "insiders"), or to a corporation or partnership that is at
least 10 percent owned by an insider (a "related interest") are subject to
limits in addition to the affiliate transaction rules. However, a company
(such as the Company) that controls a savings institution is excluded from the
coverage of the insider lending rules even if it owns 10 percent or more of
the stock of the institution, and is subject only to the affiliate transaction
rules. All loans to executive officers, insiders and their related interests
must be underwritten and made on non-preferential terms and are subject to
stringent limitations and Board approval requirements. At December 31, 1996,
Savings did not have any loans outstanding to any of its directors or
officers.
Payment of Dividends and Other Capital Distributions. The payment of
dividends, stock repurchases, and other capital distributions by Savings to
the Company is subject to regulation by the OTS. Currently, 30 days prior
notice to the OTS of any proposed capital distribution is required. Any
dividend declared within the notice period, or without giving the prescribed
notice, is invalid. The OTS has promulgated a regulation that measures a
savings institution's ability to make a capital distribution according to the
institution's capital position. The rule establishes "safe-harbor" amounts of
capital distributions that institutions can make after providing notice to the
OTS, but without needing prior approval. Institutions can distribute amounts
in excess of the safe harbor only with the prior approval of the OTS.
For an institution that meets its capital requirements, the safe harbor
amount is the greater of (a) 75 percent of net income for the prior four
quarters, or (b) the sum of (1) the current year's net income and (2) the
amount that causes the excess of the institution's total capital-to-risk-
weighted assets ratio over 8 percent to be only one-half of such excess at the
beginning of the current year. Institutions that do not meet their current
capital requirements prior to, or on a pro forma basis after giving effect to,
a proposed capital distribution, may not make any capital distributions, with
the exception of repurchases or redemption's of the institution's shares that
are made in connection with the issuance of additional shares and that will
improve the institution's financial condition. The OTS retains the authority
to prohibit any capital distribution otherwise authorized under the regulation
if the OTS determines that the distribution would constitute an unsafe or
unsound practice.
The OTS has proposed to amend its regulation on capital distributions to
eliminate the three-tiered system. Under the OTS's proposal, savings
institutions that are owned by a holding company, such as Savings, would still
have to provide at least 30 days' advance notice of the declaration of a
dividend. However, Savings would not be required to obtain advance approval
from the OTS in order to make a distribution in excess of the safe harbor
amount, unless such distribution would cause Savings to fail to meet the OTS's
prompt corrective action "adequately capitalized" category. The OTS would
retain the authority to prohibit any capital distribution upon a determination
that the making of such distribution would constitute an unsafe or unsound
practice, and would use the safe harbor amount as a "rule of thumb" in making
such a determination. The Company does not anticipate that adoption of the
proposed regulation would have a material impact on its dividend policies.
Enforcement. Whenever the OTS has reasonable cause to believe that the
continuation by a savings and loan holding company of any activity or of
ownership or control of any non FDIC-insured subsidiary constitutes a serious
risk to the financial safety, soundness, or stability of a savings and loan
holding company's subsidiary savings institution and is inconsistent with the
sound operation of the savings institution, the OTS may order the holding
company, after notice and opportunity for a hearing, to terminate such
activities or to divest such
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noninsured subsidiary. FIRREA also empowers the OTS, in such a situation, to
issue a directive without any notice or opportunity for a hearing, which
directive may (i) limit the payment of dividends by the savings institution,
(ii) limit transactions between the savings institution and its holding
company or its affiliates, and (iii) limit any activity of the association
that creates a serious risk that the liabilities of the holding company and
its affiliates may be imposed on the savings institution.
In addition, FIRREA includes savings and loan holding companies within the
category of person designated as "institution-affiliated parties." An
institution-affiliated party may be subject to significant penalties and/or
loss of voting rights in the event such party took any action for or toward
causing, bringing about, participating in, counseling, or aiding and abetting
a violation of law or unsafe or unsound practice by a savings institution.
Limits on Change of Control. Subject to certain limited exceptions, control
of Savings or the Company may only be obtained with the approval (or in the
case of an acquisition of control by an individual, the non-disapproval) of
the OTS, after a public comment and application review process. Under OTS
regulations defining "control," a rebuttable presumption of control arises if
an acquiring party acquires more than 10 percent of any class of Savings or
the Company (or more than 25 percent of any class of stock, whether voting or
non-voting) and is subject to any "control factors" as defined in the
regulation. Control is conclusively deemed to exist if an acquirer holds more
than 25 percent of any class of voting stock of Savings or the Company, or has
the power to control in any manner the election of a majority of directors.
Any company acquiring control of Savings or the Company becomes a savings
and loan holding company, must register and file periodic reports with the
OTS, and is subject to OTS examination. With limited exceptions, a savings and
loan holding company may not directly or indirectly acquire more than 5
percent of the voting stock of another savings and loan holding company or
savings institution without prior OTS approval.
CLASSIFICATION OF ASSETS
Savings institutions are required to classify their assets on a regular
basis, to establish appropriate allowances for losses or charge-offs and
report the results of such classification quarterly to the OTS. A savings
institution is also required to set aside adequate valuation allowances to the
extent that an affiliate possesses assets posing a risk to the institution,
and to establish liabilities for off-balance sheet items, such as letters of
credit, when loss becomes probable and estimable. The OTS has the authority to
review the institution's classification of its assets and to determine whether
and to what extent (a) additional assets must be classified, and (b) the
institution's valuation allowances must be increased.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") requires each savings institution, as
well as other lenders, to identify the communities served by the institution's
offices and to identify the types of credit the institution is prepared to
extend within such communities. The CRA also requires the OTS to assess the
performance of the institution in meeting the credit needs of its community
and to take such assessment into consideration in reviewing applications for
mergers, acquisitions, and other transactions. An unsatisfactory CRA rating
may be the basis for denying such an application.
In connection with its assessment of CRA performance, the OTS assigns a
rating of "outstanding," "satisfactory," "needs to improve," or "substantial
noncompliance." Based on Savings' last compliance examination conducted during
1995, Savings was rated "needs to improve".
FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Banks provide a credit facility for member
institutions. As a member of the FHLB of San Francisco, Savings is required to
own capital stock in the FHLB of San Francisco in an amount at least equal to
the greater of 1 percent of the aggregate principal amount of its unpaid home
loans, home purchase
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contracts and similar obligations at the end of each calendar year, assuming
for such purposes that at least 30 percent of its assets were home mortgage
loans, or 5 percent of its outstanding advances are from the FHLB of San
Francisco. At December 31, 1996 Savings was in compliance with this
requirement. Long-term FHLB advances may be obtained only for the purpose of
providing funds for residential housing finance and all FHLB advances must be
secured by specific types of collateral.
Each FHLB is required to transfer a certain amount of its reserves and
undivided profits to the Resolution Funding Corporation ("REFCORP"), the
government entity established to raise funds to resolve troubled savings
institution cases, to fund the principal and a portion of the interest on the
REFCORP bonds and certain other obligations. In addition, each FHLB must
transfer a percentage of its annual net earnings to a federal affordable
housing program. That amount increased from 5 percent of the annual net
earnings of the FHLB in 1990 to at least 10 percent of its annual net earnings
in 1995 and subsequent years. As a result of these requirements, the earnings
of the FHLB of San Francisco were reduced and Savings received reduced
dividends on its FHLB of San Francisco stock as compared with prior periods.
Savings recorded dividend income on its FHLB of San Francisco stock in the
amounts of approximately $467,000 and $460,000 for the years ended December
31, 1996 and 1995, respectively. If dividends are further reduced, or interest
on future FHLB advances increased, Savings' net interest income would likely
be reduced.
LIQUIDITY
Federal regulations currently require savings institutions to maintain, for
each calendar month, an average daily balance of liquid assets (including
cash, certain time deposits, bankers' acceptances and specified United States
government, state or Federal agency obligations) equal to at least 5 percent
of the average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month. This liquidity requirement may
be changed from time to time by the OTS Director to an amount within a range
of 4 percent to 10 percent of such accounts and borrowings depending upon
economic conditions and the deposit flows of savings institutions. Federal
regulations also require each savings institution to maintain, for each
calendar month, an average daily balance of short-term liquid assets
(generally those having maturities of 12 months or less) equal to at least 1
percent of the average daily balance of its net withdrawable accounts plus
short-term borrowings during the preceding calendar month. Monetary penalties
may be imposed for failure to meet liquidity ratio requirements. For the
calculation period including December 31, 1996, the total liquidity and short-
term liquidity ratios of Savings were 17 percent and 9.8 percent,
respectively, which exceeded the total requirements.
FEDERAL RESERVE SYSTEM
The FRB requires savings institutions to maintain noninterest-earning
reserves against certain of their transaction accounts (primarily deposit
accounts that may be accessed by writing unlimited checks) if these
transaction accounts exceed certain dollar levels. For the calculation period
including December 31, 1996, Savings was not required to maintain any
noninterest-earning reserves and, accordingly, was in compliance with this
requirement. The balances maintained, if any, to meet the reserve requirements
imposed by the FRB may be used to satisfy Savings' liquidity requirements
discussed above.
As a creditor and a financial institution, Savings is subject to certain
regulations promulgated by the FRB, including, without limitation, Regulation
B (Equal Credit Opportunity Act), Regulation D (Reserves), Regulation E
(Electronic Funds Transfers Act), Regulation F (limits on exposure to any one
correspondent depository institution), Regulation Z (Truth in Lending Act),
Regulation CC (Expedited Funds Availability Act), and Regulation DD (Truth in
Savings Act). As creditors of loans secured by real property and as owners of
real property, financial institutions, including Savings, may be subject to
potential liability under various statutes and regulations applicable to
property owners, generally including statutes and regulations relating to the
environmental condition of the property.
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TAXATION
For Federal income tax purposes, Savings filed a consolidated return with
its subsidiaries through 1991. Since 1992, Savings has been included in the
consolidated Federal income tax return of the Company.
For California franchise tax purposes, savings and loan associations are
taxed as "financial corporations". Financial corporations are taxed at the
general corporate franchise tax rate plus an "in lieu" rate based on their
exemption from personal property and local taxes.
Savings has executed a tax allocation agreement (the "Agreement") with the
Company. The Agreement states that Savings will file a consolidated Federal
income tax return with the Company. The Agreement requires the parties to
allocate their total tax liability based on each parties separate return tax
liability. Moreover, the parties agree to reimburse each other for tax losses
or credits in an amount equal to 100 percent of the tax benefits realized by
the consolidated group. Savings makes payments to the Company at the time that
such tax amounts are actually paid to the respective taxing authority by the
Company. Any tax related funds paid by Savings to the Company prior to the
estimated tax due dates or filing dates are to be held in trust.
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PANEL CONCEPTS, INC.
Panel Concepts manufactures and sells moveable and acoustical office
furniture systems, office partitions and seating. Panel Concepts' acoustical
panels are made of lightweight, sound absorbing material designed to be
utilized as an interconnecting office panel system. The panels are covered
with fabric in numerous colors and sizes which are used to create readily
moveable office work station systems and partitions. To a lesser extent, Panel
Concepts also manufactures or supplies furniture components, such as shelves,
work surfaces and drawer pedestals, which can be attached to the panels as
part of an overall office system. Panel Concepts' products are sold on a
nationwide basis to a broad variety of customers primarily through independent
sales representatives and office furniture dealers. In addition, Panel
Concepts' products are sold to the government on GSA contract.
Panel Concepts' competitors in the office systems market include large
national and regional firms, many of which are better established and have
greater resources than Panel Concepts. The manufacture and sale of office
furniture is subject to various risks including, among others, changes in
overall economic conditions, the cost of materials and labor, environmental
regulations affecting manufacturing operations, foreign competition and the
ability to successfully market Panel Concepts' products in the face of strong
competition.
EMPLOYEES
At December 31, 1996, the Company had approximately 449 employees.
During the past five years, the Company has not directly experienced a work
stoppage in its operations caused by labor disputes. Construction of homes in
projects developed by the Company has, from time to time, been delayed due to
strikes by certain construction unions against subcontractors retained by the
Company or strikes against suppliers of materials used in the construction of
homes. Such delays have not had a significant adverse effect on the Company's
homebuilding operations. The Company believes that its relations with its
homebuilding employees and subcontractors are satisfactory.
ITEM 2. PROPERTIES
In addition to real estate held for development and sale, which is either
owned or under option to be purchased by the Company, the Company leases
approximately 4.8 acres of land in Costa Mesa, California under leases
expiring in 2002 on which the Company's executive office, the offices of the
Orange County housing division and a manufacturing facility (which is leased
to an unrelated party) are located. The Company's other real estate housing
divisions occupy various facilities under leases which expire from 1998
through 2000. The offices and manufacturing facilities of Panel Concepts are
located in Santa Ana, California in an 80,000 square foot building leased
through 1999. Panel Concepts owns a plant and land in Greensboro, North
Carolina which was previously used for furniture manufacturing and is
currently held for sale. Additionally, Panel Concepts leases showrooms in New
York and Chicago whose facilities are each in excess of 6,000 square feet with
the leases expiring in 1999 and 2000, respectively. The administrative office
and branch location for Savings is located in Newport Beach, California. A
total of 5,072 square feet is leased under a lease which expires in 2003.
As of December 31, 1996, the Company was subleasing approximately 29,000
square feet of manufacturing facilities to unrelated parties under leases
expiring through 1998.
The Company believes that all of its properties are well suited for the
purposes for which they are used and they can generally support additional
capacity.
ITEM 3. LEGAL PROCEEDINGS
Various claims and actions, considered normal to the Company's business,
have been asserted and are pending against the Company and its subsidiaries.
The Company believes that such claims and actions should not have a material
adverse effect upon the financial position of the Company.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Company's shares of common stock are listed on the New York Stock
Exchange. The following table sets forth, for the fiscal quarters indicated,
the reported high and low closing prices of the common shares as reported on
the New York Stock Exchange Composite Tape and the amount of common dividends
paid.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995
---------------------- ----------------------
QUARTER ENDED HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
March 31.................... $7 1/4 $5 7/8 $.03 $6 7/8 $5 1/4 $.03
June 30..................... 7 3/8 6 3/8 .03 8 3/8 5 1/8 .03
September 30................ 7 1/8 5 3/4 .03 7 5/8 6 3/8 .03
December 31................. 6 1/4 5 1/4 .03 7 1/8 5 5/8 .03
</TABLE>
As of March 5, 1997, the approximate number of record holders of common
stock of the Company was 2,033.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Homebuilding Operations:
Revenues.............. $ 399,863 $ 346,263 $ 374,783 $ 249,884 $ 248,130
Income (loss) before
taxes (1)............ 12,948 (37,247) 11,200 (1,617) 3,892
Manufacturing
Operations:
Net product sales..... $ 19,311 $ 15,177 $ 17,225 $ 13,722 $ 18,149
Income (loss) before
taxes (2)............ 2,087 (42) 969 608 (2,331)
Savings and Loan
Operations:
Interest income....... $ 20,072 $ 25,805 $ 25,863 $ 25,707 $ 29,279
Income (loss) before
taxes (3)............ (1,037) (8,600) (2,179) 3,977 4,935
Consolidated results:
Revenues.............. $ 439,246 $ 387,245 $ 417,871 $ 289,313 $ 295,558
========== ========== ========== ========== ==========
Income (loss) before
taxes and cumulative
effect of change in
accounting principle
..................... 13,998 (45,889) 9,990 2,968 6,496
(Provision) benefit
for income taxes..... (5,605) 18,526 (4,103) (1,149) (1,973)
---------- ---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
change in accounting
principle............ 8,393 (27,363) 5,887 1,819 4,523
Cumulative effect of
change in accounting
for income taxes..... -- -- -- 858 --
---------- ---------- ---------- ---------- ----------
Net Income (loss)..... $ 8,393 $ (27,363) $ 5,887 $ 2,677 $ 4,523
========== ========== ========== ========== ==========
Income (loss) per
share before
cumulative effect of
change in accounting
principle ........... $ 0.28 $ (0.90) $ 0.19 $ 0.06 $ 0.15
Cumulative effect of
change in accounting
for income taxes..... -- -- -- 0.03 --
---------- ---------- ---------- ---------- ----------
Net Income (loss) per
share................ $ 0.28 $ (0.90) $ 0.19 $ 0.09 $ 0.15
========== ========== ========== ========== ==========
Stockholders' equity
per share............ $ 8.79 $ 8.58 $ 9.51 $ 9.49 $ 9.52
Cash dividends paid
per share............ $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.09
Weighted average
common and equivalent
shares outstanding... 30,011,595 30,488,676 30,674,349 30,633,471 29,810,974
Total assets.......... $ 695,379 $ 773,178 $ 922,870 $ 857,915 $ 920,634
Long-term debt:
residential housing
and corporate........ $ 80,000 $ 129,062 $ 134,360 $ 147,273 $ 93,957
Stockholders' equity.. $ 260,350 $ 257,846 $ 291,127 $ 290,395 $ 291,182
</TABLE>
- - --------
(1) The 1995 homebuilding operations' pretax loss of $37.2 million reflects the
adoption of FAS 121 which resulted in a $46.5 million noncash pretax charge
to operations (see Note 2 of Notes to Consolidated Financial Statements).
(2) Excludes intercompany interest income of $274, $241, $270, $247 and $211,
respectively, for the five years in the period ended December 31, 1996.
(3) The 1996 savings and loan operations' pretax loss of $1.0 million includes
a $1.3 million nonrecurring charge for the recapitalization of the Savings
Association Insurance Fund.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DISCUSSION OF OPERATIONS BY SEGMENT
Set forth below is a discussion of the Company's operations by segment. The
Company's principal business segments are Residential Housing, including the
Corporate segment, Manufacturing and Savings and Loan.
RESIDENTIAL HOUSING AND CORPORATE SEGMENT
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................ $399,863 $346,263 $374,783
Cost of sales................................... 371,554 330,498 354,463
Noncash charge for impairment of long-lived
assets.......................................... -- 46,491 --
-------- -------- --------
Gross margin.................................. 28,309 (30,726) 20,320
-------- -------- --------
Gross margin percentage....................... 7.1% (8.9)% 5.4%
-------- -------- --------
General and administrative expenses............. 13,863 12,169 13,950
Income from unconsolidated joint ventures....... 4,708 6,953 4,234
Interest expense................................ 7,142 1,860 --
Other income.................................... 936 555 596
-------- -------- --------
Pretax income (loss)........................ $ 12,948 $(37,247) $ 11,200
======== ======== ========
</TABLE>
The Residential Housing and Corporate segment information shown above is
after the elimination of intercompany transactions.
OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
New homes delivered:
California..................................... 1,131 942 949
Texas.......................................... 338 299 311
Joint ventures (California).................... 154 195 108
--------- --------- ---------
Total.......................................... 1,623 1,436 1,368
========= ========= =========
Average selling price-California deliveries
(excluding joint ventures)...................... $ 292,007 $ 308,383 $ 333,797
Average selling price-Texas deliveries........... $ 185,622 $ 180,058 $ 184,194
Combined average selling price (excluding joint
ventures)........................................ $ 267,529 $ 277,465 $ 296,871
Combined average selling price (including joint
ventures)........................................ $ 261,681 $ 271,936 $ 295,772
Net new orders................................... 1,798 1,480 1,341
Backlog at year end.............................. 485 312 272
</TABLE>
SELECTED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets, total.......................... $391,580 $384,373 $470,789
Real estate inventories........................... 372,645 367,676 456,655
Other............................................. 18,935 16,697 14,134
</TABLE>
21
<PAGE>
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
During the year ended December 31, 1996, the Company delivered 1,623 new
homes (including 154 homes delivered by the Company's unconsolidated joint
ventures) at an average selling price of $261,681 compared to 1,436 new homes
(including 195 homes delivered by the Company's unconsolidated joint venture)
at an average selling price of $271,936 during 1995.
Excluding the Company's unconsolidated joint ventures, residential housing
revenues increased by 15.5 percent from the prior year, while cost of sales
(before the impairment charge in 1995) increased by 12.4 percent. The increase
in residential housing revenues from the prior year of approximately $53.6
million resulted primarily from an increase of $63.3 million attributable to
228 more homes delivered and a $4.9 million increase in revenues attributable
to land sales, which were partially offset by a decrease of $14.6 million due
to a 3.6 percent lower average selling price of new homes delivered. The
increase in unit deliveries was primarily attributable to a 46 percent
increase in deliveries from the Northern California division to 366 homes, a
19 percent increase in deliveries from the Ventura division to 184 homes and a
13 percent increase in Texas deliveries to 338 homes. The increase in
deliveries can be attributed to, among other things, improved market
conditions in the geographic markets the Company serves, particularly in
California, as well as lower mortgage interest rates during most of 1996 as
compared to fiscal 1995.
The average selling price of the Company's homes is impacted by product mix,
geographic mix and changing prices on homes sold. The decrease in the average
selling price from 1995 to 1996 was due primarily to a reduction in deliveries
of higher priced homes from the Company's Orange County division. The Company
expects its average selling price in the next few quarters to increase as the
Company begins to deliver a greater percentage of homes in the $400,000 to
$800,000 price range from certain of its newer projects in Orange County and
the San Francisco Bay area.
The $41.1 million increase in residential housing cost of sales (before the
impairment charge in 1995) included $60.4 million attributable to an increased
number of new home deliveries and a $5.8 million increase in cost of sales
attributable to undeveloped lots sold, which were partially offset by a
decrease of $25.1 million due to a decrease in the average cost of new homes
delivered. The decrease in the average cost of new homes delivered was
primarily due to the changing product mix discussed above.
Excluding the Company's unconsolidated joint ventures, the gross margin
percentage for 1996 was 7.1 percent compared to 4.6 percent (before the
impairment charge) in 1995. The increase in the gross margin percentage was
primarily due to improved market conditions in the California markets, higher
absorption rates, as well as proportionately more deliveries from newer
projects in 1996 as compared to 1995. The newer projects generally carry
higher margins than older projects, which include land acquired in prior years
at higher prices.
General and administrative expenses for the residential housing and
corporate segment increased by approximately 13.9 percent from 1995. This
increase is primarily attributable to increases in construction activity,
deliveries and incentive compensation due to increased profitability. These
expenses remained fairly constant at 3.5 percent of revenues for both years.
Income from the unconsolidated joint ventures decreased from approximately
$7.0 million in 1995 to $4.7 million in 1996 as a result of fewer unit
deliveries as well as more deliveries of lower priced product from one of the
joint ventures. This joint venture delivered 151 new homes in 1996 compared to
195 new homes in 1995 and will deliver the remaining 15 homes during 1997. The
Company delivered three homes from a new joint venture during the fourth
quarter. This new joint venture could deliver up to several hundred homes over
the next five to seven years.
22
<PAGE>
The following selected operating information has been adjusted on a proforma
basis to include the operating results of the Company's unconsolidated joint
ventures (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues........................................... $ 432,031 $ 392,429
Cost of sales...................................... 399,014 369,711
----------- -----------
Gross margin..................................... $ 33,017 $ 22,718
=========== ===========
Gross margin percentage............................ 7.6% 5.8%
</TABLE>
Interest incurred for 1996 was $16.7 million of which $9.5 million was
capitalized to real estate inventories and $7.1 million was expensed compared
to $19.2 million incurred in 1995 of which $17.3 million was capitalized and
$1.9 million expensed.
Net new home orders for the year totaled 1,798, a 21 percent increase from
1995 and the second highest level in Company history. During the year, the
Company's Orange County division recorded 686 net new orders (including the
joint ventures), up 10 percent from 1995, and the Northern California division
generated 474 net new home orders, a 67 percent increase over the 1995 total.
Net new home orders for the 1996 fourth quarter totaled a record 343 homes, an
11 percent increase from the 1995 fourth quarter. The improving order trend
has resulted in a backlog of presold homes of 485 at December 31, 1996, a 55
percent increase over the prior year and the highest fourth quarter backlog
since 1989. These positive trends can be attributed, in part, to a favorable
mortgage interest rate environment during 1996, an improving economy in many
parts of California in which the Company operates and the opening of 13 new
projects in California.
1995 COMPARED TO 1994
During the year ended December 31, 1995, the Company delivered 1,436 new
homes (including 195 homes delivered by the Company's unconsolidated joint
venture) at an average selling price of $271,936 compared to 1,368 new homes
(including 108 homes delivered by the Company's unconsolidated joint venture)
at an average selling price of $295,772 during 1994.
Excluding the Company's unconsolidated joint venture, residential housing
revenues for 1995 decreased by 7.6 percent from 1994, while cost of sales for
1995 (before the impairment charge) decreased by 6.8 percent. The decrease in
residential housing revenues from the prior year of approximately $28.5
million resulted primarily from a decrease of $5.6 million attributable to 19
fewer homes delivered and a decrease of $24.1 million due to a 6.5 percent
lower average selling price of new homes delivered. The slight decline in unit
deliveries was a result of reduced deliveries by all of the Company's
homebuilding divisions except for the San Diego and Houston divisions. The
decrease in deliveries was attributed to, among other things, extremely
competitive market conditions in the geographic markets the Company serves as
well as rising interest rates during most of 1995 which resulted in higher
mortgage rates for the Company's products. The decrease in the average selling
price from 1994 to 1995 was primarily due to increased deliveries of homes in
the $150,000 to $300,000 price range. During 1994, proportionately more homes
were delivered which sold in excess of $600,000.
The $24.0 million decrease in residential housing cost of sales (before the
impairment charge) in 1995 included $5.3 million attributable to a reduced
number of new home deliveries and $19.7 million from a decrease in the average
cost of new homes delivered. The decrease in the average cost of new homes
delivered was primarily due to the changing product mix discussed above
whereby more homes were sold in the general price range of $150,000 to
$300,000 during 1995.
During the fourth quarter of 1995, the Company adopted FAS 121, "Accounting
for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed
of". The new rule changed the method of valuing long-
23
<PAGE>
lived assets, including the Company's real estate holdings. The fourth quarter
charge, which approximated $46.5 million, affected various assets held by the
Company's residential homebuilding divisions, however, a substantial portion
of the charge related to certain assets held in the San Diego area.
Excluding the Company's unconsolidated joint venture, the gross margin
percentage for 1995 was 4.6 percent (before the impairment charge) compared to
5.4 percent in 1994. The decline in the gross margin percentage was primarily
due to increased competition in many of the Company's homebuilding markets
resulting in increased use of sales and marketing incentives and price
concessions. Additionally, the Company expensed through cost of sales certain
costs due to lower sales absorption rates that would have otherwise been
capitalized into real estate inventories.
General and administrative expenses for the residential housing and
corporate segments decreased by approximately 12.8 percent from 1994. General
and administrative expenses also decreased as a percentage of residential
housing sales from 3.7 percent in 1994 to 3.5 percent in 1995. This decrease
is attributable to a reduction in several categories of overhead expense,
including a reduction in incentive compensation based upon the reduced
profitability of the residential housing and corporate segment.
Income from the unconsolidated joint venture increased from $4.2 million in
1994 to $7.0 million in 1995 as a result of increased deliveries. The joint
venture delivered 195 new homes in 1995 compared to 108 new homes in 1994. The
joint venture delivered its first home in June 1994.
CARRYING COSTS, REAL ESTATE
INVENTORIES AND COST OF SALES
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------
1996 1995 1994
--------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Carrying costs in inventory and the
percentage of
total real estate inventory:
Interest................................. $25.1 6.7% $32.5 8.8% $54.4 11.9%
Taxes.................................... 8.0 2.1 8.8 2.4 15.2 3.3
----- --- ----- ---- ----- ----
$33.1 8.8% $41.3 11.2% $69.6 15.2%
===== === ===== ==== ===== ====
Total real estate inventories.............. $373 $368 $457
Cost of sales for the year then ended
(before FAS 121 adjustment)............... 372 330 354
Ratio of cost of sales to ending inventory
(Inventory turn ratio).................... 1.00 .90 .77
</TABLE>
The increase in the inventory turn ratio is due to a 12 percent increase in
cost of sales while real estate inventories only increased slightly more than
one percent. This positive trend is primarily due to an 18 percent increase in
unit deliveries resulting from improved market conditions in California. The
increase in unit deliveries is principally a result of higher sales absorption
rates at many of the Company's California locations. Additionally, the Company
continues to deliver homes from its older projects which have been in the
Company's inventory balances for several years and which generally have higher
land and interest costs than more recent acquisitions. This in turn creates a
more favorable mix of newer projects to the total inventory balance. The newer
projects generally develop and deliver more quickly than the older projects.
Capitalized interest in real estate inventory at December 31, 1996,
decreased approximately $7.4 million from December 31, 1995, a decrease of
approximately 23 percent. This decrease can be attributed to (1) the sale of
homes from older projects which generally include higher carry costs than new
projects and (2) improving market conditions which have resulted in shorter
holding periods and a higher inventory turnover rate.
24
<PAGE>
UTILIZATION OF DEBT AND EQUITY
IN FUNDING REAL ESTATE INVENTORIES
Sources of financing for the Company's real estate inventories were as
follows for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Purchase money deeds of trust........................ 1% 4% 4%
Unsecured debt....................................... 42 40 41
Equity............................................... 57 56 55
------- ------- -------
100% 100% 100%
======= ======= =======
MANUFACTURING SEGMENT
SELECTED FINANCIAL INFORMATION
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net product sales.................................... $19,311 $15,177 $17,225
Cost of sales........................................ 12,011 9,856 10,896
------- ------- -------
Gross margin....................................... 7,300 5,321 6,329
------- ------- -------
Gross margin percentage............................ 37.8% 35.1% 36.7%
------- ------- -------
Selling, general and administrative expenses......... 5,304 5,527 5,481
Other income (1)..................................... 365 406 391
------- ------- -------
Pretax income........................................ $ 2,361 $ 200 $ 1,239
======= ======= =======
Identifiable assets.................................. $12,508 $ 9,485 $ 9,892
======= ======= =======
</TABLE>
- - -------
(1) Includes intersegment income of $274, $241 and $270 for the years ended
December 31, 1996, 1995 and 1994, respectively. These intersegment
transactions are eliminated in consolidation with no effect on
consolidated earnings.
1996 COMPARED TO 1995
Net product sales for 1996 increased 27 percent to $19.3 million from $15.2
million in 1995. The increase in sales can be attributed to improvements in
the national economy and the resultant impact on the office furniture industry
and the introduction of new products during 1996 which have been positively
accepted in the market. The gross margin percentage increased in 1996 due to
product mix as well as favorable economies of scale and absorption of factory
overhead as a result of increased sales volume.
Although net sales volume increased during 1996, selling, general and
administrative expenses for 1996 decreased compared to 1995 amounts and as a
percent of sales from 36.4 percent in 1995 to 27.5 percent in 1996. This
reduction is primarily attributable to management's implementation of
aggressive cost cutting measures.
1995 COMPARED TO 1994
Net product sales for 1995 decreased almost 12 percent to $15.2 million from
$17.2 million in 1994. Sales in 1994 included a greater amount of foreign
orders, particularly from Mexico. The gross margin percentage was below 1994
levels due to product mix and lower sales volumes.
Selling, general and administrative expenses for 1995 were up slightly over
the 1994 amounts and increased as a percent of sales from 31.8 percent in 1994
to 36.4 percent in 1995 primarily as a result of additional selling and
marketing costs incurred in connection with the introduction of new products
during 1995 plus the somewhat fixed nature of the general and administrative
expenses overall.
25
<PAGE>
SAVINGS AND LOAN SEGMENT
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income (1).............................. $ 20,072 $ 25,809 $ 25,867
Interest expense................................. 17,450 24,105 19,986
-------- -------- --------
Net interest margin............................ 2,622 1,704 5,881
-------- -------- --------
Provision for loan losses........................ 465 3,354 2,475
General and administrative expenses.............. 2,243 3,279 5,690
(Loss) gain on sale of investments and adjustment
for lower of cost or market on loans available
for sale........................................ (21) (1,966) (768)
SAIF recapitalization charge..................... 1,291 -- --
Other income (expense), including special charge
in 1995.......................................... 361 (1,701) 877
-------- -------- --------
(Loss) before income taxes....................... (1,037) (8,596) (2,175)
Benefit for income taxes......................... 429 3,620 890
-------- -------- --------
Net (loss)....................................... $ (608) $ (4,976) $ (1,285)
======== ======== ========
SELECTED BALANCE SHEET INFORMATION
<CAPTION>
AT DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assets:
Cash and investments............................. $ 52,660 $ 65,337 $ 91,957
Mortgage notes receivable and accrued interest,
net.............................................. 199,135 269,128 316,969
Real estate owned, net........................... 2,079 2,704 2,339
Investment in FHLB stock......................... 7,958 7,500 9,013
Other assets..................................... 3,441 5,985 3,282
-------- -------- --------
Total assets................................... $265,273 $350,654 $423,560
======== ======== ========
Liabilities and Stockholder's Equity:
Savings accounts................................. $132,813 $157,542 $188,163
Securities sold subject to agreements to
repurchase....................................... -- 15,016 46,774
FHLB advances, secured by mortgage notes
receivable and other assets...................... 109,000 150,000 160,300
Other liabilities and intercompany account (1)... 2,458 6,527 3,315
-------- -------- --------
Total liabilities.............................. 244,271 329,085 398,552
Stockholder's equity............................. 21,002 21,569 25,008
-------- -------- --------
Total liabilities and stockholder's equity..... $265,273 $350,654 $423,560
======== ======== ========
Stockholder's equity as a percentage of total
assets........................................... 7.9% 6.2% 5.9%
======== ======== ========
</TABLE>
- - --------
(1) Certain intersegment transactions and balances are eliminated in
consolidation with no effect on consolidated earnings or equity. Included
in net interest income is intersegment income for each of the three years
ended December 31, 1996 of $0, $4 and $4, respectively.
26
<PAGE>
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Interest income in 1996 amounted to $20.1 million, a $5.7 million decrease
from the 1995 amount. This decrease was due primarily to the decrease in the
average balance of interest earning assets from $389.4 million in 1995 to
$239.9 million in 1996, which was partially offset by an increase in the
weighted average interest rate on interest earning assets from 6.63 percent in
1995 to 6.83 percent in 1996. The increase in the weighted average interest
rate was primarily due to the upward repricing on many of the adjustable rate
mortgages in Savings' portfolio as well as the sale of $22 million of lower
interest rate loans during 1996. The decrease in the average balance of
interest earning assets between years is due primarily to the Company's
decision to reduce Savings' asset level.
Interest expense for the year amounted to $17.5 million, a decrease of $6.7
million from 1995. The decrease in interest expense resulted from a decrease
in the average balance of interest bearing liabilities and by a decrease in
the weighted average cost of interest bearing liabilities. The decrease in the
cost of funds was primarily due to decreases during most of the year of the
cost of savings deposits and the effect of new borrowings at more favorable
interest rates.
Savings generated an after-tax loss of $608,000 for 1996 compared to an
after-tax loss of $5.0 million in 1995. The 1996 after-tax loss includes a one
time pretax charge of approximately $1.3 million incurred in connection with
the recapitalization of the Savings Association Insurance Fund (SAIF).
Excluding the SAIF recapitalization charge, Savings' net income would have
been approximately $150,000. The net interest margin increased to $2.6 million
in 1996 from $1.7 million in 1995. The increase in the net interest margin can
be attributed to the declining cost of borrowings during 1996 and the upward
repricing of many of the adjustable rate mortgages in Savings' portfolio.
General and administrative expenses declined by approximately $1.0 million
between 1996 and 1995 due to reductions associated with a lower level of
business activity.
1995 COMPARED TO 1994
Interest income in 1995 amounted to $25.8 million, a slight decrease from
the 1994 amount. The decrease in the average balance of interest earning
assets from $409.6 million in 1994 to $389.4 million in 1995 was substantially
offset by an increase in the weighted average interest rate on interest
earning assets from 6.31 percent in 1994 to 6.63 percent in 1995. The weighted
average interest rate increase was primarily due to the upward repricing of
many of the adjustable rate mortgages in Savings' portfolio. The decrease in
the average balance of interest earning assets between years is due primarily
to the Company's efforts to reduce Savings' asset levels.
Interest expense for the year amounted to $24.1 million, an increase of $4.1
million from 1994. The increase in interest expense resulted from an increase
in the weighted average cost of interest bearing liabilities, which was
partially offset by a decrease in the average balance of interest bearing
liabilities. The increase in the cost of funds was primarily due to increases
during most of the year of the cost of savings deposits and the effect of the
charges discussed below in connection with the balance sheet restructuring.
Savings generated an after tax loss of $5.0 million for 1995 compared to an
after tax loss of $1.3 million in 1994. The net interest margin declined to
$1.7 million in 1995 from $5.9 million in 1994. The increase in the after tax
loss was due, in part, to certain measures taken during 1995 to restructure
Savings' balance sheet in order to better manage its interest rate risk and
improve its net interest margin in 1996 and beyond. These measures consisted
of selling certain lower yielding investments and loans which resulted in a
loss of $2.2 million; prepaying $45 million of higher costing FHLB advances at
a cost of $1.2 million; buying down the fixed rate interest payment on
Savings' remaining swap agreement at a cost of $1.4 million, which cost will
be amortized over the remaining three year term of the swap agreement, and
establishing additional loan and other reserves of $2.4 million. The decrease
in the net interest margin can be attributed to two factors. First the rising
27
<PAGE>
cost of borrowings during the first two quarters of 1995 and second, the
mortgage portfolio contains certain mortgages which by their terms did not
begin to reprice until the fourth quarter of 1995. General and administrative
expenses declined by $2.4 million between 1995 and 1994 due to reductions
associated with exiting the mortgage banking business.
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
Savings' net interest income depends primarily upon its interest rate
spread, which is the difference between the combined weighted average yield it
earns from its net loans, mortgage-backed securities and investment portfolio
(together, the "interest earning assets") and the combined weighted average
rate it pays on its deposits and borrowings (together the "interest bearing
liabilities"). When the balance of the interest earning assets equals or
exceeds the balance of the interest bearing liabilities, any positive interest
rate spread will generate net interest income. When the balance of the
interest earning assets is less than the balance of the interest bearing
liabilities, net interest expense can result even when the spread is positive.
The greater the excess of the interest bearing liabilities over the interest
earning assets, the greater the positive interest rate spread must be to
create a break-even point between interest income and interest expense.
28
<PAGE>
The following table shows consolidated average balance sheets of Savings for
the years indicated as well as interest income and expense and average rates
earned and paid on each major category of interest earning assets and interest
bearing liabilities. Average balances are predominantly calculated on a daily
basis. When information is not available for calculations to be made on a
daily basis, average balances are calculated on a weekly or monthly basis from
the best available data. The interest rate spread is calculated as the
difference between the average rate received on total interest earning assets
minus the average rate paid on total interest bearing liabilities. The
interest rate spread on investable funds is calculated by dividing net
interest income by interest earning assets.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1996 1995
-------------------------- ---------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE (EXPENSE) RATE% BALANCE (EXPENSE) RATE%
-------- -------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Cash and equivalents..... $ 14,126 $ 766 5.42% $ 17,546 $ 1,028 5.86%
Investment securities
available for sale....... 34,924 2,290 6.56 33,539 1,872 5.58
Investment securities
held to maturity......... -- -- -- 39,390 2,383 6.05
Loans:
Real estate,
residential........... 234,903 16,396 6.98 287,270 19,886 6.92
Real estate, other..... 1,899 146 7.69 2,337 179 7.66
Other.................. 55 6 10.91 212 1 8.47
-------- -------- ----- -------- -------- ----
Total Loans.......... 236,857 16,548 6.99 289,819 20,066 6.92
-------- -------- ----- -------- -------- ----
FHLB stock............... 8,002 468 5.85 9,120 460 5.04
-------- -------- ----- -------- -------- ----
Total Interest Earning
Assets................... 293,909 $ 20,072 6.83% 389,414 $ 25,809 6.63%
-------- -------- ----- -------- -------- ----
All Other Assets......... 1,686 2,309
-------- --------
Total Assets......... $295,595 $391,723
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Interest Bearing
Liabilities:
Deposits:
Passbook............... $ 2,219 $ (84) 3.79% $ 1,426 $ (47) 3.30%
Money market and NOW
accounts.............. 3,363 (68) 2.02 6,933 (199) 2.87
Certificates........... 134,056 (9,106) 6.79 175,645 (12,666) 7.21
-------- -------- ----- -------- -------- ----
Total Deposits....... 139,638 (9,258) 6.63 184,004 (12,912) 7.02
-------- -------- ----- -------- -------- ----
Borrowings:
FHLB advances.......... 126,916 (7,797) 6.14 157,285 (9,651) 6.14
Other borrowings....... 7,041 (395) 5.61 24,943 (1,542) 6.18
-------- -------- ----- -------- -------- ----
Total Borrowings..... 133,957 (8,192) 6.11 182,228 (11,193) 6.14
-------- -------- ----- -------- -------- ----
Total Interest Bearing
Liabilities.............. 273,595 $(17,450) 6.37% 366,232 $(24,105) 6.58%
-------- -------- ----- -------- -------- ----
All Other Liabilities.... 633 1,183
Stockholder's Equity..... 21,367 24,308
-------- --------
Total Liabilities and
Stockholder's
Equity.............. $295,595 $391,723
======== ========
Net Interest Income...... $ 2,622 $ 1,704
======== ========
Interest Rate Spread..... 0.46% 0.05%
===== ====
Spread on Investable
Funds.................... 0.89% 0.44%
===== ====
</TABLE>
29
<PAGE>
The table below presents a breakdown of the overall change in net interest
income between 1996 and 1995 for certain categories of assets and liabilities
by showing how much of such change is attributable to the change in the
average balance outstanding and how much is attributable to the change in the
average rate earned or paid. The amount of the change due to an increase or
decrease in average balance equals the change in the average balance between
1996 and 1995 multiplied by the average rate for 1995. The amount of the
change due to an increase or decrease in average rate equals the change in
average rate between 1996 and 1995 multiplied by the average balance for 1995.
Any remaining change is allocated to the above two categories on a pro-rata
basis.
<TABLE>
<CAPTION>
1996 VERSUS 1995 AMOUNT OF
INCREASE (DECREASE)
IN NET INTEREST INCOME
DUE TO CHANGE IN:
---------------------------
AVERAGE AVERAGE
BALANCE RATE TOTAL
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest Earning Assets:
Cash and equivalents................................ $ (189) $ (73) $ (262)
Investment securities available for sale............ 79 339 418
Investment securities held to maturity.............. (1,192) (1,191) (2,383)
Loans:
Real estate, residential.......................... (3,826) 336 (3,490)
Real estate, other................................ (34) 1 (33)
Other............................................. 7 (2) 5
------- ------ -------
Total Loans..................................... (3,853) 335 (3,518)
------- ------ -------
FHLB stock.......................................... (25) 33 8
------- ------ -------
Total Interest Earning Assets....................... $(5,180) $ (557) $(5,737)
======= ====== =======
Interest Bearing Liabilities:
Deposits:
Passbook.......................................... $ (29) $ (8) $ (37)
Money market and NOW accounts..................... 84 47 131
Certificates...................................... 2,055 1,505 3,560
------- ------ -------
Total Deposits.................................... 2,110 1,544 3,654
------- ------ -------
Borrowings:
FHLB advances..................................... 1,854 -- 1,854
Other borrowings.................................. 1,016 131 1,147
------- ------ -------
Total Borrowings................................ 2,870 131 3,001
------- ------ -------
Total Interest Bearing Liabilities.................. $ 4,980 $1,675 $ 6,655
======= ====== =======
Total Change in Net Interest Income................. $ 918
=======
</TABLE>
30
<PAGE>
BALANCE SHEET ANALYSIS
Savings' assets decreased to $265.3 million at December 31, 1996 from $350.7
million at December 31, 1995. The decrease in assets resulted primarily from
reductions in mortgage loans and investments. Proceeds from the decrease in
assets were used to reduce reverse repurchase agreement borrowings, FHLB
advances and the use of savings account deposits.
The composition of Savings' loan portfolio, excluding mortgage-backed
securities and accrued interest, is set forth in the following table at the
dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real Estate:
1-4 dwelling units....................................... $191,408 $264,295
5 or more dwelling units................................. 5,790 4,235
Non residential.......................................... 2,448 2,279
Other...................................................... 57 43
-------- --------
199,703 270,852
Less:
Discount on acquired loans............................... 213 135
Deferred loan (fees) costs............................... (97) (222)
Allowance for loan losses................................ 1,899 3,496
Other deferrals.......................................... 136 204
-------- --------
Net real estate loans.................................. $197,552 $267,239
======== ========
The table below shows total loan origination, sale and repayment activities
of Savings for the years indicated:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LOANS ORIGINATED:
Real Estate:
Residential 1-4:
Fixed-rate............................................. $ -- $ 10,324
Adjustable-rate........................................ 442 7,974
-------- --------
Total loans originated and net loans booked.......... 442 18,298
LOANS PURCHASED:
Real Estate:
Residential 1-4: Adjustable-rate......................... 895 --
Commercial: Fixed-rate................................... 1,350 --
-------- --------
Total loans purchased................................ 2,245 --
LOANS SOLD:
Real Estate:
Residential 1-4:
Fixed-rate............................................. -- (14,067)
Adjustable-rate........................................ (29,068) (4,360)
-------- --------
Total loans sold..................................... (29,068) (18,427)
REPAYMENTS AND OTHER CHANGES:
Principal payments......................................... (5,540) (5,647)
Principal payoffs.......................................... (33,538) (29,719)
Changes in discounts, deferred loan fees, loan losses, and
other...................................................... 1,237 (2,075)
Loans converted to investment securities................... (5,465) (10,178)
-------- --------
Net increase (decrease) in loans receivable.......... $(69,687) $(47,748)
======== ========
</TABLE>
31
<PAGE>
The following table represents the principal balances at December 31, 1996
of mortgage loans in their respective maturity categories. The entire
principal balance of a loan is shown in the category where the final
contractual payment is due.
<TABLE>
<CAPTION>
OVER ONE
DUE BUT
WITHIN WITHIN
ONE FIVE OVER
YEAR YEARS FIVE YEARS TOTAL
------ -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate:
First Mortgage Loans:
Balloon & adjustable-rate (primarily
adjustable-rate)...................... $ 423 $1,143 $170,303 $171,869
Fixed-rate 1-4......................... 628 671 21,552 22,851
Fixed-rate 5 or more and non-
residential........................... -- 583 4,247 4,830
Second Mortgage Loans.................... -- 96 -- 96
------ ------ -------- --------
Total Real Estate.................... 1,051 2,493 196,102 199,646
Other...................................... 57 -- -- 57
------ ------ -------- --------
$1,108 $2,493 $196,102 $199,703
====== ====== ======== ========
</TABLE>
It should be noted that actual maturities are typically substantially
shorter than contractual maturities because of prepayments and "due-on-sale"
provisions.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Potential credit losses are implicit in the function of Savings as a lender
of real estate loans. Accordingly, the management of Savings makes a
determination as to an appropriate provision from earnings necessary to
maintain an allowance for loan losses which would be adequate to absorb
potential future credit losses. The evaluation of the loan portfolio for
potential losses and for adequacy of the allowance includes, as appropriate, a
periodic review of certain borrowers' current financial status and credit
standing, an evaluation of available collateral, loss experience in relation
to outstanding loans and the overall loan portfolio quality, management's
judgment regarding prevailing and anticipated economic conditions, and other
relevant factors.
The following table sets forth the activity in the allowance for loan losses
for Savings for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................. $ 3,496 $ 1,906
Provision charged to operations.............................. 465 3,354
Net charge-offs:
Real Estate:
Residential 1-4.......................................... (2,062) (1,764)
------- --------
Balance at end of year....................................... $ 1,899 $ 3,496
======= ========
Ratio of net charge-offs during the year
to average loans outstanding during the year................ 0.87% 0.61%
======= ========
</TABLE>
INVESTMENT ACTIVITIES
Savings is required by Federal regulations to maintain a specified minimum
amount of liquid assets in the form of cash, deposits and certain debt
securities. Security investments in excess of regulatory requirements result
from management's comparison of prevailing money market rates to prevailing
mortgage rates and an
32
<PAGE>
evaluation of general economic conditions. Management also considers its
objective of maintaining liquidity at a level to assure adequate funds, taking
into account anticipated cash flows and available sources of credit, and to
afford future flexibility to meet withdrawal requests and loan commitments or
to make other investments. Savings is required to maintain its liquidity
level, measured by the ratio of cash and eligible investments to the sum of
withdrawable savings and borrowings payable within one year, in excess of 5
percent or be subject to certain monetary penalties. At December 31, 1996,
Savings' liquidity ratio was 17.0 percent.
Savings also invests in FHLMC and FNMA mortgage-backed securities, which
represent an interest in pools of mortgage loans and are guaranteed as to
payment of principal and interest by each respective agency. Additionally,
Savings invests in high quality (A or better) corporate notes and bonds.
SOURCES OF FUNDS
Deposits. Savings has several types of programs designed to attract both
short-term and long-term deposits. The following table sets forth the amounts
of deposits in the various types of programs offered by Savings as of the
dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Passbook..................................................... $ 509 $ 908
Money Market and NOW Accounts................................ 3,790 6,135
Certificates ($95,000 and under)............................. 33,253 52,584
Jumbo Certificates (over $95,000)............................ 95,261 97,915
-------- --------
$132,813 $157,542
======== ========
</TABLE>
The table below sets forth information relating to Savings' deposit flows
during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deposits, New............................................ $ 274,382 $ 305,466
Withdrawals.............................................. (303,508) (340,144)
--------- ---------
Net (decrease) before interest credited................ (29,126) (34,678)
Interest credited........................................ 4,397 4,057
--------- ---------
Net (decrease) in deposits............................. $ (24,729) $ (30,621)
========= =========
</TABLE>
At December 31, 1996, Savings' deposits had the following remaining
contractual maturities:
<TABLE>
<CAPTION>
OVER
OVER OVER OVER 5 YEARS
6 MONTHS 1 YEAR 3 YEARS BUT
BUT BUT BUT WITHIN OVER
6 MONTHS WITHIN WITHIN WITHIN 10 10
OR LESS 1 YEAR 3 YEARS 5 YEARS YEARS YEARS TOTAL
-------- -------- ------- ------- ------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Passbook................ $ 509 $ -- $ -- $ -- $-- $-- $ 509
Money Market and NOW
Accounts............... 3,790 -- -- -- -- -- 3,790
Certificates ($95,000
and under)............. 19,601 8,696 3,220 1,728 8 -- 33,253
Certificates (over
$95,000)............... 58,317 19,612 13,327 3,705 300 -- 95,261
------- ------- ------- ------ ---- ---- --------
$82,217 $28,308 $16,547 $5,433 $308 $-- $132,813
======= ======= ======= ====== ==== ==== ========
</TABLE>
Savings typically attracts deposits from individuals, pension funds,
corporations and state and local government agencies. This mix has resulted in
a proportionately larger share of jumbo certificates of deposit. Brokered
deposits were not significantly utilized in 1996.
33
<PAGE>
Federal Home Loan Bank Advances. Savings periodically borrows funds from the
FHLB, pledging as security the capital stock of the FHLB owned by Savings as
well as certain of its mortgage loans. These borrowings are made pursuant to
several different credit programs with varying interest rates and maturities.
Securities Sold Subject to Agreements to Repurchase. Savings enters into
repurchase agreements whereby it sells marketable U.S. government securities,
Federal agency securities or mortgage-backed securities with a simultaneous
commitment to repurchase the securities at a specified price on a specified
later date. The interest rate to be earned by the investor, determined at the
time the agreement is negotiated, is based upon market conditions and does not
necessarily relate to the coupon rate on the securities which are sold under
the repurchase agreement.
The following table provides additional information on all borrowed funds
for Savings:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FHLB Advances:
Balance at year-end....................................... $109,000 $150,000
Average amount outstanding................................ 126,916 157,285
Maximum amount outstanding at any month-end............... 150,000 165,000
Average interest rate for the year........................ 6.14% 6.14%
Average interest rate on year-end balance................. 6.10% 6.07%
Securities Sold Subject to Agreements to Repurchase:
Balance at year-end....................................... $ -- $ 15,016
Average amount outstanding................................ 7,041 24,943
Maximum amount outstanding at any month-end............... 18,099 33,480
Average interest rate for the year........................ 5.61% 6.18%
Average interest rate on year-end balance................. -- 5.81%
</TABLE>
INTEREST RATE SENSITIVITY
The ability of Savings to maintain a positive interest rate spread in a
changing economic environment is dependent primarily on the matching of the
repricing characteristics of its interest earning assets and its interest
paying liabilities. One indication of interest rate sensitivity is the gap
between assets that reprice within one year and liabilities that reprice
within one year as a percentage of total interest earning assets (the "one
year gap"). Savings' one year gap is higher than its historical average
primarily as a result of the impact of interest rate hedging activities,
principally an interest rate swap. It is anticipated that as the interest rate
swap approaches maturity the one year gap should improve.
The following table sets forth information based on the average of December
rates for each of the last two years on the rates earned, rates paid, and
interest rate spreads for Savings:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE RATE EARNED WEIGHTED AVERAGE RATE PAID
------------------------------------- ----------------------------------------
MORTGAGE- (1) INTEREST INTEREST INTEREST
NET BACKED INVESTMENT EARNINGS (2) BEARING RATE
LOANS SECURITIES SECURITIES ASSETS DEPOSITS BORROWINGS LIABILITIES SPREAD
----- ---------- ---------- -------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December:
1995.................... 6.92% 6.37% 5.67% 6.71% 6.74% 6.10% 6.39% 0.32%
1996.................... 7.43% 6.77% 6.25% 7.16% 6.78% 6.00% 6.47% 0.69%
</TABLE>
- - --------
(1) Consists of certificates of deposit, Federal funds and investment
securities.
(2) Consists of FHLB advances and securities sold subject to agreements to
repurchase.
34
<PAGE>
The following table summarizes interest-sensitive assets and liabilities for
Savings at December 31, 1996, categorized on the repricing characteristics of
variable-rate products and the contractual amortization for fixed-rate
products as adjusted for anticipated prepayments. Actual amortization of loan
balances may differ significantly from anticipated amortization.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY PERIOD
------------------------------------------------------
WITHIN 1-3 3-5 5-10 OVER 10
DECEMBER 31, 1996 1 YEAR YEARS YEARS YEARS YEARS TOTAL
----------------- -------- -------- ------ ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Cash and equivalents.. $ 10,259 $ -- $ -- $ -- $ -- $ 10,259
Investment securities:
Fixed-rate........... 1,284 4,092 3,473 2,920 743 12,512
Adjustable-rate...... 28,821 1,068 -- -- -- 29,889
Mortgage loans:
Adjustable-rate...... 133,837 36,654 905 530 -- 171,926
Fixed-rate........... 6,497 8,254 5,089 5,762 2,175 27,777
FHLB stock............ 7,958 -- -- -- -- 7,958
-------- -------- ------ ------- ------- --------
Total interest earning
assets............... 188,656 50,068 9,467 9,212 2,918 260,321
-------- -------- ------ ------- ------- --------
Interest bearing
liabilities:
Deposits:
Passbook............. 509 -- -- -- -- 509
Money market and NOW
accounts............ 3,790 -- -- -- -- 3,790
Certificates......... 106,321 16,452 5,733 8 -- 128,514
-------- -------- ------ ------- ------- --------
Total deposits...... 110,620 16,452 5,733 8 -- 132,813
-------- -------- ------ ------- ------- --------
Borrowings:
FHLB advances........ 32,000 77,000 -- -- -- 109,000
Other borrowings..... -- -- -- -- -- --
-------- -------- ------ ------- ------- --------
Total borrowings.... 32,000 77,000 -- -- -- 109,000
-------- -------- ------ ------- ------- --------
Total interest bearing
liabilities.......... 142,620 93,452 5,733 8 -- 241,813
-------- -------- ------ ------- ------- --------
Impact of hedging
activities............. (50,000) 50,000 -- -- -- --
-------- -------- ------ ------- ------- --------
Adjusted interest-
bearing liabilities.... 92,620 143,452 5,733 8 -- 241,813
-------- -------- ------ ------- ------- --------
Total interest earning
assets less interest
bearing liabilities.... $ 96,036 $(93,384) $3,734 $ 9,204 $ 2,918 $ 18,508
======== ======== ====== ======= ======= ========
Cumulative interest
earning assets less
interest bearing
liabilities............ $ 96,036 $ 2,652 $6,386 $15,590 $18,508
======== ======== ====== ======= =======
Cumulative total
interest earning assets
less interest bearing
liabilities as a
percent of total
interest earning
assets................. 36.89% 1.02% 2.45% 5.99% 7.11%
======== ======== ====== ======= =======
</TABLE>
35
<PAGE>
SELECTED RATIOS AND STATISTICS
Pursuant to the requirements of FIRREA, capital standards are required to be
maintained by Savings which include a tangible capital standard, a leverage
requirement based on "core capital" and a risk-based capital standard. The
thrust of the risk-based capital standard is to require savings and loans to
provide more capital against assets deemed to carry a greater risk of default
or diminution of carrying value. FIRREA also establishes requirements for
institutions that fail to comply with the capital standards. At December 31,
1996, Savings was in compliance with all three capital standards.
The following table shows certain ratios of Savings as of or for each of the
three years ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1995 1994
----- ------ -----
<S> <C> <C> <C>
Return on average total
assets.................. (0.21)% (1.27)% (.31)%
Return on average
stockholder's equity.... (2.85) (20.42) (4.82)
Average equity to
average assets ratio.... 7.23 6.20 6.41
</TABLE>
CORPORATE SEGMENT
The "Corporate Office" provides management services to the operating
entities. The Corporate Office generally provides the source of funds to all
segments, with the exception of Savings. Funds are provided primarily through
bank lines of credit or notes and debentures. Interest incurred in financing
real estate inventories is passed through to the operating divisions and
expensed or capitalized as a cost of real estate inventories, as appropriate,
in accordance with Statement of Financial Accounting Standards ("FAS") No. 34.
LIQUIDITY AND CAPITAL RESOURCES
Homebuilding, Manufacturing and Corporate Segments. These segments'
principal cash uses in 1996 were for operating expenses, land acquisitions and
construction expenditures, principal and interest payments on debt and
dividends to shareholders. Cash requirements were provided from internally
generated funds and outside borrowings, including bank revolving credit
facilities and term loans. Management believes that these sources of cash are
sufficient to finance its current working capital requirements and other
needs.
In December 1996, the Company completed a syndication of its principal
revolving credit facility whereby the total unsecured commitment was increased
to $200 million and additional lenders were added to the facility. In
connection with the syndication the Company combined its separate bank credit
facilities into a single larger facility which created additional borrowing
capacity of approximately $50 million. The facility has a current maturity
date of July 31, 1999. This agreement contains covenants, including certain
financial covenants. This agreement also contains provisions which may, in
certain circumstances, limit the amount the Company may borrow under the
credit facility. At December 31, 1996, the Company had borrowings of $57.3
million outstanding under this facility and had approximately $140 million of
additional borrowing capacity available under the provisions of the agreement.
In conjunction with the syndication discussed above, the Company repaid in
full the principal balances on two separate term loans during the fourth
quarter of 1996.
On March 1, 1997, the Company is required to make the first of three annual
$20 million sinking fund payments on the Company's 10 1/2 percent senior notes
due 2000. The Company presently intends to use its revolving credit facility
to fund the first payment in 1997.
To finance land purchases, the Company may utilize, among its other sources,
purchase money mortgage financing of which approximately $4.0 million was
outstanding for this purpose at December 31, 1996, a decrease of $10.1 million
from December 31, 1995.
36
<PAGE>
Additionally, the Company has utilized joint ventures over the past few
years whereby these joint ventures have obtained secured construction
financing. This type of structure minimizes the use of funds from the
Company's revolving credit facility. The Company plans to continue using this
type of arrangement to finance the development of properties as opportunities
arise.
The Company paid approximately $3.6 million in dividends to its stockholders
in 1996. Payments of dividends on the Company's common stock is within the
discretion of the Company's Board of Directors and is dependent upon various
factors, including the earnings, cash flow, capital requirements and operating
and financial condition of the Company. Certain of the Company's senior credit
and debt agreements impose restrictions on the amount of dividends the Company
may pay.
During 1996, under the previously announced common stock repurchase program,
the Company repurchased 430,300 shares of its common stock for approximately
$2.3 million. In January 1997, the Company's Board of Directors authorized an
increase of an additional $10 million to repurchase the Company's common
stock, providing for an aggregate repurchase limit of $20 million. As of
December 31, 1996, the Company had repurchased an aggregate of 1,000,950
shares of its common stock for approximately $6.2 million, leaving a balance
of approximately $13.8 million available to be repurchased.
In January 1992, the Company filed a shelf registration statement with the
Securities and Exchange Commission which was declared effective in March 1992.
In connection therewith, the Company may, after issuing the $100 million 10
1/2 percent Senior Notes due in 2000, issue up to an additional $100 million
of either senior or subordinated debt securities from time to time, at prices
and terms acceptable to the Company.
The Company has no material commitments nor off balance sheet financing
arrangements that would tend to materially affect future liquidity.
Savings and Loan. Savings uses cash generated from operations, borrowing
arrangements such as FHLB advances, reverse repurchase agreements and savings
account deposits to finance its mortgage and investment portfolio. Funds from
operations include sales of loans and mortgage backed securities and principal
payments and payoffs on mortgage loans and mortgage-backed securities.
Scheduled payments on loans and mortgage-backed securities are a relatively
stable source of funds, while the sale of loans and mortgage-backed
securities, loan payoffs, and deposit inflows and outflows are influenced
significantly by interest rates and general economic conditions. Funds
generated from sales, payments and payoffs of loans aggregated $68.3 million
in 1996 compared to $48.1 million in 1995. The increase in funds from this
source was primarily due to an increase in loan sales. As a result of the
decrease in Savings' assets between years, its use of FHLB advances, savings
deposits and reverse repurchase agreements declined significantly.
FHLB advances represent short and medium-term borrowings that are secured by
investments in stock of the Federal Home Loan Banks and certain mortgage
loans. Savings had $109 million of FHLB advances outstanding at December 31,
1996, a decrease of $41 million from December 31, 1995. FHLB borrowings are a
consistent source of funds, and are used depending on prevailing interest
rates and availability of collateral.
Reverse repurchase agreements represent short-term borrowings that are
collateralized by mortgage-backed securities guaranteed by Federal agencies.
Savings did not have any reverse repurchase borrowings outstanding at December
31, 1996, a decrease of $15 million from December 31, 1995. For the last few
years, this source of funds has been consistently available, and is also used
depending on prevailing rates and availability of collateral.
Savings' principal source of funds has been through savings account
deposits. The availability of these funds is primarily a function of interest
rates offered on accounts, including certificates of deposit. Jumbo
certificates of deposit (certificates in excess of $95,000), which are
particularly sensitive to interest rate competition, accounted for
approximately 72 percent of Savings' deposits at December 31, 1996.
37
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
None.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
The foregoing "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning
future events, including, but not limited to, the following: statements
regarding the price range of future homes constructed by the Company;
statements regarding the margins on newer projects; statements regarding the
future home deliveries and income from the Company's unconsolidated joint
ventures; statements regarding a favorable mortgage interest rate environment
and an improving California economic climate; statements regarding the
homebuilding segment's backlog of homes; statements regarding the adequacy of
its inventory of building sites; statements regarding the time typically
required to complete the construction phase of an increment of a project; and
the sufficiency of the Company's cash provided by internally generated funds
and outside borrowings. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including, without
limitation, the following: change in the demand for new homes attributable to
the cyclical and competitive nature of the homebuilding business; changes in
general economic conditions; uncertainty in or changes in the continued
availability of suitable undeveloped land at reasonable prices; adverse local
market conditions; existing and changing governmental regulations, including
regulations concerning environmental matters and the permitting process for
home construction; increases in prevailing interest rates; the level of real
estate taxes and energy costs; the cost of materials and labor; the
availability of construction financing and home mortgage financing attractive
to the purchasers of homes; and inclement weather and other natural disasters.
Results actually achieved thus may differ materially from expected results
included in these and any other forward looking statements contained herein.
38
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
39
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Standard Pacific Corp.:
We have audited the accompanying consolidated balance sheets of STANDARD
PACIFIC CORP. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material 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 financial position of Standard Pacific Corp. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As explained in Note 2 of the financial statements, effective December 31,
1995, the Company changed its method of accounting for the impairment of long-
lived assets and for long-lived assets to be disposed of.
ARTHUR ANDERSEN LLP
Orange County, California
January 27, 1997
40
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Homebuilding and Corporate:
Revenues....................................... $399,863 $346,263 $374,783
Cost of sales.................................. 371,554 330,498 354,463
Noncash charge for impairment of long-lived
assets........................................ -- 46,491 --
-------- -------- --------
Gross margin................................. 28,309 (30,726) 20,320
-------- -------- --------
General and administrative expenses............ 13,863 12,169 13,950
Income from unconsolidated joint ventures...... 4,708 6,953 4,234
Interest expense............................... 7,142 1,860 --
Other income................................... 936 555 596
-------- -------- --------
Homebuilding and corporate pretax income (loss).. 12,948 (37,247) 11,200
-------- -------- --------
Manufacturing:
Sales.......................................... 19,311 15,177 17,225
Cost of sales.................................. 12,011 9,856 10,896
-------- -------- --------
Gross margin................................. 7,300 5,321 6,329
-------- -------- --------
Selling, general and administrative expenses..... 5,304 5,527 5,481
Other income..................................... 91 164 121
-------- -------- --------
Manufacturing pretax income (loss)............. 2,087 (42) 969
-------- -------- --------
Savings and Loan:
Interest income................................ 20,072 25,805 25,863
Interest expense............................... 17,450 24,105 19,986
-------- -------- --------
Net interest margin.......................... 2,622 1,700 5,877
-------- -------- --------
Provision for loan losses...................... 465 3,354 2,475
General and administrative expenses............ 2,243 3,279 5,690
(Loss) gain on sale of investments and
adjustment for
lower of cost or market on loans available for
sale.......................................... (21) (1,966) (768)
SAIF recapitalization charge................... 1,291 -- --
Other income (expense), including special
charge in 1995................................ 361 (1,701) 877
-------- -------- --------
Savings and loan pretax (loss)................. (1,037) (8,600) (2,179)
-------- -------- --------
Consolidated income (loss) before taxes........ 13,998 (45,889) 9,990
(Provision) benefit for income taxes........... (5,605) 18,526 (4,103)
-------- -------- --------
Net Income (Loss)................................ $ 8,393 $(27,363) $ 5,887
======== ======== ========
Net Income (Loss) Per Share...................... $ .28 $ (.90) $ .19
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
41
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Homebuilding, corporate and manufacturing:
Cash and equivalents....................................... $ 5,975 $ 895
Investment securities held to maturity..................... 5,329 5,410
Mortgage notes receivable and accrued interest............. 3,741 3,203
Other notes and accounts receivable, net................... 11,073 8,821
Inventories:
Real estate in process of development and completed model
homes.................................................... 363,718 354,290
Real estate held for sale................................. 8,927 13,386
Manufacturing............................................. 1,432 1,332
Property and equipment, at cost, net of accumulated
depreciation
and amortization of $6,640 and $5,875, respectively....... 6,041 6,263
Investments in and advances to unconsolidated joint
ventures.................................................. 885 4,460
Deferred income taxes...................................... 16,481 17,605
Deferred charges and other assets.......................... 6,504 6,859
-------- --------
Total assets--homebuilding, corporate and manufacturing... 430,106 422,524
-------- --------
Savings and loan:
Cash and equivalents....................................... 10,259 36,702
Investment securities available for sale................... 42,401 28,635
Mortgage notes receivable and accrued interest, net........ 199,135 269,128
Property and equipment, at cost, net of accumulated
depreciation
of $869 and $976, respectively............................ 227 266
Real estate acquired in settlement of loans, net........... 2,079 2,704
Deferred income taxes...................................... 1,581 3,825
Investment in FHLB stock................................... 7,958 7,500
Other assets............................................... 1,633 1,894
-------- --------
Total assets--savings and loan............................ 265,273 350,654
-------- --------
Total Assets............................................. $695,379 $773,178
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
42
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Homebuilding, corporate and manufacturing:
Unsecured notes payable.................................. $ 57,300 $ 48,500
Trust deed notes payable................................. 4,467 14,854
Accounts payable and accrued expenses.................... 28,991 24,547
10 1/2 percent senior notes due 2000..................... 100,000 100,000
-------- --------
Total liabilities---homebuilding, corporate and
manufacturing.......................................... 190,758 187,901
-------- --------
Savings and loan:
Savings accounts......................................... 132,813 157,542
FHLB advances............................................ 109,000 150,000
Securities sold subject to agreements to repurchase...... -- 15,016
Accounts payable and accrued expenses.................... 2,458 4,873
-------- --------
Total liabilities---savings and loan.................... 244,271 327,431
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued................................. -- --
Common stock, $.01 par value; 100,000,000 shares
authorized; 29,629,981 and 30,060,281 shares outstanding
in 1996 and 1995, respectively.......................... 296 301
Paid-in capital.......................................... 283,331 285,655
Investment securities valuation adjustment............... (39) (80)
Accumulated deficit...................................... (23,238) (28,030)
-------- --------
Total stockholders' equity.............................. 260,350 257,846
-------- --------
Total Liabilities and Stockholders' Equity............. $695,379 $773,178
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
43
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON INVESTMENT RETAINED
NUMBER OF STOCK SECURITIES EARNINGS
YEARS ENDED DECEMBER 31, COMMON PAR PAID-IN VALUATION (ACCUMULATED
1994, 1995 AND 1996 SHARES VALUE CAPITAL ADJUSTMENT DEFICIT)
------------------------ ---------- ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993..................... 30,605,921 $306 $289,311 $ -- $ 778
Exercise of stock options
and related income tax
benefit.................. 16,010 -- 136 -- --
Cash dividends declared
($.12 per share)......... -- -- -- -- (3,675)
Change in investment
securities valuation
adjustment............... -- -- -- (1,616) --
Net income................ -- -- -- -- 5,887
---------- ---- -------- ------ --------
BALANCE, December 31,
1994..................... 30,621,931 306 289,447 (1,616) 2,990
Exercise of stock options
and related income tax
benefit.................. 9,000 -- 64 -- --
Repurchase of common
shares................... (570,650) (5) (3,856) -- --
Cash dividends declared
($.12 per share)......... -- -- -- -- (3,657)
Change in investment
securities valuation
adjustment............... -- -- -- 1,536 --
Net (loss)................ -- -- -- -- (27,363)
---------- ---- -------- ------ --------
BALANCE, December 31,
1995..................... 30,060,281 301 285,655 (80) (28,030)
Repurchase of common
shares................... (430,300) (5) (2,324) -- --
Cash dividends declared
($.12 per share)......... -- -- -- -- (3,601)
Change in investment
securities valuation
adjustment............... -- -- -- 41 --
Net income................ -- -- -- -- 8,393
---------- ---- -------- ------ --------
BALANCE, December 31,
1996..................... 29,629,981 $296 $283,331 $ (39) $(23,238)
========== ==== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
44
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 8,393 $(27,363) $ 5,887
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Noncash charge for impairment of long-lived
assets........................................ -- 46,491 --
Depreciation and amortization.................. 891 550 782
Amortization of deferred income and discounts.. 16 424 580
Net (gain) loss on sale of investments, loans
and REO....................................... (697) 1,738 508
Provision for loan losses...................... 465 3,354 2,475
Changes in cash and equivalents due to:
Inventories.................................. (5,476) 52,984 21,648
Receivables and accrued interest............. (1,600) 6,763 (6,135)
Investment in and advances to unconsolidated
joint ventures.............................. 3,576 (3,015) 717
Accounts payable and accrued expenses........ 4,260 (4,378) 8,279
Deferred income taxes........................ 3,368 (17,876) (1,823)
Other, net................................... (2,355) (1,060) 433
------- -------- --------
Net cash provided by (used in) operating
activities....................................... $10,841 $ 58,612 $ 33,351
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investments and
principal repayments............................. $33,047 $ 69,134 $ 38,066
Net sales from real estate owned................. 5,088 3,358 1,630
Net (additions to) retirements from property and
equipment........................................ (622) (227) (402)
Purchases of investment securities............... (46,653) (11,254) (54,967)
Sales (purchases) of FHLB stock.................. -- 1,975 (1,776)
New loan fundings and loan purchases............. (2,436) (17,875) (186,080)
Loan sales and principal repayments from loans... 68,268 48,140 136,514
------- -------- --------
Net cash provided by (used in) investing
activities....................................... $56,692 $ 93,251 $(67,015)
------- -------- --------
</TABLE>
45
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) bank lines of
credit and term loans........................... $ 8,800 $ (37,750) $(21,500)
Proceeds from deposits to savings accounts...... 274,382 305,466 566,688
Payments on savings account withdrawals......... (303,508) (340,144) (584,521)
Interest credited to savings accounts........... 4,397 4,056 3,765
Proceeds from FHLB advances..................... 18,000 111,000 365,000
Repayment of FHLB advances...................... (59,000) (121,300) (305,750)
Principal payments on bonds, debentures and
trust deed notes payable........................ (11,021) (12,885) (12,964)
Dividends....................................... (3,601) (3,657) (3,675)
Net change in securities sold subject to
agreements to repurchase........................ (15,016) (31,759) 26,737
Repurchase of common shares..................... (2,329) (3,861) --
Proceeds from exercise of stock options......... -- 64 136
-------- --------- --------
Net cash provided by (used in) financing
activities...................................... $(88,896) $(130,770) $ 33,916
-------- --------- --------
Net increase (decrease) in cash and equivalents. $(21,363) $ 21,093 $ 252
Cash and equivalents at beginning of year....... 37,597 16,504 16,252
-------- --------- --------
Cash and equivalents at end of year............. $ 16,234 $ 37,597 $ 16,504
======== ========= ========
SUMMARY OF CASH BALANCES:
Homebuilding, corporate and manufacturing....... $ 5,975 $ 895 $ 1,838
Savings and loan................................ 10,259 36,702 14,666
-------- --------- --------
$16,234 $ 37,597 $ 16,504
======== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest.................................... $ 36,081 $ 42,554 $ 39,904
Income taxes................................ 1,477 530 5,792
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Land acquisitions financed by purchase money
trust deeds.................................. $ 635 $ 9,444 $ 12,064
Change in unrealized losses on investment
securities available for sale, net of
deferred taxes............................... 41 1,537 (1,616)
Loans receivable foreclosed on, net........... 3,778 4,106 3,990
Reclass of mortgage backed securities held to
maturity to investment securities available
for sale..................................... -- 48,880 --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
46
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. COMPANY ORGANIZATION AND OPERATIONS
On December 31, 1991, Standard Pacific, L.P. (the "Partnership") converted
to the corporate form by merging the Partnership into Standard Pacific Corp.
("SPC"), a newly formed Delaware Corporation (the "Merger"). In connection
with the Merger, SPC succeeded to all of the assets and liabilities of the
Partnership. In establishing the new stockholders' equity accounts, the
Company was treated as a new entity for accounting purposes. Accordingly,
there was no retained earnings balance recorded as of December 31, 1991.
Unless the context otherwise requires, "Company" refers to SPC and its
predecessors, including the Partnership.
The Company is a regional builder of single-family homes with operations
throughout the major metropolitan areas of California and Texas. Approximately
79 percent of the Company's home deliveries (including the unconsolidated
joint ventures) were in California for the year ended December 31, 1996. There
have been periods of time in California where economic growth has slowed and
the average sales price of homes in certain areas in California in which the
Company does business have declined. There can be no assurance that home sales
prices will not decline further in the future.
The Company's business is affected by national, world and local economic
conditions and events and the effect such conditions and events have on the
markets it serves in California and Texas and in particular by the level of
mortgage interest rates and consumer confidence in those regions. The Company
cannot predict whether interest rates will be at levels attractive to
prospective homebuyers. If interest rates increase, and in particular mortgage
interest rates, the Company's operating results could be adversely impacted.
The Company also has an office furniture manufacturing subsidiary, Panel
Concepts, Inc. and a federally chartered savings and loan institution,
Standard Pacific Savings, F.A., both of which are wholly owned subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--HOMEBUILDING, CORPORATE AND
MANUFACTURING (UNLESS STATED OTHERWISE)
a. Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated joint
ventures in which the Company has less than a controlling interest are
accounted for using the equity method.
b. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
c. Cash and Equivalents
For purposes of the consolidated statements of cash flows, cash and
equivalents include cash on hand, demand deposits, and for Savings, amounts
due from banks, federal funds sold and overnight deposits and all highly
liquid short-term investments, including interest bearing securities purchased
with a remaining maturity of three months or less.
d. Investment Securities
Financial Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" requires the Company,
including Savings, to carry the portion of their investments in
47
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
debt and equity securities they do not intend to hold to maturity at their
market values. Securities classified as available-for-sale will be carried at
their market values with changes in the market values recorded as a separate
component of stockholders' equity, net of the income tax effect; securities
classified as trading securities will be carried at their market values with
changes in the market values recorded as a component of income, and;
securities classified as held-to-maturity will be recorded at amortized cost.
During 1995, and resulting from regulatory agency clarification of the
ruling regarding the effects of unrealized losses on regulatory capital, all
of Savings' investment securities classified as held to maturity were
transferred to available for sale. For investment securities transferred into
the available-for-sale category from the held-to-maturity category, any
unrealized holding gain or loss at the date of the transfer is recognized in a
separate component of stockholders' equity.
e. Real Estate and Manufacturing Inventories
For real estate under development the Company capitalizes direct carrying
costs, including interest, property taxes and related development costs. Field
construction supervision and related direct overhead and certain selling costs
are also included in the capitalized cost of real estate inventories. General
and administrative costs are expensed as incurred.
Prior to December 31, 1995, each real estate project was carried at the
lower of its cost or its estimated net realizable value. Estimated net
realizable value was deemed to be the undiscounted estimated future cash flows
from the project, including relevant carrying costs such as interest.
Effective December 31, 1995, the Company adopted the provisions of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of" (FAS 121). FAS 121 changed
the method of valuing long-lived assets, including real estate inventories,
whereby long-lived assets that are expected to be held and used in operations
are to be carried at the lower of cost or, if impaired, the fair value of the
asset, rather than the net realizable value. Long-lived assets to be disposed
of should be reported at the lower of carrying amount or fair value less cost
to sell. In evaluating long-lived assets held for use, an impairment loss is
recognized if the sum of the expected future cash flows (undiscounted and
without interest charge) is less than the carrying amount of the asset. Once a
determination has been made that an impairment loss should be recognized for
real estate inventories expected to be held and used, various assumptions and
estimates are used to determine fair value including, among others, estimated
costs of construction, development and marketing, sales absorption rates,
anticipated sales prices and carrying costs. The calculation of the impairment
loss is based on estimated future cash flows which are calculated to include
an appropriate return and interest. The estimates used to determine the
impairment adjustment could change in the near term as the economy in the
Company's key areas change.
The effect of the adoption of FAS 121, plus the effects of continued adverse
trends experienced during 1995 in certain of the geographic markets in which
the Company operates, on the values of certain of the Company's land holdings,
particularly in San Diego county, resulted in a pretax noncash charge of $46.5
million for the year ended December 31, 1995. These adverse developments
included, among other things, record high foreclosure rates, declines in
median home prices and continued anemic economic recovery.
Manufacturing inventories are stated at the lower of cost (first-in, first-
out) or market. Cost includes materials, labor and manufacturing overhead.
48
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
f. Capitalization of Interest
The Company follows the practice of capitalizing interest on real estate
inventories during the period of development. Interest capitalized as a cost
of real estate under development is included in cost of sales as related units
are sold. The following is a summary of interest capitalized and expensed for
the three years ended December 31, 1996:
<TABLE>
<CAPTION>
CORPORATE AND HOMEBUILDING OPERATIONS 1996 1995 1994
------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Total interest incurred during the period........ $16,687 $19,200 $19,600
Less: Interest capitalized as a cost of real
estate under development........................ 9,545 17,340 19,600
------- ------- -------
Interest expense................................. $ 7,142 $ 1,860 $ --
======= ======= =======
Interest previously capitalized as a cost of real
estate under development, included in
homebuilding cost of sales...................... $16,920 $27,638(1) $33,069
======= ======= =======
Capitalized interest in ending inventories....... $25,142 $32,517 $54,373
======= ======= =======
</TABLE>
- - --------
(1) Excludes $11.6 million of interest included in the FAS 121 adjustment.
g. Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization is
recorded using the straight-line method over the estimated useful lives of the
assets.
h. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires a liability approach for measuring deferred taxes based on
temporary differences between the financial statement and tax bases of assets
and liabilities existing at each balance sheet date using enacted tax rates
for years in which taxes are expected to be paid or recovered.
i. Warranty Costs
Estimated future warranty costs are charged to cost of sales in the period
when the revenues from home closings are recognized.
j. Revenue Recognition
Sales of residential housing are recorded after construction is completed,
required down payments are received and title passes. Manufacturing sales are
recorded as of the date shipments are made to customers.
k. Earnings Per Share
Earnings per share, representing primary and fully diluted amounts (which
are not materially different), are based on the weighted average number of
common and equivalent shares outstanding during the year. Equivalent shares
were determined by using the treasury stock method, which assumes that all
dilutive securities were exercised and that the proceeds received were applied
to repurchase outstanding shares at the average market prices during each
year. The weighted average number of common and equivalent shares amounted to
30,011,595, 30,488,676 and 30,674,349 in the three years ended December 31,
1996, respectively. Equivalents were anti-dilutive for the year ended December
31, 1995.
49
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
l. Stock-Based Compensation
The Company accounts for its stock-based compensation plan using the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25).
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). Under the provisions of FAS 123, companies can elect
to account for stock-based compensation plans using a fair-value-based method
or continue measuring compensation expense for those plans using the intrinsic
value method prescribed in APB 25. FAS 123 requires that companies electing to
continue using the intrinsic value method must make pro forma disclosures of
net income and earnings per share as if the fair-value-based method of
accounting had been applied.
Effective December 31, 1996, the Company adopted FAS 123 for financial
statement disclosure purposes only and accordingly, the adoption had no impact
on the Company's results of operations or financial position for the year then
ended.
m. Reclassifications
Certain items in prior period financial statements have been reclassified to
conform with current year presentation.
3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Summarized financial information related to the Company's two joint ventures
accounted for by the equity method are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Assets:
Cash...................................................... $ 545 $ 1,583
Real estate in process of development and completed model
homes.................................................... 9,809 12,692
Other assets.............................................. 3,355 401
------- -------
$13,709 $14,676
======= =======
Liabilities and Equity:
Accounts payable and accrued expenses..................... $ 3,409 $ 941
Construction loans payable................................ 7,153 --
Equity.................................................... 3,147 13,735
------- -------
$13,709 $14,676
======= =======
</TABLE>
The Company's share of equity shown above is $843,000 and $4.6 million at
December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues............................................ $32,168 $46,166 $30,558
Cost of revenues.................................... 23,817 32,881 22,608
------- ------- -------
Net earnings of joint ventures.................... $ 8,351 $13,285 $ 7,950
======= ======= =======
</TABLE>
50
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Generally, the Company's share of earnings in the two joint ventures
detailed above is 50 percent.
Additionally, the Company is party to a joint venture whose sole purpose is
to develop finished lots whereby the Company will purchase the lots from the
joint venture to construct homes thereon. The Company does not anticipate
recording any income or loss from this joint venture and accordingly, the
tables above do not reflect the results of operations or financial condition
of this particular joint venture.
4. UNSECURED NOTES PAYABLE AND TRUST DEED NOTES PAYABLE
a. Notes Payable to Banks
In December 1996, the Company completed a syndication of its principal
revolving credit facility whereby the total unsecured commitment was increased
to $200 million and additional lenders were added to the facility. In
connection with the syndication the Company combined its separate bank
revolver and term loan facilities into a single larger facility. The facility
has a current maturity date of July 31, 1999. The facility includes covenants
which require, among other things, the maintenance of certain amounts of
tangible stockholders' equity, as defined, and the maintenance of debt-to-
equity ratios, as defined. The facility also contains provisions which may, in
certain circumstances, limit the amount the Company may borrow under the
credit facility. At December 31, 1996, the Company had borrowings of $57.3
million outstanding under this revolving credit arrangement and had
approximately $140 million of additional borrowing capacity available under
the provisions of the agreement. Interest rates charged under this facility
primarily include LIBOR and prime rate pricing options. In addition to fees
charged on the commitment and unused portion of the facility, this line of
credit facility also requires the Company to maintain a compensating balance
of one percent of a portion of the commitment amount or pay certain fees in
lieu of the compensating balance.
In conjunction with the syndication discussed above, the Company repaid in
full the principal balances on two separate bank term loans in the fourth
quarter of 1996.
As of December 31, 1996, and throughout the year, the Company was in
compliance with the covenants of its lending agreements.
b. Trust Deed Notes Payable
At December 31, 1996 and 1995, trust deed notes payable primarily consist of
trust deeds on land purchases.
c. Borrowings and Maturities
The following summarizes the borrowings during the three years ended
December 31, 1996 for the unsecured notes payable and trust deed notes
payable:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Maximum borrowings outstanding during year at
month end......................................... $91,299 $101,947 $137,730
Average outstanding balance during the year....... $78,552 $ 86,377 $119,988
Weighted average interest rate for the year....... 6.8% 7.5% 6.6%
Weighted average interest rate on borrowings
outstanding at year end........................... 7.1% 6.8% 7.7%
</TABLE>
51
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of the trust deed notes payable and the 10 1/2% Senior Notes (see
Note 5 below) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1997............................................................ $ 24,467
1998............................................................ 20,000
1999............................................................ 20,000
2000............................................................ 40,000
--------
$104,467
========
</TABLE>
5. 10 1/2 PERCENT SENIOR NOTES DUE 2000
In 1993, the Company issued $100 million principal amount of its 10-1/2
Percent Senior Notes due March 1, 2000 (the "Notes"). Interest is due and
payable on March 1 and September 1 of each year. The Notes are not redeemable
at the option of the Company prior to maturity. The Company is required to
make annual mandatory sinking fund payments sufficient to retire 20 percent of
the original aggregate principal amount of the Notes ($20 million per year)
commencing on March 1, 1997, at a redemption price of 100 percent of the
principal amount, with the balance of the Notes ($40 million) retired on March
1, 2000.
The Notes are senior unsecured obligations of the Company. The Company will
be obligated to make an offer to purchase a portion of the Notes in the event
of the Company's failure to maintain a minimum consolidated net worth, as
defined, and under certain other circumstances. In addition, the Notes contain
other restrictive covenants which, among other things, impose certain
limitations on the ability of the Company to (i) incur additional
indebtedness, (ii) create liens, (iii) make restricted payments, as defined,
and (iv) sell assets. As of December 31, 1996, the Company was in compliance
with the covenants.
6. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate:
Cash and Equivalents--The carrying amount is a reasonable estimate of
fair value. These assets primarily consist of short term investments and
demand deposits.
Investment Securities Held to Maturity--These investments consist
primarily of U.S. government and corporate debt securities which are
publicly traded. The fair value of these issues is based on their quoted
market prices at year end.
Revolving Credit Facilities--The carrying amounts of the revolving credit
obligations approximate market value because of the frequency of repricing
the borrowings (usually at 14 to 90 day maturities).
Term Loans Payable--For 1995, these notes payable were set to mature at
various dates, however, borrowings typically reprice every three months or
less. Consequently, the carrying value approximated market value for 1995.
These term loans were paid off during 1996, therefore, no balance is
reflected as of the year ended December 31, 1996.
Trust Deed Notes Payable--These notes are primarily for purchase money
deeds of trust on land acquired. These notes generally have maturities
ranging from one to two years. The rates of interest paid on these notes
approximate the current rates available for secured real estate financing
with similar terms and maturities.
52
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10 1/2 Percent Senior Notes Due 2000--This issue is publicly traded on
the New York Stock Exchange. Consequently, the fair value of this issue is
based on its quoted market price at year end.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------
1996 1995
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and equivalents........................ $ 5,975 $ 5,975 $ 895 $ 895
Investment securities held to maturity...... 5,329 5,379 5,410 5,457
Financial Liabilities:
Revolving credit facilities................. $57,300 $57,300 $ 7,500 $ 7,500
Term loans payable.......................... -- -- 41,000 41,000
Trust deed notes payable.................... 4,467 4,467 14,854 14,854
10 1/2 percent senior notes due 2000........ 100,000 103,375 100,000 103,125
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under noncancelable operating leases.
Generally, the Company is required to pay taxes and insurance and maintain the
assets under such operating leases. Future minimum rental payments on
operating leases having an initial term in excess of one year as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,452
1998.............................................................. 1,312
1999.............................................................. 887
2000.............................................................. 473
2001.............................................................. 354
Thereafter........................................................ 78
------
Subtotal........................................................ 4,556
Less-Sublease income.............................................. (481)
------
Net rental obligations.......................................... $4,075
======
</TABLE>
Rent expense under noncancelable operating leases for the three years ended
December 31, 1996 was approximately $1.4 million, $1.4 million and $1.3
million, respectively.
The Company and certain of its subsidiaries are parties to claims and
litigation proceedings arising in the normal course of business. Although the
legal responsibility and financial impact with respect to such claims and
litigation cannot presently be ascertained, the Company does not believe that
these matters will result in the payment by the Company of monetary damages,
net of any applicable insurance proceeds, that, in the aggregate, would be
material in relation to the consolidated financial position of the Company. It
is reasonably possible that the reserves provided for by the Company with
respect to such claims and litigation could change in the near term.
53
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The Company's provision (benefit) for income taxes includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ -------- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 194 $ 1,183 $ 4,819
State............................................ 77 590 1,664
------ -------- -------
271 1,773 6,483
------ -------- -------
Deferred:
Federal.......................................... 4,105 (15,210) (1,705)
State............................................ 1,229 (5,089) (675)
------ -------- -------
5,334 (20,299) (2,380)
------ -------- -------
Total Provision (Benefit).......................... $5,605 $(18,526) $ 4,103
====== ======== =======
</TABLE>
The deferred income tax provision resulted from the following temporary
differences in the recognition of revenues and expenses for income tax and
financial reporting purposes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ -------- -------
<S> <C> <C> <C>
Inventory adjustments............................ $4,792 $(18,966) $(2,024)
Financial accruals............................... (720) (638) (1,040)
Bad debt deduction--Savings...................... 981 (799) (739)
Deferred loan fees and other income--Savings..... 28 (220) 777
Decrease in operating loss carry forward......... -- -- 754
Other............................................ 253 324 (108)
------ -------- -------
$5,334 $(20,299) $(2,380)
====== ======== =======
</TABLE>
The components of the Company's deferred income tax asset (liability) as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Inventory adjustments...................................... $13,264 $16,307
Financial accruals......................................... 4,144 3,478
Bad debt deduction--Savings................................ 1,212 2,240
Deferred loan fees and other income--Savings............... (830) (811)
Investment securities market valuation adjustment.......... 28 57
Other...................................................... 244 159
------- -------
$18,062 $21,430
======= =======
</TABLE>
At December 31, 1996, the Company has recorded a consolidated deferred tax
asset of approximately $18.1 million reflecting the benefit created primarily
as a result of the $46.5 million noncash charge taken during 1995 related to
the impairment of long-lived assets. A significant portion of this asset's
realization is dependent upon the Company's ability to generate sufficient
taxable income in future years. Although realization is not assured,
management believes it is more likely than not that the net deferred tax asset
will be realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income are reduced or if tax rates are lowered.
54
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effective tax rate differs from the Federal statutory rate of 34 percent
due to the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- -------- ------
<S> <C> <C> <C>
Financial income (loss) before income taxes..... $13,998 $(45,889) $9,990
======= ======== ======
Provision (benefit) for income taxes at
statutory rate.................................. $ 4,759 $(15,602) $3,397
Increases (decreases) in tax resulting from:
State income taxes, net....................... 859 (2,947) 582
Other......................................... (13) 23 124
------- -------- ------
Provision (benefit) for income taxes............ $ 5,605 $(18,526) $4,103
======= ======== ======
Effective tax (benefit) rate.................... 40.0% (40.4)% 41.1%
======= ======== ======
</TABLE>
9. STOCK OPTION PLAN
In connection with the Merger, the Company adopted the 1991 Employee Stock
Incentive Plan (the "Plan") pursuant to which officers, directors and
employees of the Company are eligible to receive options to purchase common
stock of the Company. This Plan replaced the option plan used by the
Partnership. Under the Plan the maximum number of shares of Company stock thay
may be issued pursuant to awards granted is one million.
Options are typically granted to purchase shares at prices equal to the fair
market value of the shares at the date of grant. The options typically vest
over a one to five year period and are generally exercisable at various dates
over one to 10 year periods. When the options are exercised, the proceeds are
credited to equity along with the related income tax benefits, if any.
The following is a summary of the transactions relating to the Plan for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options, beginning of
year.................... 721,590 $9.73 771,990 $9.80 835,250 $9.73
Granted................. 365,000 6.35 20,000 5.75 50,000 11.38
Exercised............... -- -- (9,000) 6.88 (16,010) 7.65
Canceled................ (158,000) 9.48 (61,400) 9.76 (97,250) 10.44
-------- ----- ------- ----- ------- -----
Outstanding, end of
year.................... 928,590 $6.30 721,590 $9.73 771,990 $9.80
======== ===== ======= ===== ======= =====
Options exercisable at
end of year............. 588,590 671,590 517,840
======== ======= =======
Options available for
future grant............ 7,775 214,775 173,375
======== ======= =======
</TABLE>
During the fourth quarter of 1996 the Company repriced 326,100 options which
were previously granted to nonexecutive employees. The new price represents
the fair market value of the shares at the date of repricing. Additionally,
the weighted average exercise price for all options outstanding as of December
31, 1996 reflects the repriced options at their new exercise price.
The following information is provided pursuant to the requirements of FAS
123.
55
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option granted during 1996 is estimated using the
Black--Scholes option-pricing model on the date of grant using the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Dividend yield............................................. 2.0% 2.1%
Expected volatility........................................ 46.30% 53.46%
Risk-free interest rate.................................... 6.12% 6.70%
Expected life.............................................. 5 years 5 years
</TABLE>
The 928,590 options outstanding as of December 31, 1996 have exercise prices
between $5.38 and $13.75, with a weighted average exercise price of $6.30 and
a weighted average remaining contractual life of 6.85 years. As of December
31, 1996, 588,590 of these options are exercisable with a weighted average
exercise price of $6.27.
During the years ended December 31, 1996 and 1995, no compensation expense
was recognized related to the stock options granted, however, had compensation
cost been determined consistent with FAS 123 for the Company's 1996 and 1995
grants for its stock-based compensation plan, the Company's net income (loss),
and net income (loss) per common and equivalent share for the years ended
December 31, 1996 and 1995 would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995
--------------------- ---------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income (loss).................. $8,393 $7,619 $(27,363) $(27,394)
====== ====== ======== ========
Net income (loss) per common share. $ .28 $ .25 $ (.90) $ (.90)
====== ====== ======== ========
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts.
10. STOCKHOLDER RIGHTS PLAN AND COMMON STOCK REPURCHASE PLAN
In connection with the Merger, the Company adopted a stockholder rights
agreement (the "Agreement"). Under the Agreement, one right will be granted
for each share of the Company's outstanding common stock. Each right entitles
the holder, in certain takeover situations, as defined, and after paying the
exercise price (currently $40), to purchase Company common stock having a
market value equal to two times the exercise price. Also, if the Company is
merged into another corporation, or if 50 percent or more of the Company's
assets are sold, the rightholders may be entitled, upon payment of the
exercise price, to buy common shares of the acquiring corporation at a 50
percent discount from the then current market value. In either situation,
these rights are not available to the acquiring party. However, these exercise
features will not be activated if the acquiring party makes an offer to
acquire all of the Company's outstanding shares at a price which is judged by
the Board of Directors to be fair to all Company stockholders. The rights may
be redeemed by the Company under certain circumstances at the rate of $.01 per
right. The rights will expire on December 31, 2001, unless earlier redeemed or
exchanged.
In July 1995, the Board of Directors of the Company authorized the
repurchase of up to $10 million of the Company's common stock. In January 1997
the Board increased the repurchase limit to $20 million. For the year ended
December 31, 1996, the Company repurchased 430,300 shares of its common stock
for an aggregate price of $2.3 million. In connection with the common stock
repurchase plan, the Company has repurchased an aggregate amount of
approximately $6.2 million through the year ended December 31, 1996.
56
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INDUSTRY SEGMENT INFORMATION
Included as an integral part of these Consolidated Financial Statements is
the Selected Financial Information and Selected Balance Sheet Information
tables on pages 21, 25 and 26 of this Form 10-K for the Company's significant
operating segments: residential housing and corporate, manufacturing and
savings and loan. Capital expenditures and depreciation and amortization
expenses during 1996, 1995 and 1994 were not material.
12. SAVINGS AND LOAN OPERATIONS
a. General
In 1987 the Company acquired the assets and assumed the liabilities of a
savings and loan institution in receivership from the Federal Savings and Loan
Insurance Corporation (the "FSLIC") and formed Standard Pacific Savings, F.A.
("Savings").
Savings operates one branch in Southern California. Its primary source of
revenue is interest income from its portfolio of mortgage loans and investment
securities. Savings also receives income for servicing loans for others.
b. Revenue Recognition
Interest income is recognized as earned. Amortization of discounts on loans
receivable and net deferred loan fees are recognized over the contractual
lives of the related individual loans using methods which approximate the
effective interest method and adjusted for actual prepayments. Interest is
accrued only so long as it is deemed collectible (generally not more than 90
days past due).
c. Mortgage Notes Receivable and Allowance for Loan Losses
Mortgage notes receivable are recorded at cost net of unamortized deferred
credits. Loans held for sale are carried at the lower of their cost or market
value. Savings provides for loan losses using the allowance method. The
allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on Savings' past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions. In providing such allowance,
consideration is given to all elements of net realizable value, including
costs of recovery, holding and disposition of the underlying collateral. While
management uses currently available information to evaluate the adequacy of
allowances, ultimate losses may vary from current estimates. Adjustments to
estimates are charged to earnings in the period in which they become known.
In May 1995, the Financial Accounting Standards Board issued Statement No.
122, "Accounting for Mortgage Servicing Rights" (FAS 122) which is effective
for years beginning after December 15, 1995. FAS No. 122 amended FAS No. 65,
"Accounting for Certain Mortgage Banking Activities". FAS 122 requires the
recognition of originated mortgage servicing rights, as well as purchased
mortgage servicing rights, as assets by allocating total costs incurred
between the loan and the servicing rights based on their relative fair values.
FAS 122 also requires that all capitalized mortgage servicing rights be
evaluated for impairment based on the excess of the carrying amount of such
rights over their fair value. As Savings' did not originate or acquire a
material amount of loans during 1996, FAS 122 did not have an impact on
results of operations for the year ending December 31, 1996. FAS 122 could
have an impact on future operations depending upon the amount of mortgage
servicing rights originated or acquired by Savings.
57
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Accounting Standards Board issued Statement No. 114, "Accounting
by Creditors for Impairment of a Loan" (FAS 114), and as amended by Statement
No. 118, require that impaired loans be measured based on the present value of
expected future cash flows, the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. A loan is
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement.
d. Investment Securities Available for Sale
Shown below are the amortized cost and market values of investment
securities classified as available-for-sale at December 31, 1996 and 1995 with
related maturity data:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Agency securities:
Maturing less than 1 year. $ 1,255 $ -- $ -- $ 1,255 $ -- $-- $ -- $ --
Maturing after 1 year but
within 5 years........... 12,078 3 11 12,070 7,781 1 -- 7,782
Maturing after 5 years but
within 10 years.......... 3,900 7 -- 3,907 -- -- -- --
Maturing after 10 years... 5,023 -- 4 5,019 -- -- -- --
------- ---- ---- ------- ------- --- ---- -------
22,256 10 15 22,251 7,781 1 -- 7,782
------- ---- ---- ------- ------- --- ---- -------
Mortgage-backed securities:
Maturing after 10 years... 20,211 146 207 20,150 20,990 -- 137 20,853
------- ---- ---- ------- ------- --- ---- -------
Total................... $42,467 $156 $222 $42,401 $28,771 $ 1 $137 $28,635
======= ==== ==== ======= ======= === ==== =======
</TABLE>
Shown below are the proceeds from sales of investment securities classified
as available-for-sale and the related gross gains and gross losses realized:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Proceeds from sales........................................ $28,494 $63,351
Gross gains realized....................................... 43 --
Gross losses realized...................................... (64) (1,841)
</TABLE>
e. Investment Securities Held to Maturity
During 1995, and resulting from regulatory agency clarification of the
ruling regarding the unrealized loss effects on regulatory capital, all of
Savings' investment securities classified as held to maturity were transferred
to available for sale. No investment securities were classified as held to
maturity as of December 31, 1996 or 1995.
f. Real Estate Acquired in Settlement of Loans
Real estate acquired is recorded at the lower of the recorded investment in
the loan satisfied or the fair value of the assets received, adjusted for
estimated holding and selling costs. Estimated losses are subsequently charged
off when the carrying value of the real estate acquired exceeds the fair
value.
58
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
g. Savings Accounts
Information on savings accounts as of December 31, 1996 and 1995, is
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
MATURITIES OF THE ACCOUNTS AVERAGE RATE AT
AS OF DECEMBER 31, DECEMBER 31,
--------------------------- ------------------
1996 1995 1996 1995
------------- ------------- -------- --------
<S> <C> <C> <C> <C>
No minimum term--checking.... $ 2,571 $ 4,515 2.10% 2.58%
No minimum term--savings..... 1,729 2,528 2.77 3.47
Certificates of Deposit:
Less than 6 months......... 77,917 89,181 5.82 6.26
6 months to 1 year......... 28,308 30,099 5.95 6.29
1 year to 3 years.......... 16,547 28,535 6.21 6.65
3 years to 5 years......... 5,433 2,684 6.66 6.94
5 years to 10 years........ 308 0 6.28 --
------------- ------------- -------- --------
Total.................... $ 132,813 $ 157,542 5.82% 6.20%
============= ============= ======== ========
</TABLE>
Included in certificates of deposit are jumbo certificates (certificates in
excess of $95,000) totaling $96.8 million and $97.9 million at December 31,
1996 and 1995, respectively. Brokered deposits in the above certificates of
deposit totaled $99,000 for both 1996 and 1995.
A summary of certificate accounts (including IRA/BRP certificate accounts)
by maturity as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
MATURITY AMOUNT
-------- --------
<S> <C>
1997............................................................... $106,320
1998............................................................... 14,658
1999............................................................... 1,794
2000............................................................... 2,215
2001............................................................... 3,526
--------
$128,513
========
</TABLE>
Interest expense related to savings accounts consisted of the following for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Passbook..................................................... $ 84 $ 47
Money Market and NOW Accounts................................ 68 199
Other Certificates........................................... 966 1,026
Jumbo Certificates........................................... 8,140 11,641
------ -------
$9,258 $12,913
====== =======
</TABLE>
h. Advances from Federal Home Loan Banks
During 1995, and as part of Savings' balance sheet restructure, Savings
prepaid $45 million of FHLB advances with a weighted average interest rate of
7.78 percent and a weighted average days to maturity of 693 days. In
connection with the prepayment, Savings incurred a prepayment fee of $1.2
million which was expensed in 1995. No prepayments of advances occurred in
1996.
59
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FHLB advances of $109.0 million and $150.0 million with interest rates
ranging from 4.87% to 6.88% and 4.32% to 6.88%, are secured by the investment
in stock of the Federal Home Loan Banks and certain mortgage loans aggregating
approximately $155.4 million and $222.0 million at December 31, 1996 and 1995,
respectively. The weighted average interest rate on these advances was 6.10%
and 6.07% at December 31, 1996 and 1995, respectively.
The maturities of FHLB advances at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
AMOUNT INTEREST RATE
-------- ----------------
<S> <C> <C>
1997............................................... $ 19,000 5.41%
1998............................................... 85,000 6.24
2001............................................... 5,000 6.32
-------- ----
$109,000 6.10%
======== ====
</TABLE>
i. Securities Sold Subject to Agreements to Repurchase
There were no securities sold under agreements to repurchase as of December
31, 1996. As of December 31, 1995, securities sold subject to agreements to
repurchase were collateralized by investment securities with an amortized cost
of $16.2 million and a market value $16.0 million. At December 31, 1995, these
borrowings had a weighted average maturity of 22 days and a weighted average
interest rate of 5.81 percent. The maximum amounts outstanding at any month-
end during each year were $18.1 million and $33.5 million during 1996 and
1995, respectively. The average amounts outstanding during 1996 and 1995 were
$7.0 million and $24.9 million, respectively. The weighted average interest
rates for the years 1996 and 1995 were 5.61 percent and 6.18 percent,
respectively. The securities underlying the agreements are held by the
securities dealers until the maturities of the agreements. Generally, the
dealers agree to resell the same securities back to Savings.
j. Income Taxes
Savings has executed a tax allocation agreement (the "Agreement") with the
Company. The Agreement states that Savings will file a consolidated federal
income tax return and a combined California franchise tax return with the
Company. The Agreement requires the parties to allocate their total tax
liability based on each parties separate return tax liability. Moreover, the
parties agree to reimburse any party which has tax losses or credits in an
amount equal to 100% of the tax benefits realized by the consolidated group.
Savings makes payments to the Company at the time that such tax amounts are
actually paid to the respective taxing authority by the Company. Any tax
related funds paid by Savings to the Company prior to the estimated tax due
dates or filing dates are to be held in trust.
60
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
k. Mortgage Notes Receivable and Accrued Interest
Mortgage notes receivable at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Real Estate:
Residential 1-4 units..................................... $191,408 $264,295
Residential 5 or more units............................... 5,790 4,235
Non-residential........................................... 2,448 2,279
-------- --------
Total Real Estate....................................... 199,646 270,809
Accrued interest and other................................. 1,640 1,932
Less:
Discount on acquired loans................................ 213 135
Deferred loan fees (costs)................................ (97) (222)
Allowance for loan losses................................. 1,899 3,496
Other deferrals........................................... 136 204
-------- --------
Total mortgage notes receivable, net....................... $199,135 $269,128
======== ========
Weighted Average Interest Rate............................. 7.33% 7.09%
======== ========
</TABLE>
Included in the above amounts are loans classified as held for sale of $4.4
million and $14.1 million, net of a market value allowance of $0 and $225,000,
at December 31, 1996 and 1995, respectively.
Savings had no loans to directors or officers as of December 31, 1996 or 1995.
Activity in the allowance for loan losses for the years ended December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Balance at beginning of year............................ $ 3,496 $ 1,906
Provision for losses.................................... 465 3,354
Net charge-offs......................................... (2,062) (1,764)
------- -------
Balance at end of year.................................. $ 1,899 $ 3,496
======= =======
</TABLE>
For the years ended December 31, 1996 and 1995, interest income of
approximately $275,000 and $395,000, respectively, (all of which has been
fully reserved) related to non-accrual loans would have been recorded had the
loans been performing in accordance with their original terms. The total
balance of non-accrual loans at December 31, 1996 and 1995 was $691,000 and
$3.2 million, respectively.
The amount of impaired loans as defined by FAS 114 was $3.2 million and $2.6
million which required loss allowances of $229,000 and $353,000 as of December
31, 1996 and 1995, respectively. The amount of impaired loans for which no
loss allowance was required was $2.2 million and $1.6 million as of December
31, 1996 and 1995, respectively. The average balance of impaired loans for the
years ending December 31, 1996 and 1995 was $4.1 million and $5.2 million,
respectively. Interest income recognized for those loans was $151,000 and
$253,000, for the years ending December 31, 1996 and 1995, respectively.
Savings was servicing loans for others with principal amounts of
approximately $40.5 million and $43.1 million, of which approximately $2.4
million and $2.8 million was serviced for the Company, at December 31, 1996
and 1995, respectively.
61
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Substantially all of Savings' loans are on residential properties located in
California. This does not expose Savings to undue credit risk; however,
economic conditions and real estate markets in California may affect Savings'
loan portfolio and underlying collateral values.
l. Regulatory Net Worth
As of December 31, 1996, Savings exceeded each of the minimum capital
requirements as follows:
<TABLE>
<CAPTION>
TANGIBLE RISK-WEIGHTED
CAPITAL CORE CAPITAL CAPITAL
------------- ------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Minimum Regulatory Requirements...... $ 3,980 1.5% $10,611 4.0% $ 9,952 8.0%
Actual Capital Levels................ $21,042 7.9% $21,042 7.9% $22,684 18.2%
</TABLE>
Tangible and core capital are virtually the same as Savings' equity with the
exception of the investment securities valuation adjustment. The risk-weighted
capital amount is higher due to the inclusion of general valuation allowances
for purposes of this capital calculation.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) included dividend restrictions for savings associations. The dividend
restrictions require savings associations to give the Office of Thrift
Supervision (OTS) thirty days written notice prior to the declaration of a
dividend. In addition, savings associations are required to meet certain
regulatory capital requirements and net income requirements prior to the
declaration of a dividend.
m. Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate.
Cash and Equivalents--The carrying amount is a reasonable estimate of fair
value. These assets primarily consist of amounts due from banks, federal funds
sold, overnight deposits and certificates of deposit.
Investment Securities Available for Sale--Investment securities available
for sale are carried at their market value with changes in the securities'
market values recorded as a component of stockholders' equity, net of the
income tax effect. Investment securities available for sale consist of U.S.
Treasury, U.S. Federal Agency, corporate debt securities, mortgage-backed
securities and other securities. Fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Mortgage Notes Receivable--The fair values for mortgage notes receivable are
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality.
Federal Home Loan Bank Stock--The carrying amount of Federal Home Loan Bank
stock is a reasonable estimate of fair value since shares are redeemable at
par value.
Savings Accounts--The fair values disclosed for savings accounts (e.g.,
interest and non-interest checking, passbook savings and certain types of
money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts and certificates
of deposit approximate their fair values at the reporting date. Fair values
62
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
Advances from Federal Home Loan Bank--Federal Home Loan Bank advances are
composed of both variable and fixed rate borrowings. For variable rate
borrowings the carrying amounts approximate their fair value. The fair value
of fixed rate borrowings are estimated using a discounted cash flow analysis,
based upon the current incremental borrowing rates.
Securities Sold Under Agreements to Repurchase--The carrying amounts of
securities sold under agreements to repurchase approximate their fair values.
Interest Rate Swap Agreements--The fair value of the interest rate swaps
(used for hedging purposes) is the estimated amount that the Company would
receive or pay to terminate the swap agreements at the reporting date, taking
into account current interest rates and the current credit worthiness of the
swap counterparty.
Interest Rate Cap Agreements--The fair value of the interest rate caps (also
used for hedging purposes) is based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
prices of comparable instruments.
The estimated fair values of Savings' financial instruments are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and equivalents................... $ 10,259 $ 10,259 $ 36,702 $ 36,702
Investment securities available for
sale.................................. 42,401 42,401 28,635 28,635
Mortgage notes receivable, net......... 197,552 199,518 267,239 268,966
Federal Home Loan Bank stock........... 7,958 7,958 7,500 7,500
Financial Liabilities:
Savings Accounts:
Non-interest bearing checking........ 964 964 1,024 1,024
Interest bearing checking............ 627 627 769 769
Passbook............................. 508 508 908 908
Money market accounts................ 2,201 2,201 4,342 4,342
Certificates of deposit.............. 128,513 128,771 150,499 151,386
-------- -------- -------- --------
Total Savings Accounts............. 132,813 133,071 157,542 158,429
-------- -------- -------- --------
Advances from Federal Home Loan Bank:
Variable-rate........................ 13,000 13,000 -- --
Fixed-rate........................... 96,000 96,351 150,000 151,542
Securities sold under agreements to
repurchase............................ -- -- 15,016 15,016
Other Financial Instruments:
Interest rate swaps in a net payable
position.............................. -- (1,874) -- (3,490)
Interest rate caps..................... 138 -- 64 --
</TABLE>
63
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
n. Interest Rate Swaps and Caps
Savings has entered into interest rate exchange agreements ("Swaps") as a
means to manage interest rate risk. Swaps generally involve the exchange of
fixed and floating rate interest payment obligations without the exchange of
the underlying notional principal amounts. Swaps contain the risk of default
by the counterparties; however, the amounts subject to credit risk are much
smaller than the notional principal amounts used to express these
transactions. All of the Swaps Savings has entered into are designated as
hedging certain assets. In October 1995, Savings restructured the terms of its
remaining interest rate swap with a $50 million notional amount by buying down
the fixed interest rate it pays of 8.78 percent. The revised terms reflect a
fixed rate of 6.78 percent to October 1996, 7.78 percent from October 1996 to
October 1997 and 8.78 percent to October 1998. The buydown fee of $1.4 million
will be amortized over the remaining term of the swap agreement.
The interest differential on the Swap to be paid or received is accrued and
recognized over the life of the agreement as an adjustment to interest expense
on savings accounts. The net spread (expense) on the Swap was approximately
$(916,000) in 1996 and $(1.4) million in 1995. Savings has pledged mortgage-
backed securities as collateral on the Swap agreement. The pledged securities
had an amortized cost of $3.3 million and a market value of $3.3 million at
December 31, 1996.
At December 31, 1996, Savings was a participant in interest rate cap
programs ("Caps") as another means to manage interest rate risk. The aggregate
notional principal amount is $100 million with a remaining average term of 19
months for both caps, which provides for payments of interest to Savings if
the indices upon which the Caps are based exceed a weighted average rate of
8.00%. Amortization of the fees Savings was required to pay in order to
participate in the Caps was $106,000 and $171,000 for the years ended December
31, 1996 and 1995, respectively, and is included in interest expense in the
accompanying Consolidated Statement of Operations. The remaining unamortized
amount of such fees was $138,000 at December 31, 1996. During 1995, Savings
received payments of $87,000 as a reduction to interest expense under the
Caps. Savings had no risk of loss due to caps as of December 31, 1996.
o. Regulatory Matters
In October 1995, and in response to the Company's April 1990 written request
for interpretation, Savings received the OTS' response regarding the
applicability of sections 23A and 23B of the Federal Reserve Act to its
savings operation. The OTS concluded that in its opinion the loans made by
Savings to the Company's unaffiliated homebuyers are to be considered
affiliated transactions. Under this interpretation of Sections 23A and 23B,
Savings is limited to holding such loans in its portfolio to an amount not to
exceed 10 percent of its capital. At December 31, 1996 Savings had
approximately $4.4 million of these loans in its portfolio. The OTS has given
Savings until September 1997 to meet the 10 percent of capital limitation. All
of the loans made to the Company home buyers have been classified as held for
sale and carried at the lower of cost or market value. Since June 1994 Savings
has not originated loans on behalf of the Company's homebuyers.
Congress passed legislation to recapitalize the Federal Deposit Insurance
Corporation's (FDIC) Savings Association Insurance Fund (SAIF). The
legislation required all SAIF insured institutions to pay a one time special
assessment in 1996 of .66 percent of their outstanding deposits as of March
31, 1995. The special assessment was approximately $1.3 million which was
charged to expense in September 1996.
p. Commitments and Contingencies
Savings leases office space for its operations, as well as some office
equipment, under operating lease agreements. Net rent expense for
noncancelable operating leases and sub-leases for the three years in the
period
64
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ended December 31, 1996 were approximately $260,000, $357,000 and $375,000,
respectively. As of December 31, 1996 the future lease rentals payable under
noncancelable operating commitments for premises and equipment are as follows:
<TABLE>
<S> <C>
1997................................................................. $148
1998................................................................. 148
1999................................................................. 148
2000................................................................. 148
2001................................................................. 148
Thereafter........................................................... 235
----
$975
====
</TABLE>
13. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL (1)
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1996
Sales and revenues.............. $70,893 $112,223 $114,743 $141,387 $439,246
Income before taxes............. 957 3,705 3,342 5,994 13,998
Net income...................... 573 2,211 2,025 3,584 8,393
======= ======== ======== ======== ========
Net income per share............ $ .02 $ .07 $ .07 $ .12 $ .28
======= ======== ======== ======== ========
1995:
Sales and revenues.............. $77,333 $ 89,853 $109,585 $110,474 $387,245
Income (loss) before taxes...... 1,883 2,060 (868) (48,964) (45,889)
Net income (loss)............... 1,101 1,212 (476) (29,200) (27,363)
======= ======== ======== ======== ========
Net income (loss) per share..... $ .04 $ .04 $ (.02) $ (.97) $ (.90)
======= ======== ======== ======== ========
</TABLE>
- - --------
(1) Some amounts do not add across due to rounding differences in the quarterly
amounts.
65
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K is set forth in the
Company's 1997 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1996. The Company's 1997 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," are incorporated herein by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth in the
Company's 1997 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1996. The Company's 1997 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," are incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth in the
Company's 1997 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1996. The Company's 1997 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," are incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
66
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<S> <C>
(a) (1) Financial Statements, included in Part II of this report:....
Report of Independent Public Accountants......................... 40
Consolidated Statements of Operations for each of the three years
in the period ended
December 31, 1996............................................... 41
Consolidated Balance Sheets at December 31, 1996 and 1995........ 42
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1996............... 44
Consolidated Statements of Cash Flows for each of the three years
in the period ended
December 31, 1996............................................... 45
Notes to Consolidated Financial Statements....................... 47
(2) Financial Statement Schedules:
Financial Statement Schedules are omitted since the required in-
formation is not present or is not present in the amounts suffi-
cient to require submission of the schedule, or because the in-
formation required is included in the consolidated financial
statements, including the notes thereto.
(3) Index to Exhibits
See item (a) (3) below.
</TABLE>
(b)Reports on Form 8-K. No Current Reports on Form 8-K were filed during the
last quarter of the period covered by this Annual Report on Form 10-K.
(c)INDEX TO EXHIBITS. See Item 14(a)(3) below.
(d)Financial Statements required by Regulation S-X excluded from the annual
report to shareholders by Rule 14(a)-3(b)(1). Not applicable.
67
<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, IN THE CITY OF
COSTA MESA, CALIFORNIA, ON THE 14TH DAY OF MARCH 1997.
STANDARD PACIFIC CORP.
(Registrant)
By: /s/ Arthur E. Svendsen
__________________________________
Arthur E. Svendsen
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Arthur E. Svendsen Chairman of the Board, Chief March 14, 1997
____________________________________ Executive Officer and
(Arthur E. Svendsen) Director
/s/ Stephen J. Scarborough President and Director March 14, 1997
____________________________________
(Stephen J. Scarborough)
/s/ Andrew H. Parnes Vice President of Finance March 14, 1997
____________________________________ and Treasurer and Principal
(Andrew H. Parnes) Financial and Accounting
Officer
/s/ Robert J. St. Lawrence Director March 14, 1997
____________________________________
(Robert J. St. Lawrence)
/s/ William H. Langenberg Director March 14, 1997
____________________________________
(William H. Langenberg)
/s/ James L. Doti Director March 14, 1997
____________________________________
(James L. Doti)
/s/ Keith D. Koeller Director March 14, 1997
____________________________________
(Keith D. Koeller)
/s/ Donald H. Spengler Director March 14, 1997
____________________________________
(Donald H. Spengler)
/s/ Ronald R. Foell Director March 14, 1997
____________________________________
(Ronald R. Foell)
</TABLE>
68
<PAGE>
INDEX TO EXHIBITS
(a)(3)
*2.1 Agreement and Plan of Merger, dated September 30, 1991 between
Standard Pacific, L.P. and Standard Pacific Corp. incorporated by
reference to Exhibit 2.1 of the Registrant's Registration Statement on
Form S-4 (file no. 33-42293).
*3.1 Certificate of Incorporation of the Registrant incorporated by
reference to Exhibit 3.1 of the Registrant's Registration Statement on
Form S-4 (file no. 33-42293).
*3.2 Certificate of Correction of Certificate of Incorporation of the
Registrant incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form 8-B filed with the
Securities and Exchange Commission on December 17, 1991.
*3.3 Form of Certificate of Amendment to Certificate of Incorporation of
the Registrant incorporated by reference to Exhibit 3.3 of the
Registrant's Registration Statement on Form 8-B filed with the
Securities and Exchange Commission on December 17, 1991.
*3.4 Form of Certificate of Merger of the Registrant incorporated by
reference to Exhibit 3.4 of the Registrant's Registration Statement on
Form 8-B filed with the Securities and Exchange Commission on December
17, 1991.
*3.5 Bylaws of the Registrant incorporated by reference to Exhibit 3.2 of
the Registrant's Registration Statement on Form S-4 (file no. 33-
42293).
*4.1 Rights Agreement, dated as of December 31, 1991, between the
Registrant and Manufacturers Hanover Trust Company of California, as
Rights Agent, incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-4 (file no. 33-42293).
*4.2 Standard Pacific Corp. Officers' Certificate dated March 5, 1993 with
respect to the Company's 10 1/2% Senior Notes due 2000, incorporated
by reference to Exhibit 4 of the Company's Current Report on Form 8-K
dated March 5, 1993.
*4.3 Indenture dated as of April 1, 1992 by and between the Company and
United States Trust Company of New York, Trustee, with respect to the
Company's 10 1/2% Senior Notes due 2000, incorporated by reference to
Exhibit 4 to the Company's Current Report on Form 8-K dated February
24, 1993.
*10.1 Acquisition Agreement dated March 6, 1987 between the Federal Savings
and Loan Insurance Corporation and Standard Pacific Savings, F.A.
incorporated by reference to Exhibit C of the Company's Current Report
on Form 8-K dated March 6, 1987.
*10.2 Assistance Agreement dated March 6, 1987 among the Federal Savings
and Loan Insurance Corporation, Standard Pacific Savings, F.A. and
Standard Pacific, L.P., incorporated by reference to Exhibit D of the
Company's Current Report on Form 8-K dated March 6, 1987.
*10.3 $35 million Term Loan Agreement dated as of December 29, 1994,
between the Company and Bank of America, incorporated by reference to
Exhibit 10.12 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
*10.4 First Amendment to $35 million Term Loan Agreement dated as of
February 28, 1995, between the Company and Bank of America,
incorporated by reference to Exhibit 10.14 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
69
<PAGE>
*10.5 Fourth Amended and Restated Revolving Credit Agreement dated as of
March 15, 1996, between the Company, Bank of America and NBD Bank.
*10.6 Second Amendment to $35 million Term Loan Agreement dated as of March
15, 1996, between the Company and Bank of America.
10.7 Fifth Amended and Restated Revolving Credit Agreement dated as of
December 27, 1996, between the Company, Bank of America and several
financial institutions.
11.0 Statement of computation of per share earnings.
22.0 Subsidiaries of the Company.
24.0 Consent of Arthur Andersen LLP, Independent Public Accountants.
27.0 Financial Data Schedule.
*28.1 Registrant's 1991 Employee Stock Incentive Plan, incorporated by
reference to Annex B of the Registrant's prospectus dated October 11,
1991, filed with the Securities and Exchange Commission pursuant to
Rule 424(b).
*28.2 Form of Stock Option Agreement to be used in connection with the
Registrant's 1991 Employee Stock Incentive Plan, incorporated by
reference to Exhibit 28.2 of the Registrant's Registration Statement
on Form S-8 filed on January 3, 1992.
- - --------
(*) Previously filed.
70
<PAGE>
EXHIBIT 10.7
$200,000,000.00
FIFTH
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
Dated as of December 27, 1996
among
STANDARD PACIFIC CORP.
as the Company,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
and
SEVERAL FINANCIAL INSTITUTIONS FROM TIME TO TIME,
as the Banks,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as the Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. RECITALS........................................................................................ 1
II. AGREEMENT...................................................................................... 3
ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS........................................................ 3
1.1 Defined Terms..................................................................... 3
1.2 Use of Defined Terms.............................................................. 19
1.3 Accounting Terms.................................................................. 19
1.4 Exhibits.......................................................................... 19
ARTICLE 2: RECITALS................................................................................ 19
ARTICLE 3: BORROWING PROCEDURES AND LETTER OF CREDIT SUBLIMIT...................................... 20
3.1 Disbursement of Loan Proceeds..................................................... 20
3.2 Reference Rate Borrowings......................................................... 23
3.3 IBOR Borrowing.................................................................... 23
3.4 Redesignation of Borrowings....................................................... 24
3.5 Calculation of Borrowing Base..................................................... 25
3.6 Borrowing Base.................................................................... 28
3.7 Payments by the Banks to the Agent................................................ 28
3.8 Sharing of Payments, Etc.......................................................... 28
3.9 Letter of Credit Sublimit......................................................... 29
3.9.1 Amount and Terms of the Credit............................................ 29
3.9.2 Standby Letters of Credit................................................. 29
3.9.3 Request for Credit........................................................ 31
3.9.4 Issuance Fees............................................................. 31
3.9.5 Conditions Precedent to Issuance of Letters of Credit..................... 31
3.9.6 Subsidiary Letters of Credit.............................................. 32
3.10 Term Loan Conversion Option....................................................... 33
ARTICLE 4: PAYMENTS AND FEES....................................................................... 35
4.1 Principal and Interest............................................................ 35
4.2 Unused Fee........................................................................ 38
4.3 Commitment Fee.................................................................... 38
4.4 Late Payments..................................................................... 38
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.5 Taxes............................................................................. 39
4.6 Illegality........................................................................ 39
4.7 Increased Costs and Reduction of Return........................................... 40
4.8 Funding Losses.................................................................... 40
4.9 Inability to Determine Rates...................................................... 41
4.10 Reserves on IBOR Rate Loans....................................................... 41
4.11 Certificates of Banks............................................................. 42
4.12 Substitution of Banks............................................................. 42
4.13 Survival.......................................................................... 42
4.14 Manner and Treatment of Payments.................................................. 42
4.15 Change in Capital Requirements; Additional Costs.................................. 43
4.16 Mandatory Prepayment.............................................................. 43
4.17 Agency Fee And Other Consideration Payable To Agent............................... 43
4.18 Maturity Date Extension Option.................................................... 44
ARTICLE 5: SECURITY................................................................................ 45
5.1 Unsecured Credit.................................................................. 45
ARTICLE 6: CONDITIONS.............................................................................. 45
6.1 Conditions to Disbursement of First Borrowings.................................... 45
6.2 Conditions for Subsequent Borrowings or for a Redesignation of Borrowings......... 46
6.3 Any Borrowing..................................................................... 46
ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................... 46
7.1 Incorporation, Qualification, Powers and Capital Stock............................ 46
7.2 Execution, Delivery and Performance of Loan Documents............................. 47
7.3 Compliance with Laws and Other Requirements....................................... 48
7.4 Subsidiaries...................................................................... 48
7.5 Affiliated Partnerships........................................................... 49
7.6 Financial Statements of the Company and the Subsidiaries.......................... 49
7.7 No Material Adverse Change........................................................ 50
7.8 Tax Liability..................................................................... 50
7.9 Litigation........................................................................ 50
7.10 Pension Plan...................................................................... 50
7.11 Regulations U and X; Investment Company Act....................................... 50
7.12 No Default........................................................................ 51
7.13 Borrowing Base.................................................................... 51
7.14 Borrowing Base Components......................................................... 51
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 8: COVENANTS OF THE COMPANY................................................................ 51
8.1 Consolidated Tangible Net Worth................................................... 51
8.2 Leverage Covenants................................................................ 52
8.3 Payment of Taxes and Other Potential Liens........................................ 52
8.4 Preservation of Existence......................................................... 52
8.5 Maintenance of Properties......................................................... 53
8.6 Maintenance of Insurance.......................................................... 53
8.7 Mergers........................................................................... 53
8.8 Books and Records................................................................. 53
8.9 Inspection Rights................................................................. 54
8.10 Reporting Requirements............................................................ 54
8.11 Liens............................................................................. 57
8.12 Prepayment of Indebtedness........................................................ 58
8.13 Bank Approval of Joint Ventures................................................... 58
8.14 Compliance with Laws and Other Requirements....................................... 58
8.15 Change in Nature of Business...................................................... 59
8.16 Pension Plan...................................................................... 59
8.17 Dividends and Subordinated Debt................................................... 59
8.18 Disposition of Properties......................................................... 60
8.19 Limitation on New Operating Subsidiaries or Affiliated Partnerships.............. 60
8.20 Operating Subsidiaries of Panel Concepts, Inc..................................... 60
8.21 Maintenance of General Liability, Workers Compensation and Subsidence Insurance... 60
8.22 Transfers to Saddleback Inns of the Americas...................................... 62
8.23 Management........................................................................ 62
8.24 Investments in Standard Pacific Savings........................................... 62
8.25 Total Borrowing Base Home Building Indebtedness Not to Exceed Borrowing Base...... 63
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT............................................. 63
9.1 Events of Default................................................................. 63
9.2 Remedies Upon Event of Default.................................................... 65
9.3 Notice of Default................................................................. 66
ARTICLE 10: THE AGENT............................................................................... 67
10.1 Appointment and Authorization..................................................... 67
10.2 Delegation of Duties.............................................................. 67
10.3 Liability of Agent................................................................ 67
10.4 Reliance by Agent................................................................. 68
10.5 Notice of Default................................................................. 68
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.6 Credit Decision................................................................... 69
10.7 Indemnification................................................................... 69
10.8 Agent in Individual Capacity...................................................... 70
10.9 Successor Agent................................................................... 70
10.10 Withholding Tax................................................................... 70
10.11 Collateral Matters................................................................ 72
10.12 Performance by the Agent.......................................................... 73
10.13 Actions........................................................................... 73
10.14 Co-Agent.......................................................................... 73
ARTICLE 11: MISCELLANEOUS.......................................................................... 73
11.1 Amendments and Waivers............................................................ 73
11.2 Costs, Expenses and Taxes......................................................... 75
11.3 No Waiver; Cumulative Remedies.................................................... 75
11.4 Payments Set Aside................................................................ 75
11.5 Successors and Assigns............................................................ 76
11.6 Assignments, Participations, etc.................................................. 76
11.7 Set-off........................................................................... 79
11.8 Automatic Debits.................................................................. 79
11.9 Notification of Addresses, Lending Offices, Etc................................... 79
11.10 Survival of Representations and Warranties........................................ 80
11.11 Notices........................................................................... 80
11.12 Indemnity by the Company.......................................................... 80
11.13 Integration and Severability...................................................... 80
11.14 Counterparts...................................................................... 81
11.15 No Third Parties Benefited........................................................ 81
11.16 Section Headings.................................................................. 81
11.17 Further Acts by the Company....................................................... 81
11.18 Time of the Essence............................................................... 81
11.19 Governing Law..................................................................... 81
11.20 Reference and Arbitration......................................................... 81
11.21 Effectiveness of this Agreement................................................... 82
</TABLE>
LIST OF EXHIBITS
----------------
Exhibit "A-1" - Revolving Note
Exhibit "A-2" - Term Note
Exhibit "B" - Borrowing Base Certificate
Exhibit "C-1" - Request for Borrowing
Exhibit "C-2" - Request for Letter of Credit
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<PAGE>
Exhibit "D" - Request for Redesignation of Borrowing
Exhibit "E" - Continuing Guaranty (Standard Pacific of Texas, Inc.)
Exhibit "F" - Subsidiaries
Exhibit "G" - Form of Legal Opinion
Exhibit "H" - Form of Assignment and Acceptance Agreement
Exhibit "I" - Form of Letter re Financial Statements
Exhibit "J" - Continuing Guaranty (Standard Pacific Corp.)
-v-
<PAGE>
FIFTH AMENDED AND RESTATED
--------------------------
REVOLVING CREDIT AGREEMENT
--------------------------
This Fifth Amended and Restated Revolving Credit Agreement
("Agreement") is entered into as of December 27, 1996, by and among STANDARD
PACIFIC CORP., a Delaware corporation (the "Company"), the several financial
institutions from time to time party to this Agreement (collectively, the
"Banks" and individually, a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking association, as agent for the Banks
("BofA" and the "Agent"), and is made with reference to the facts set forth
below.
I. RECITALS
--------
1. On or about July 8, 1986, Standard-Pacific Corp., a Delaware
corporation ("SP Corp."), and Security Pacific National Bank, a national banking
association ("Security Pacific"), entered into that certain Revolving Credit
Agreement dated as of July 8, 1986, and the other "Loan Documents" described
therein (collectively, the "Original Loan Documents"). In December, 1986, SP
Corp. was converted from a corporation to a limited partnership under the laws
of the State of Delaware, known as Standard Pacific, L.P. ("Predecessor"). At
such time, substan tially all of the assets and liabilities of SP Corp., and
certain of its subsidiaries, were transferred to Predecessor. On or about March
13, 1987, Security Pacific and Predecessor entered into that certain Amended and
Restated Revolving Credit Agreement dated as of March 13, 1987 (the "First
Amended Credit Agreement"), and the other "Loan Documents" described therein
(the "First Amended Revolving Loan Documents"), in order to revise the Original
Loan Documents in light of the change in the nature of the borrowing entity.
The First Amended Credit Agreement and the First Amended Revolving Loan
Documents were subsequently modified by amendments and letter agreements.
2. On or about December 31, 1991, Security Pacific and the Company
(which succeeded to the assets and liabilities of Predecessor) entered into that
certain Second Amended and Restated Revolving Credit Agreement dated as of
December 31, 1991 (the "Second Amended Credit Agreement"), and the other "Loan
Documents" described therein (the "Second Amended Revolving Loan Documents"),
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<PAGE>
in order to revise the First Amended Revolving Loan Documents in light of the
change in the nature of the borrowing entity. The Second Amended Credit
Agreement and the Second Amended Revolving Loan Documents have previously been
modified by that certain First Amendment to Second Amended and Restated
Revolving Credit Documents dated January 20, 1992, by and between Security
Pacific and the Company, and that certain Amendment to Loan Documents dated as
of June 22, 1992, by and between the Company and Security Pacific.
3. BofA merged with Security Pacific and thereby succeeded to all of
Security Pacific's right, title and interest in, under and to the Second Amended
Credit Agreement and the Second Amended Revolving Loan Documents.
4. The Second Amended Credit Agreement and the Second Amended
Revolving Loan Documents have previously been modified by (i) that certain
Second Amendment to Second Amended and Restated Revolving Credit Agreement dated
as of October 1, 1992, by and between the Company and BofA, (ii) that certain
Third Amendment to Second Amended and Restated Revolving Credit Agreement dated
as of March 17, 1993, by and between the Company and BofA, (iii) that certain
Fourth Amendment to Second Amended and Restated Revolving Credit Agreement dated
as of October 12, 1993, by and between the Company and BofA, and (iv) that
certain Fifth Amendment to Second Amended and Restated Revolving Credit
Agreement dated as of December 29, 1993, by and between the Company and BofA.
5. On or about February 28, 1995, BofA and the other "Banks" which
were a party thereto and the Company entered into that certain Third Amended and
Restated Revolving Credit Agreement dated as of February 28, 1995 (the "Third
Amended Credit Agreement"), and the other "Loan Documents" described therein
(the "Third Amended Revolving Loan Documents") in order to amend and restate the
Second Amended Credit Agreement and Second Amended Revolving Loan Documents in
light of certain changes and modifications to the terms thereof.
6. On or about December 31, 1992, the Company and BofA entered into
that certain Amended and Restated Line of Credit Agreement pursuant to which
BofA agreed, subject to the terms and conditions thereof, to provide the Company
a $2,000,000 letter of credit facility (such agreement, as subsequently amended
and modified to date, being referred to herein as the "Prior L/C Line
Agreement").
7. On or about March 15, 1996, the Company, BofA and NBD
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<PAGE>
BANK, a Michigan banking corporation ("NBD"), entered into that certain Fourth
Amended and Restated Revolving Credit Agreement dated as of March 15, 1996 (the
"Fourth Amended Credit Agreement") and the other "Loan Documents" described
therein (the "Fourth Amended Revolving Loan Documents") in order to amend and
restate the Third Amended Credit Agreement and the Third Amended Revolving Loan
Documents and incorporate the Prior L/C Line Agreement therein. NBD subsequently
assigned all their rights and obligations under the Loan Documents to First
National Bank of Chicago ("First Chicago"). First Chicago's interest under the
Fourth Amended Credit Agreement will be paid off with the first disbursement
under this Agreement; and it is contemplated by the parties that (at least
initially), as of the effective date of this Agreement, BofA will be the only
"Bank" that is a party to this Agreement. Other Banks may, and likely will, be
added to this Agreement after the effective date hereof, in accordance with the
provisions of this Agreement.
8. The Company and BofA desire to amend and restate the Fourth
Amended Credit Agreement and the Fourth Amended Revolving Loan Documents, as
amended, in order to make certain amendments thereto.
II. AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and among
the Company, the Banks and the Agent that the Fourth Amended Credit Agreement is
hereby amended and restated in its entirety so as to provide as follows:
ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS.
--------------------------------
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the meanings set forth respectively after each:
"Account" means the Company's general account no. 14263-50021
-------
maintained with BofA, and any future similar account with BofA.
"Affiliate" means any Person (1) which directly, or indirectly
---------
through one or more intermediaries, controls, or is controlled by, or is
under common control with, the Company or any Subsidiary, as the context
may require, or (2) which owns beneficially or of record 10% or more of the
voting
-3-
<PAGE>
stock of the Company. The term "control" means the possession, directly or
indirectly, of the power to cause the direction of the management and
policies of a Person, whether through the ownership of voting securities or
partnership interests, by contract, family relationship or otherwise.
"Affiliated Partnership" means any general or limited partnership
----------------------
or joint venture in which the Company, any Subsidiary, or any other
Affiliate is a partner or joint venturer.
"Agent" means BofA when acting in its capacity as the Agent under
-----
any of the Loan Documents, and any successor agent.
"Agent-Related Persons" means the Agent and any successor agent
---------------------
(pursuant to the terms of Section 10.9) together with their respective
------------
Affiliates and the directors, officers, agents, employees and attorneys-in-
fact of such Persons and Affiliates.
"Agreement" means this Fifth Amended and Restated Revolving
---------
Credit Agreement, either as originally executed or as it may from time to
time be supplemented, modified or amended.
"Applicable Maturity Date" means:
------------------------
(a) With respect to the Revolving Loans, the Revolving Loans
Maturity Date (other than with respect to a Revolving Note held by a
Bank which does not extend the maturity date of such Note pursuant to
Section 4.18, in which case the Applicable Maturity Date for such
Revolving Note held by such non-renewing Bank shall be the Non-
Renewing Bank Revolving Loan Maturity Date); and
(b) With respect to the Term Loan (and the Term Notes
evidencing such Term Loan), the Term Loan Maturity Date.
"Assignee" shall have the meaning set forth in Section 11.6.
-------- ------------
"Assignment and Acceptance" shall have the meaning set forth in
-------------------------
Section 11.6.
------------
"Attorney Costs" means and includes all reasonable fees and
--------------
disbursements of any law firm or other external counsel, the allocated cost
of
-4-
<PAGE>
internal legal services and all disbursement of internal legal counsel.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
-----------
Friday on which banks (including the Banks) are open for business in
California.
"Banks" means Bank of America National Trust and Savings
-----
Association, a national banking association, and the additional financial
institutions from time to time party to this Agreement, any of their
successors and assigns (including any Assignee), or any one or more of
them.
"Base Amount" shall have the meaning set forth in Section 8.1.
----------- -----------
"Borrowing" means each of the Loans to be made by the Banks to
---------
the Company as provided in Article 3.
"Borrowing Base" has the meaning set forth in Section 3.5(b).
-------------- --------------
"Borrowing Base Certificate" means a written calculation of the
--------------------------
Borrowing Base, substantially in the form of Exhibit "B" attached hereto
-----------
and made a part hereof, signed by a Responsible Official of the Company and
properly completed to provide all information required to be included
thereon.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"Closing Date" means the time and Banking Day on which the
------------
conditions precedent specified in Section 11.21 are satisfied or waived as
-------------
provided therein, or shall be as otherwise specified in Section 11.21.
-------------
"Co-Agent" means one of the Banks which is designated in writing
--------
by the Agent to serve as Co-Agent hereunder (subject to Section 10.14
hereof).
"Commitment" means, with respect to the Revolving Loans: [AS TO
----------
BOFA, A PERCENTAGE OBLIGATION OF 100% AND $200,000,000 IN THE
-5-
<PAGE>
AGGREGATE.] As Banks are added to this Agreement, or withdraw from this
Agreement, and assignments are made by the Banks in accordance with Section
-------
11.6 hereof, or if the Term Loan conversion option is exercised in
----
accordance with Section 3.10, the amount of each Bank's Commitment shall
change in accordance with that Bank's Pro Rata Share of the Total Aggregate
Commitments. The Assignment and Acceptances executed by the Banks, and the
records maintained by the Agent, shall be presumptive evidence of each
Bank's Commitment, as each such Bank's Commitment may change from time to
time in accordance with the terms of this Agreement.
"Company" means Standard Pacific Corp., a Delaware corporation,
-------
and its successors and assigns.
"Completed Unit" means a Unit as to which either (or both) of the
--------------
following has occurred: (a) a notice of completion has been filed or
recorded in the appropriate real estate records, or (b) all necessary
construction has been completed in order to obtain a certificate of
occupancy (whether or not such certificate of occupancy has actually been
obtained).
"Consolidated Debt" means, at any time of determination thereof,
-----------------
all indebtedness (including Subordinated Debt), liabilities (including
liabilities as a general partner) and other obligations (including
contingent debt obligations and obligations as a guarantor) of the Company
and its consolidated Subsidiaries, that, in conformity with generally
accepted accounting principles applied on a consistent basis, should be
included in determining total liabilities shown on the liability side of a
consolidated balance sheet of the Company and its consolidated
Subsidiaries.
"Consolidated Tangible Net Worth" means, as of any time of
-------------------------------
determination, the sum of the following with respect to the Company and the
consolidated Subsidiaries determined and consolidated in conformity with
generally accepted accounting principles applied on a consistent basis:
(a) the amount of stated capital (excluding the cost of
treasury shares), additional paid-in capital and retained earnings
(or, in the case of a deficit in additional paid-in capital or
retained earnings, minus the amount of the deficit), minus
----- -----
(b) the carrying value of intangible assets, such as
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<PAGE>
deferred costs associated with goodwill, patents, franchises,
organizational expenses and the like (but excluding receivables, pre-
---------
paid expenses, the capitalized value of leases and all costs that are
specifically identifiable or are identifiable on a rational and
consistent basis with the unexpired service value of tangible assets
and excluding the carrying value of intangible assets, such as
---------
deferred costs associated with goodwill, patents, franchises,
organizational expenses and the like recorded by Standard Pacific
Savings, Standard Pacific Financing, Inc., and Standard Pacific
Financing, L.P.).
"Designated IBOR Market" means BofA's Grand Cayman branch, Grand
----------------------
Cayman, British West Indies, or such other regular established market
outside the United States of America by and among banks for the
solicitation, offer and acceptance of dollar deposits in such banks as may
from time to time be designated by the Agent.
"Dollars" or "$" means United States dollars.
------- -
"Eligible Assignee" means (i) a commercial bank organized under
-----------------
the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000, (ii) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital
and surplus of at least $100,000,000, provided that such bank is acting
through a branch or agency located in the United States, and (iii) a Person
that is primarily engaged in the business of commercial banking and that is
(A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is
a Subsidiary, or (C) a Person of which a Bank is a Subsidiary.
"Entitled Land" means (a) land where all requisite zoning
-------------
requirements and land use requirements have been satisfied, and all
requisite approvals have been obtained from all applicable Governmental
Authorities (other than approvals which are simply ministerial and non-
discretionary in nature), in order to develop the land as a residential
housing project and construct Units thereon, and (b) as to land located in
California, land which satisfies the requirements of subparagraph (a)
immediately above, and which is subject to a currently effective vesting
---
tentative map (unless a county or city where the land is located does not
grant vesting tentative maps) which has
-7-
<PAGE>
received all necessary approvals by all applicable Governmental Agencies.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, and any regulations issued pursuant thereto, as now or from time to
time hereafter in effect.
"Escrow Proceeds Receivable" means funds due to the Company held
--------------------------
at an escrow company following the sale and conveyance of title of a Unit
to a buyer.
"Events of Default" has the meaning set forth for that term in
-----------------
Section 9.1.
-----------
"Extension Request" means a written request from the Company to
-----------------
extend the Term Loan Election Date pursuant to Section 3.10.5 or to extend
--------------
the Revolving Loans Maturity Date pursuant to Section 4.18.
------------
"FDIC" means the Federal Deposit Insurance Corporation, and any
----
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in
------------------
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Banking Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Banking Day, the rate for such
day will be the arithmetic mean as determined by the Agent of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
"Fixed Rate Option Requests" means the combined number of IBOR
--------------------------
Borrowings made in any specified period of time.
"FRB" means the Board of Governors of the Federal Reserve System,
---
and any Governmental Authority succeeding to any of its principal
functions.
"GAAP" means generally accepted accounting principals.
----
-8-
<PAGE>
"GAAP Value" means, with respect each property constituting part
----------
of the Company's Real Estate Inventory, the GAAP basis asset value for such
property or asset.
"Government Securities" means readily marketable direct
---------------------
obligations of the United States of America or obligations fully guaranteed
by the United States of America.
"Governmental Authority" means any nation or government, any
----------------------
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Guarantor" means Standard Pacific of Texas, Inc., Saddleback
---------
Inns of the Americas if the events specified in Section 8.22 occur, and
------------
their successors and assigns.
"Guaranty" means the continuing guaranty, in the form of Exhibit
--------
"E" attached hereto, either as originally executed or as it may from time
to time be supplemented, modified, amended, restated or extended, to be
executed and delivered by the Guarantor to the Banks.
"Guaranty of the Subsidiary Letters of Credit" means a guaranty
--------------------------------------------
of the Company guaranteeing all indebtedness and obligations arising under
or relating to the Subsidiary Letters of Credit, substantially in the form
of Exhibit J hereto.
"Home Building Debt" means, as of any time of determination, all
------------------
indebtedness, liabilities and other obligations of the Company and the
consolidated Subsidiaries (excluding all indebtedness, liabilities and
other obligations of Standard Pacific Savings, F.A., Standard Pacific
Financing, Inc., and Standard Pacific Financing, L.P.) that, in conformity
with generally accepted accounting principles applied on a consistent
basis, should be included in determining total liabilities shown on the
liability side of a consolidated balance sheet of the Company and the
consolidated Subsidiaries.
"Home Building Net Worth" means the Consolidated Tangible
-----------------------
-9-
<PAGE>
Net Worth of the Company, less the Tangible Net Worth of Standard Pacific
----
Savings, Standard Pacific Financing, Inc., and Standard Pacific Financing,
L.P..
"IBOR Banking Day" means any Banking Day on which dealings in
----------------
dollar deposits are conducted by and between banks in the Designated IBOR
Market.
"IBOR Base Rate" means, for the IBOR Period for any IBOR
--------------
Borrowing, the rate of interest per annum (determined solely by the Agent
and rounded upward to the next 1/100 of 1%) at which BofA's Grand Cayman
Branch, Grand Cayman, British West Indies (or such other office as may be
designated for such purpose by BofA), would offer U.S. dollar deposits in
the approximate amount of BofA's Pro Rata Share of such IBOR Borrowing and
for periods comparable to those of the applicable IBOR Period to major
banks in the offshore U.S. dollar inter-bank market. The determination of
the IBOR Base Rate by the Agent shall be conclusive in the absence of
manifest error.
"IBOR Borrowing" means any portion of the Loan Proceeds
--------------
designated or redesignated by the Company as an IBOR Borrowing pursuant to
Article 3.
"IBOR Lending Office" means the office or branch of each Bank so
-------------------
designated on the signature pages of this Agreement, or such other office
or branch of each Bank as it may hereafter designate, by written notice to
the Company, as its IBOR Lending Office.
"IBOR Market" means a regular established market located outside
-----------
the United States of America by and among banks for the solicitation, offer
and acceptance of dollar deposits in such banks.
"IBOR Obligations" means eurocurrency liabilities as defined in
----------------
Regulation D.
"IBOR Period" means, as to each IBOR Borrowing, the period
-----------
commencing on the date specified by the Company pursuant to Sections 3.3 or
---------------
3.4 and ending 14 days, 30 days, 60 days, 90 days, 180 days, 270 days or
---
360 days thereafter, as designated by the Company in the applicable Request
for Borrowing or Request for Redesignation of Borrowing, provided that:
--------
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<PAGE>
(a) the first day in any IBOR Period shall be an IBOR
Banking Day;
(b) any IBOR Period that would otherwise end on a day that
is not an IBOR Banking Day shall be extended to the next succeeding
IBOR Banking Day unless such IBOR Banking Day falls in another
------
calendar month, in which case such IBOR Period shall end on the next
preceding IBOR Banking Day; and
(c) No IBOR Period shall extend beyond the Applicable
Maturity Date.
"IBOR Rate" means, for any IBOR Period for any IBOR Borrowing,
---------
the rate (rounded upward to the next 1/100 of 1%) obtained by dividing (i)
the IBOR Base Rate for such IBOR Period, by (ii) a percentage equal to 100%
minus the IBOR Reserve Percentage for such IBOR Period.
"IBOR Rate Spread" means the additional component of interest,
----------------
expressed as a percentage per annum, to be added to the IBOR Rate in
determining the applicable rate of interest for IBOR Borrowings. The
applicable IBOR Rate Spread shall be based on the Company's current senior
long term debt ratings as published by Standard & Poors and Moody's
Investor Services as determined by the following pricing grid:
For Revolving Loans
-------------------
<TABLE>
<CAPTION>
S&P/Moody's Rating Applicable IBOR Rate Spread
------------------ ---------------------------
<S> <C>
(greater than BB+/Ba1 1.375%
or equal to) = BB/Ba2 1.500%
(less than) BB-/Ba3 1.675%
For Term Loan
-------------
<CAPTION>
S&P/Moody's Rating Applicable IBOR Rate Spread
------------------ ---------------------------
<S> <C>
(greater than BB+/Ba1 1.875%
or equal to) = BB/Ba2 2.000%
(less than) BB-/Ba3 2.125%
</TABLE>
In the event of a difference in rating between Standard & Poors and Moody's
Investor Services, the lower rating shall prevail for purposes of
determining the
-11-
<PAGE>
applicable IBOR Rate Spread. As of the date of this Agreement, the Company
is currently rated BB/Ba2 by Standard & Poors and Moody's Investor
Services, respectively, and the applicable IBOR Rate Spread for Revolving
Loans as of the date of this Agreement is therefore 1.50%, and for the Term
Loan is 2.00%.
"IBOR Reserve Percentage" means, for the IBOR Period for any IBOR
-----------------------
Borrowing, the percentage in effect on the first day of such IBOR Period
under regulations issued from time to time by the FRB for determining the
reserve requirement (including any marginal reserve requirement) for each
Bank with respect to liabilities or assets consisting of or including
Eurocurrency liabilities (as defined in Regulation D of the FRB, as in
effect from time to time).
"Interest Differential" means, with respect to any prepayment or
---------------------
redesignation of an IBOR Rate Loan on a day other than the last day of the
applicable IBOR Period and with respect to any failure to borrow an IBOR
Rate Loan on the date or in the amount specified in any Request for
Borrowing or any Request for Redesignation of Borrowing, (a) the IBOR Rate
payable (or, with respect to a failure to borrow, the IBOR Rate which would
have been payable) with respect to the IBOR Rate Loan minus (b) the IBOR
-----
Rate on, or as near as practicable to the date of, the prepayment or
failure to borrow for an IBOR Rate Loan with an IBOR Period commencing on
such date and ending on the last day of the IBOR Period of the IBOR
Borrowing so prepaid or which would have been borrowed on such date. The
determination of the Interest Differential by the Agent shall be conclusive
in the absence of manifest error.
"Interest Payment Date" means the first day of any month.
---------------------
"Investment" means any investment by the Company or any
----------
Subsidiary in Standard Pacific Savings, whether by acquisition of stock or
debt, or by loan, advance, transfer of property out of the ordinary course
of business, capital contribution, payment pursuant to a guaranty or any
other contingent liability of the Company in respect of liabilities of
Standard Pacific Savings, extension of credit on terms other than those
normal in the business of the Company or such Subsidiary, or otherwise.
"Issuing Bank" means BofA in its individual capacity as a bank
------------
issuing Letters of Credit under this Agreement.
"Laws" means, collectively, all international, foreign, federal,
----
-12-
<PAGE>
state and local statutes, treaties, rules, regulations, ordinances, codes
and administrative or judicial precedents.
"L/C Commitment" has the meaning set forth in Section 3.9.1.
-------------- -------------
"L/C Commitment Termination Date" has the meaning set forth in
-------------------------------
Section 3.9.1.
-------------
"L/C Obligations" has the meaning set forth in Section 3.9.1.
--------------- -------------
"Letters of Credit" has the meaning set forth in Section
----------------- -------
3.9.2(a).
--------
"Letter of Credit Subsidiaries" has the meaning set forth in
-----------------------------
Section 3.9.6.
-------------
"Loan" or "Loans" means each of the Revolving Loans or the Term
---- -----
Loan, or the Revolving Loans and the Term Loan, collectively, as the
context reasonably requires.
"Loan Documents" means, collectively, this Agreement, each Note,
--------------
the Guaranty and the Guaranty of the Subsidiary Letters of Credit.
"Loan Proceeds" means the proceeds of the Loans, in the aggregate
-------------
principal amount of up to $200,000,000.
"Lots Under Development" means Entitled Land where physical site
----------------------
improvement has commenced.
"Majority Banks" means, at any time, if BofA is the only Bank,
--------------
BofA, and, if there is more than one Bank, at least two Banks then holding
in excess of 66-2/3% of the then aggregate unpaid principal amount of the
Loans, or, if no such principal amount is then outstanding, at least two
Banks then having in excess of 66-2/3% of the Total Aggregate Commitment.
"Material" means, in connection with the Company, its
--------
Subsidiaries, and the Loan and the Loan Documents, such circumstances or
facts which the Banks in the exercise of their discretion could be expected
to rely upon in determining whether to enter into or to continue lending
under this Agreement or which could have a bearing on any actions
undertaken by the
-13-
<PAGE>
Banks. Such Material circumstances or facts shall include, without
limitation, such circumstances or facts as would alter, enlarge, restrict
or otherwise affect the rights and liabilities otherwise existing between
the parties to the Agreement or any other Loan Document.
"Model Unit" means a Completed Unit to be used as a model home in
----------
connection with the sale of Units in a residential housing project.
"Non-Renewing Bank Revolving Loan Maturity Date" means the
----------------------------------------------
maturity date of the Revolving Note held by a Bank which does not extend
such maturity date in response to a request for such extension by the
Company pursuant to Section 4.18.
------------
"Non-Renewing Bank Term Loan Election Date" means, with respect
-----------------------------------------
to any non-renewing Bank, the Term Loan Election Date in effect immediately
prior to the extension of the Term Loan Election Date by some but not all
of the Banks pursuant to Section 3.10.5 hereof.
"Note" means any of the Revolving Notes and/or Term Notes.
----
"Obligations" means all obligations of every nature of the
-----------
Company from time to time owed to the Banks under the Loan Documents.
"Opinion of Counsel" means the favorable written legal opinion of
------------------
Gibson, Dunn & Crutcher, as counsel to the Company and the Subsidiaries, to
this Agreement, substantially in the form of Exhibit "G" attached hereto,
together with copies of all factual certificates and legal opinions upon
which such counsel has relied.
"Other Taxes" means any present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or from the execution, delivery
or registration of, or otherwise with respect to, this Agreement or any
other Loan Documents.
"Participant" shall have the meaning set forth in Section 11.6.
----------- ------------
"Person" means any entity, whether an individual, trustee,
------
corporation, general partnership, limited partnership, limited liability
company,
-14-
<PAGE>
joint stock company, trust, unincorporated organization, bank, business
association, firm, joint venture, Governmental Authority or otherwise.
"Plan" means any employee benefit plan subject to ERISA and
----
maintained by the Company and/or any Subsidiary or to which the Company
and/or any Subsidiary is required to contribute on behalf of its employees.
"Pro Rata Share" means, as to any Bank at any time, the
--------------
percentage equivalent (expressed as a decimal, rounded to the ninth decimal
place as determined by the Agent) at such time of such Bank's Commitment
divided by the combined Commitments of all Banks.
"Real Estate Inventory" means Unentitled Land, Entitled Land,
---------------------
Lots Under Development, Units Under Construction, and Completed Units
(including Model Units) owned by the Company.
"Reference Rate" means the higher of:
--------------
(a) the rate of interest publicly announced from time to
time by BofA in San Francisco, California, as its reference rate. It
is a rate set by BofA based upon various factors including BofA's
costs and desired return, general economic conditions, and other
factors, and is used as a reference point for pricing some loans,
which may be priced at, above, or below such announced rate; and
(b) 0.50% per annum above the latest Federal Funds Rate.
Any change in the Reference Rate shall take effect on the day specified in
the public announcement of such change.
"Reference Rate Borrowing" means any portion of the Loan Proceeds
------------------------
which is not designated or redesignated by the Company as an IBOR Borrowing
pursuant to Sections 3.3 or 3.4.
-------------------
"Reference Rate Spread" means the additional component of
---------------------
interest, expressed as a percentage per annum, to be added to the Reference
Rate in determining the applicable rate of interest for Reference
Borrowings. For the period beginning on the Closing Date and continuing
through the entire
-15-
<PAGE>
term of the Loans, the Reference Rate Spread shall be equal to 0.00%.
"Regulation D" means Regulation D of the Board of Governors of
------------
the Federal Reserve System as now or from time to time hereafter in effect
and any other regulation issued in substitution therefor.
"Request for Borrowing" means a written request for a Borrowing
---------------------
substantially in the form of Exhibit "C-1" attached hereto, signed by a
Responsible Official of the Company and properly completed to provide all
information required to be included thereon.
"Request for Letter of Credit" means a written request for a
----------------------------
Letter of Credit substantially in the form of Exhibit "C-2" attached
hereto, signed by a Responsible Official of the Company and properly
completed to provide all information required to be included thereon.
"Request for Redesignation of Borrowing" means a written request
--------------------------------------
for redesignation of Borrowing substantially in the form of Exhibit "D"
attached hereto, signed by a Responsible Official of the Company and
properly completed to provide all information required to be included
thereon.
"Requirement of Law" means, as to any Person, any law (statutory
------------------
or common), treaty, rule or regulation or determination of an arbitrator or
of a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"Responsible Official" means: (a) when used with reference to a
--------------------
Person other than an individual, any corporate officer of such Person,
general partner of such Person, corporate officer of a corporate general
partner of such Person, or corporate officer of a corporate general partner
of a partnership that is a general partner of such Person, or any other
responsible official thereof duly acting on behalf thereof, and (b) when
used with reference to a Person who is an individual, such Person. Any
document or certificate hereunder that is signed or executed by a
Responsible Official of another Person shall be conclusively presumed to
have been authorized by all necessary corporate, partnership and/or other
action on the part of such other Person.
"Revolving Loans" means all loans and Borrowings under this
---------------
Agreement, other than the Term Loan.
-16-
<PAGE>
"Revolving Loans Maturity Date" means July 31, 1999, subject to
-----------------------------
extension pursuant to Section 4.18, or such other extended date as the
Banks may agree to in writing.
"Revolving Note" means each of the promissory notes,
--------------
substantially in the form of Exhibit "A-1" attached hereto and made a part
hereof, executed by the Company in favor of the Banks, each to the order of
the applicable Bank as payee to evidence such Bank's share of the Revolving
Loans, and each in the original principal amount of the applicable Bank's
Commitment such that the aggregate original principal amount of all
Revolving Notes is initially $200,000,000 (subject to reduction in
connection with a Term Loan conversion under Section 3.10 hereof, and as
otherwise provided herein), as originally executed or as the same may from
time to time be supplemented, modified, amended, renewed, extended or
refinanced (and any promissory note that may be issued in substitution or
exchange therefor).
"Senior Debt" means, at any time of determination thereof, all
-----------
indebtedness with respect to (i) the Loans and L/C Obligations, (ii) the
10.5% senior promissory notes, due March 1, 2000 (the "10.5% Senior
Notes"), except to the extent that they would not be included in the
Company's balance sheet in accordance with GAAP, (iii) any other senior
indebtedness of the Company to any Banks, and (iv) such other indebtedness
for borrowed money senior to or ranking in equal priority to the
Obligations.
"Special Circumstance" means the adoption of any Law or
--------------------
interpretation, or any change therein or thereof, or any change in the
interpretation, administration or application thereof by any Governmental
Authority, central bank or comparable authority, or compliance by the Banks
or their IBOR Lending Offices with any request or directive (whether or not
having the force of Law) of any Governmental Authority, central bank or
comparable authority, or the occurrence of circumstances affecting the
applicable certificate of deposit market or IBOR Market generally which are
beyond the reasonable control of the Banks.
"Standard Pacific Savings" means Standard Pacific Savings, F.A.
------------------------
"Subordinated Debt" means such indebtedness of the Company as is
-----------------
fully subordinated to the Obligations pursuant to a subordination agreement
-17-
<PAGE>
approved in writing by the Majority Banks.
"Subsidiary" means (i) any corporation of which at least 50% of
----------
the outstanding securities of any class or classes (however designated)
having ordinary voting power to elect directors of the corporation is owned
by the Company and/or by one or more than one other Subsidiary, and (ii)
any partner ship, joint venture or limited liability company in which the
Company and/or any Subsidiary owns at least a 50% interest, or which is
otherwise controlled by the Company and/or any Subsidiary.
"Subsidiary Letters of Credit" has the meaning set forth in
----------------------------
Section 3.9.6.
-------------
"Swing Line Advances" means Borrowings initially funded by BofA
-------------------
in the manner provided in Section 3.1(h).
--------------
"Tangible Net Worth" means, as of any time of determination, the
------------------
sum of the following with respect to the entity in question determined in
conformity with generally accepted accounting principles applied on a
consistent basis:
(a) the amount of stated capital (excluding the cost of
treasury shares), additional paid-in capital and retained earnings
(or, in the case of a deficit in additional paid-in capital or
retained earnings, minus the amount of the deficit), minus
----- -----
(b) the carrying value of intangible assets, such as
deferred costs associated with goodwill, patents, franchises,
organizational expenses and the like (but excluding receivables, pre-
---------
paid expenses, the capitalized value of leases and all costs that are
specifically identifiable or are identifiable on a rational and
consistent basis with the unexpired service value of tangible assets).
"Taxes" means any and all present or future taxes, levies,
-----
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Bank and the Agent, such
taxes (including income taxes or franchise taxes) as are imposed on or
measured by each Bank's net income.
"Term Loan" shall have the meaning set forth in Section 3.10.1.
--------- --------------
-18-
<PAGE>
"Term Loan Conversion Date" has the meaning set forth in Section
-------------------------
3.10.1 hereof.
"Term Loan Election Date" means June 30, 1997, subject to
-----------------------
extension pursuant to section 3.10.5, or such other extended date as the
Banks may agree to in writing.
"Term Loan Maturity Date" means three (3) years from the Term
-----------------------
Loan Conversion Date, but in no event more than one (1) year after the
Revolving Loans Maturity Date.
"Term Note" means each of the promissory notes, substantially in
---------
the form of Exhibit "A-2" attached hereto and made a part hereof, executed
by the Company in favor of the Banks, each to the order of the applicable
Bank as payee to evidence each Bank's share of the Term Loan, and each in
the original principal amount of the applicable Bank's Pro Rata Share of
the Term Loan, as originally executed or as the same may from time to time
be supplemented, modified, amended, renewed, extended or refinanced (and
any promissory note that may be issued in substitution or exchange
therefor).
"Total Aggregate Commitment" means the total aggregate combined
--------------------------
Commitments of each of the Banks. The Total Aggregate Commitment
concurrently equals $200,000,000, and may decrease as provided in Sections
3.10 and 4.18.
"Total Borrowing Base Home Building Indebtedness" means the
-----------------------------------------------
aggregate of all Senior Debt, plus all reimbursement obligations and other
----
obligations under any and all letters of credit related to the Company's
home building operations, plus all unsecured obligations (excluding any
----
trade payables incurred in the ordinary course of business) of partnerships
or joint ventures in which the Company is a general partner, or otherwise
liable, plus the amount of all guaranties, suretyship agreements, or
----
similar agreements in which the Company agrees to answer for the
indebtedness or other financial obligations of another person or entity,
plus all unsecured indebtedness of the Company which is subordinate to the
----
Obligations. "Total Borrowing Base Home Building Indebtedness" shall not
---
include indebtedness which is fully secured by real property or
indebtedness which by its terms is non-recourse to the Company. The
Majority Banks in their sole and absolute discretion may
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<PAGE>
choose to exclude subordinated indebtedness from Total Borrowing Base Home
Building Indebtedness.
"Unencumbered Real Estate Inventory" means Real Estate Inventory
----------------------------------
which is not subject to or encumbered by any deed of trust, mortgage,
judgment lien, attachment lien or any other lien (other than liens which
have been bonded around so as to remove such liens as encumbrances against
the Real Estate Inventory in a manner satisfactory to the Agent and its
legal counsel, or liens which are permitted under Section 8.11(b) or
---------------
Section 8.11(c)).
-----------------
"Unentitled Land" means all land which is not Entitled Land.
---------------
"Unit" means single family residential housing units.
----
"Units Under Construction" means Units where on-site construction
------------------------
has commenced as evidenced by the pouring of foundations for such Units.
1.2 Use of Defined Terms. Any defined term used in the plural shall
--------------------
refer to all members of the relevant class, and any defined term used in the
singular shall refer to any of the members of the relevant class.
1.3 Accounting Terms. All accounting terms not specifically defined
----------------
in this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent basis.
1.4 Exhibits. All exhibits to this Agreement, either as now existing
--------
or as the same may from time to time be supplemented, modified or amended, are
incorporated herein by this reference.
ARTICLE 2: RECITALS.
--------
This Agreement is made with reference to the following facts:
(a) The Company is primarily engaged in the business of
developing residential single-family housing projects.
-20-
<PAGE>
(b) The Company has applied to the Banks for the Loans (i) to
finance or refinance the acquisition of land and the development and
construction of various residential single-family housing projects in
California and Texas, and (ii) for general working capital purposes.
(c) The Banks are willing to make the Loans to the Company on the
terms and conditions set forth in this Agreement and in the other Loan
Documents.
ARTICLE 3: BORROWING PROCEDURES AND LETTER OF CREDIT SUBLIMIT.
--------------------------------------------------
3.1 Disbursement of Loan Proceeds.
-----------------------------
(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date through
the Banking Day immediately preceding the Revolving Loans Maturity Date
(or, in the case of a non-renewing Bank under Section 4.18, the Non-
Renewing Bank Revolving Loan Maturity Date), each Bank shall, according to
its Pro Rata Share, make Revolving Loans to the Company in such amounts as
the Company may request that do not exceed in the aggregate at any one time
outstanding, the Commitment of such Bank (less the Pro Rata Share of such
----
Bank's L/C Obligations, if any). Subject to the limitations set forth
herein, the Company may borrow, repay and reborrow under each Bank's
Commitment without premium or penalty. In no event shall the Banks be
obligated to make Revolving Loans to the Company at any time if, after
giving effect to such Loans, the provisions of Section 3.6 would be
-----------
violated.
(b) Unless the Agent otherwise consents, the aggregate amount of
each IBOR Borrowing shall be in an integral multiple of $100,000, but not
less than $1,000,000, and the aggregate amount of each Reference Rate
Borrowing shall be in an integral multiple of $10,000, but not less than
$100,000.
(c) The Loans made by the Banks pursuant to this Agreement shall
be evidenced by each Note.
(d) A Request for Borrowing shall be irrevocable upon receipt
-21-
<PAGE>
by the Agent.
(e) Unless the Agent otherwise consents, no more than eight (8)
IBOR Borrowings in the aggregate shall be outstanding at any one time;
provided, however, up to twelve (12) IBOR Borrowings in the aggregate may
-------- -------
be outstanding if the Company pays to the Agent an additional fee of $250
per IBOR Borrowing with each Request for Borrowing after the eighth (8th)
such request.
(f) The Agent will notify each Bank of its receipt of a Request
for Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing by 11:00 a.m. (California time) on the date of timely receipt of
a Request for Borrowing by the Company.
(g) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Company at the
Agent's Payment Office by 11:00 a.m. (California time) on the date of
Borrowing requested by the Company in funds immediately available to the
Agent. The proceeds of all such Loans will then be made available to the
Company by the Agent by wire transfer in accordance with written
instructions provided to the Agent by the Company of like funds as received
by the Agent.
(h) The following procedures shall apply to Swing Line Advances:
(i) Not later than 2:00 p.m., California time, on the
Banking Day on which a proposed Swing Line Advance is to be made, the
Agent must have received in writing a request that a Swing Line
Advance be made on that Banking Day, stating that such Advance shall
be a Swing Line Advance, and stating the amount of the requested Swing
Line Advance.
(ii) Upon fulfillment of each of the applicable conditions
in Article 6 and the condition that the aggregate amount of
outstanding Swing Line Advances at no time exceeds $20,000,000, BofA
shall credit to the Company's Account, from BofA's funds, the amount
of the requested Swing Line Advance.
(iii) Prior to 10:00 a.m., California time, on the Banking
Day following the Banking Day on which a Swing Line Advance is
-22-
<PAGE>
made, the Agent shall inform each Bank by telephone, telecopier or
telex stating (x) the date of the Swing Line Advance, (y) the amount
of the Swing Line Advance, and (z) that the Agent assumes that no
Event of Default has occurred. The Agent may assume that no Event of
Default has occurred unless it has actual notice of the Event of
Default, has received notice from the Company stating the nature of
the Event of Default, or has received notice from a Bank stating the
nature of the Event of Default and that such Bank considers the Event
of Default to have occurred.
(iv) Each Bank shall deliver to the Agent, before 12:00
noon, California time, on or before the first Banking Day after the
date on which any Swing Line Advance is to be made, immediately
available funds in an amount equal to such Bank's Pro Rata Share of
such Swing Line Advance. The obligation of each Bank to make any
disbursement to the Agent shall be subject to the condition that such
Bank shall have been informed by the Agent as described in Section
-------
3.1(h)(iii) above, and the Agent has not elected to make a Swing Line
-----------
Advance with actual knowledge of an Event of Default. Except to the
extent expressly set forth herein, the obligation of each Bank to make
disbursements to the Agent pursuant to this Section 3.1(h)(iv) shall
------------------
be absolute and unconditional.
(v) Upon the occurrence of any Event of Default, BofA shall
have the option, which shall be exercisable by BofA in its sole
discretion, to sell and transfer to each Bank, pursuant to the terms
and conditions set forth herein, an undivided interest and
participation, to the extent of such Bank's Pro Rata Share, in all
outstanding Swing Line Advances. Forthwith upon notice from the Agent
to the Banks that BofA has elected to exercise the option set forth in
the immediately preceding sentence, BofA shall be deemed irrevocably
and unconditionally to have sold and transferred to each Bank without
recourse and, each Bank shall have deemed to have irrevocably and
unconditionally purchased and received, an undivided interest and
participation, to the extent of such Bank's Pro Rata Share, in all
outstanding Swing Line Advances. Each Bank shall promptly (and in any
event within two Banking Days) pay to the Agent (for the benefit of
BofA) in immediately available funds an amount equal to such Bank's
Pro Rata Share of the outstanding principal amount of such Swing Line
Advances. Any amount payable to the
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<PAGE>
Agent (for the benefit of BofA) pursuant to this Section 3.1(h)(v) and
-----------------
not paid within two Banking Days of the day on which notice of such
payment received from the Agent shall bear interest until paid at the
Reference Rate. If the Banks make any payment in respect of Swing Line
Advances as contemplated by this Section 3.1(h)(v) and thereafter the
-----------------
Agent or BofA receives a payment on account of any such Advance, the
Agent or BofA, as appropriate, shall promptly pay to each Bank which
funded its participation therein an amount equal to such Bank's Pro
Rata Share thereof. The obligation of each Bank to make payments under
this Section 3.1(h)(v) shall be unconditional and irrevocable and
-----------------
shall be made under all circumstances. If any payment received on
account of any Swing Line Advance and distributed to a Bank as a
participant under this Section 3.1(h)(v) is thereafter recovered from
-----------------
the Agent or BofA in connection with any bankruptcy or insolvency pro
ceeding relating to the Company or otherwise, each Bank which received
such distribution shall, upon demand by the Agent, repay to the Agent
or BofA, as applicable, such Bank's Pro Rata Share of the amount so
recovered together with an amount equal to such Bank's Pro Rata Share
(according to the proportion of (A) the total of such Bank's required
repayment to (B) the total amount so recovered) of any interest or
other amount paid or payable by the Agent or BofA in respect of the
total amount so recovered.
(vi) BofA shall not be obligated to make any Swing Line
Advance pursuant to this Section 3.1(h) if (i) the making of such
--------------
Swing Line Advance would result in an aggregate amount of Swing Line
Advances which are outstanding and not reimbursed by the Banks to the
Agent pursuant to Section 3.1(h)(iv) in excess of $20,000,000 or (ii)
------------------
if the result of funding such Swing Line Advance would be that the
total of funding such Swing Line Advance would be that the total
amount of Borrowings (including Swing Line Advances) funded by BofA
would be in excess of BofA's Commitment. Swing Line Advances shall be
considered Borrowings for all purposes hereunder, subject only to the
special reimbursement obligations of the Banks pursuant to this
Section 3.1(h). If BofA is excused from its obligation to make a
--------------
requested Swing Line Advance by this Section 3.1(h)(vi), the Company
------------------
shall still be entitled to obtain the requested Borrowing pursuant to
the other provisions of Article 3, subject to the conditions
applicable to such Borrowings.
-24-
<PAGE>
3.2 Reference Rate Borrowings. All Loans shall at all times
-------------------------
constitute Reference Rate Borrowings unless properly designated or redesignated
as IBOR Borrowings pursuant to Sections 3.3. or 3.4.
--------------------
3.3 IBOR Borrowing.
--------------
(a) Each request by the Company for an IBOR Borrowing shall be
made pursuant to a Request for Borrowing received by the Agent, at the
Agent's office, not later than 9:00 a.m., California time, at least two (2)
IBOR Banking Days before the first day of the applicable IBOR Period. The
Agent will notify each Bank of its receipt of a Request for Borrowing in
accordance with Section 3.1(f).
--------------
(b) At or about 9:00 a.m., California time, one (1) IBOR Banking
Day before the first day of the applicable IBOR Period, the Agent shall
determine the applicable IBOR Rate (which determination shall be conclusive
in the absence of manifest error) and shall promptly give notice of the
same to the Company and the Banks by telephone, telecopier or telex.
(c) Upon fulfillment of the applicable conditions set forth in
Article 6, an IBOR Borrowing shall become effective on the first day of the
applicable IBOR Period.
3.4 Redesignation of Borrowings.
---------------------------
(a) Subject to Section 6.3, if any IBOR Borrowing is not repaid
-----------
on the last day of the applicable IBOR Period, such Borrowing auto
matically shall be redesignated as a Reference Rate Borrowing on such date.
(b) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the Closing Date until
the fourteenth (14th) day preceding the Applicable Maturity Date, the
Company may request that all or a portion of outstanding Reference Rate
Borrowings be redesignated as an IBOR Borrowing; provided that IBOR Period
for such IBOR Borrowing shall end on or before the Applicable Maturity
Date.
(c) Each redesignation of all or a portion of outstanding
Reference Rate Borrowings as an IBOR Borrowing shall be made pursuant to a
-25-
<PAGE>
written Request for Redesignation of Borrowing. Not later than 9:00 a.m.,
California time, at least two (2) IBOR Banking Days prior to the first day
of the applicable IBOR Period, the Agent shall have received, at the
Agent's office, a properly completed Request for Redesignation of Borrowing
specifying (1) the requested date of redesignation, (2) the requested
amount of Reference Rate Borrowings to be redesignated as an IBOR
Borrowing, and (3) the requested IBOR Period. The Agent may, in its sole
and absolute discretion, permit a Request for Redesignation of Borrowing to
be made by telecopier or by telephone (with confirmation sent promptly by
telecopier) by the Company, in which case the Company shall confirm same by
mailing a written Request for Redesignation of Borrowing to the Agent
within 24 hours following the date of redesignation.
(d) The Agent will notify each Bank of its receipt of a Request
for Redesignation by 11:00 a.m. (California time) on the date of timely
receipt of a Request for Redesignation from the Company. All
redesignations shall be made ratably according to the respective
outstanding principal amount of the Loans with respect to which the Request
for Redesignation was given is then held by each Bank.
(e) Unless all of the Banks otherwise agree, during the existence
of an Event of Default, the Company may not elect to have a Loan converted
into an IBOR Borrowing.
(f) Unless the Banks otherwise consent, the amount of Reference
Rate Borrowings to be redesignated as an IBOR Borrowing shall be an
integral multiple of $100,000, but not less than $1,000,000.
(g) With respect to any redesignation of Reference Rate Borrowing
as an IBOR Borrowing, at or about 9:00 a.m., California time, one (1) IBOR
Banking Day before the first day of the applicable IBOR Period, the Agent
shall determine the applicable IBOR Rate (which determination shall be
conclusive in the absence of manifest error) and shall promptly give notice
of the same to the Company and the Banks by telephone, telecopier or telex.
(h) Upon fulfillment of the applicable conditions set forth in
this Agreement, the redesignation of all or a portion of outstanding
Reference Rate Borrowings as an IBOR Borrowing shall become effective on
the first day of the applicable IBOR Period.
-26-
<PAGE>
(i) A Request for Redesignation of Borrowing shall be irrevocable
upon receipt by the Agent.
(j) Nothing contained herein shall require the Banks to fund any
IBOR Borrowing resulting from redesignation of all or a portion of any of
the Reference Rate Borrowings, in the Designated IBOR Market.
3.5 Calculation of Borrowing Base.
-----------------------------
(a) The Borrowing Base shall be calculated at the times and in
the manner set forth in this Section 3.5(a):
--------------
(i) Within forty-five (45) days after the end of each
calendar quarter, and at such other times as the Majority Banks may
reasonably require, the Company shall provide the Agent with a
Borrowing Base Certificate showing the Company's calculations of the
components of the Borrowing Base and such data supporting such
calculations as the Majority Banks may require. The Majority Banks
shall have a period of thirty (30) days following receipt of a
Borrowing Base Certificate to notify the Company of the Majority
Banks' approval or disapproval thereof. Failure of the Majority Banks
to so notify the Company within such thirty (30) day period shall be
deemed approval and such Borrowing Base as set forth in such Borrowing
Base Certificate shall be effective as of the date approved (or deemed
approved) by the Majority Banks.
(ii) In the event that the Agent (as requested by the
Majority Banks) timely notifies the Company of disapproval of a
Borrowing Base Certificate, then the Agent shall, at the same time,
notify the Company in writing of the amount of the Borrowing Base as
reasonably determined by the Majority Banks and the basis of such
determination, and the effective date thereof (which shall be the date
of the giving of such notice by the Agent), and such amount shall
thereupon and thereafter constitute the Borrowing Base which shall
remain in effect until such time as the Borrowing Base is redetermined
in accordance with this Section 3.5(a). The Majority Banks and the
--------------
Company shall each cooperate in good faith with the other in the
calculation of the Borrowing Base in circumstances where the Majority
Banks disapproves a Borrowing Base Certificate prepared by the
Company.
-27-
<PAGE>
(iii) Each determination of the Borrowing Base in
accordance with this Section 3.5(a) shall be binding and conclusive
--------------
upon the parties hereto, and provided that the Majority Banks are not
bound to rely on information and figures provided by the Company if
the Majority Banks determine in good faith that it would be
inappropriate to do so. Nothing contained herein shall be deemed to
restrict the Company from submitting additional Borrowing Base
Certificates to the Agent for the Majority Banks' approval at times
other than those required hereunder.
(b) Amount of Borrowing Base. As used herein in the Agreement,
------------------------
the term "Borrowing Base" shall have the meaning set forth in this Section
-------
3.5(b):
------
(i) Except as set forth in Sections 3.5(b)(ii), (iii), (iv)
--------------------------------
and (v) below, the Borrowing Base shall consist of the dollar amount
-------
equal to the sum of the following Unencumbered Real Estate Inventory
owned by the Company:
(A) Entitled Land. 50% of the GAAP Value of the
-------------
Entitled Land (subject to the 20% limitation specified in Section
-------
3.5(b)(iii) below); plus
----------- ----
(B) Lots Under Development. 65% of the GAAP Value of
----------------------
the Lots Under Development; plus
----
(C) Units Under Construction. 90% of the GAAP Value of
------------------------
the Units Under Construction (including Completed Units, subject
to adjustment for Completed Units as set forth in Section
-------
3.5(b)(ii) below); plus
---------- ----
(D) Escrow Proceeds Receivable. 100% of the amount of
--------------------------
Escrow Proceeds Receivable.
(ii) Advance rates for Units Under Construction shall
decrease as follows with the passage of time following the dates such
Units become Completed Units: (A) 180 days following the date such
Units become Completed Units (other than with respect to Model Units,
as to which clause (C) below shall apply) the applicable advance rate
-28-
<PAGE>
shall decrease from 90% (as specified in Section 3.5(b)(i) (C) above)
---------------------
to 50%; (B) 360 days following the date that such Units become
Completed Units (other than with respect to Model Units, as to which
clause (C) below shall apply) the applicable advance rate shall
decrease from 50% to 0% (i.e., no value shall be attributed to the
Borrowing Base); and (C) with respect to Model Units, 180 days
following the sale of the last production Unit in the applicable
project relating to such Model Unit, the applicable advance rate for
such Model Units shall decrease from 90% (as specified in Section
-------
3.5(b)(i)(C) above) to 0% (i.e., no value shall be attributed to the
------------
Borrowing Base).
(iii) Anything in this Agreement to the contrary
notwithstanding, in no event may more than 20% of the GAAP Value of
Real Estate Inventory constituting part of the Borrowing Base be
attributable to Entitled Land; and any Entitled Land in excess of such
20% shall have a 0% advance rate (i.e., shall add no value to the
Borrowing Base).
(iv) Only Real Estate Inventory which is Unencumbered Real
Estate Inventory may be added to the Borrowing Base. Any Real Estate
Inventory that is not Unencumbered Real Estate Inventory shall have no
value for purposes of the Borrowing Base (i.e., a 0% advance rate).
Furthermore, land in the Company's Real Estate Inventory which is not
Entitled Land shall have no value for purposes of the Borrowing Base
(i.e., a 0% advance rate). Once Units or any other Real Estate
Inventory are sold and conveyed to a buyer, or otherwise cease to be
owned by the Company, the applicable advance rate shall decrease to
0%, and the Company shall not be entitled to have any value for such
assets attributed to the Borrowing Base.
3.6 Borrowing Base. The sum of the aggregate principal
--------------
amount at any time outstanding under the Loans plus the L/C
----
Obligations shall not at any time exceed the lesser of (i) the Total
Aggregate Commitment (plus the outstanding principal amount of the
Term Loan, if any) or (ii) the Borrowing Base less Total Borrowing
----
Base Home Building Indebtedness (exclusive of the outstanding amount
of the Loans and L/C Obligations).
3.7 Payments by the Banks to the Agent.
----------------------------------
-29-
<PAGE>
(a) Unless the Agent receives notice from a Bank on or
prior to the Closing Date or, with respect to any Borrowing after
the Closing Date, at least one Banking Day prior to the date of
such Borrowing, that such Bank will not make available as and
when required hereunder to the Agent for the account of the
Company the amount of that Bank's Pro Rata Share of the
Borrowing, the Agent may assume that each Bank has made such
amount available to the Agent in immediately available funds on
the date of Borrowing and the Agent may (but shall not be so
required), in reliance upon such assumption, make available to
the Company on such date a corresponding amount. If and to the
extent any Bank shall not have made its full amount available to
the Agent in immediately available funds and the Agent in such
circumstances has made available to the Company such amount, that
Bank shall on the Banking Day following such date of Borrowing
make such amount available to the Agent, together with interest
at the Reference Rate for each day during such period. A notice
of the Agent submitted to any Bank with respect to amounts owing
under this subsection (a) shall be conclusive, absent manifest
error. If such amount is so made available, such payment to the
Agent shall constitute such Bank's Loan on the date of Borrowing
for all purposes of this Agreement. If such amount is not made
available to the Agent on the Banking Day following the date of
Borrowing, the Agent will notify the Company of such failure to
fund and, upon demand by the Agent, the Company shall pay such
amount to the Agent for the Agent's account, together with
interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any date
of Borrowing shall not relieve any other Bank of any obligation
hereunder to make a Loan on such date of Borrowing, but no Bank
shall be responsible for the failure of any other Bank to make
the Loan to be made by such other Bank on any date of Borrowing.
-30-
<PAGE>
3.8 Sharing of Payments, Etc. If, other than as expressly
-------------------------
provided elsewhere herein, any Bank shall obtain on account of the
Loans made by it any payment (whether voluntary, involuntary, through
the exercise of any right of set-off, or otherwise) in excess of its
Pro Rata Share, such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations
in the Loans made by them as shall be necessary to cause such
purchasing Bank to share the excess payment pro rata with each of
them; provided, however, that if all or any portion of such excess
-------- -------
payment is thereafter recovered from the purchasing Bank, such
purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor,
together with an amount equal to such paying Bank's ratable share
(according to the proportion of (i) the amount of such paying Bank's
required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by
the purchasing Bank in respect of the total amount so recovered. The
Company agrees that any Bank so purchasing a participation from
another Bank may, to the fullest extent permitted by law, exercise all
its rights of payment (including the right of set-off, but subject to
Section 11.7) with respect to such participation as fully as if such
------------
Bank were the direct creditor of the Company in the amount of such
participation. The Agent will keep records (which shall be conclusive
and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Banks
following any such purchases or repayments.
3.9 Letter of Credit Sublimit.
-------------------------
3.9.1 Amount and Terms of the Credit. Subject to the
------------------------------
terms and upon the conditions of this Agreement, the Issuing Bank
shall issue letters of credit for the account of the Company from
time to time up to but not including July 30, 1999 (as extended
by the Banks in writing from time to time in their sole
discretion, the "L/C Commitment Termination Date"). The maximum
aggregate principal amount which remains undrawn under all
outstanding Letters of Credit (the "L/C Obligations") under this
Agreement shall not exceed at any one time outstanding the
aggregate principal sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00) (the "L/C Commitment").
-31-
<PAGE>
3.9.2 Standby Letters of Credit.
-------------------------
(a) Amounts and Terms of Standby Letters of
---------------------------------------
Credit. During the period from the date of this Agreement
to but excluding the L/C Commitment Termination Date, and
subject to the terms and conditions of this Agreement, upon
Company's request pursuant to Section 3.9.3, the Issuing
-------------
Bank shall issue one or more standby letter(s) of credit or
commercial letters of credit (subject to subparagraph (b)
below) (each, a "Letter of Credit," and collectively, the
"Letters of Credit") for the account of Company (subject to
Section 3.9.5) or the account of the Letter of Credit
-------------
Subsidiaries (subject to Section 3.9.6); provided that the
------------- --------
Issuing Bank shall not be obligated to issue any Letter of
Credit if, after giving effect thereto, (i) the L/C
Obligations would exceed the L/C Commitment, or (ii) the
total aggregate outstanding Revolving Loans plus the L/C
----
Obligations would exceed the Total Aggregate Commitment, or
(iii) the Total Borrowing Base Home Building Indebtedness
would exceed the Borrowing Base. All Letters of Credit
shall be on Issuing Bank's standard forms of letters of
credit at the time of issuance. No Letter of Credit shall
have an expiration date (unless the Banks otherwise consent
in writing) later than the Revolving Loans Maturity Date.
Except as specified in subparagraph (b) below, the Issuing
Bank shall not be required to issue any Letter of Credit
hereunder unless such Letter of Credit is for the benefit of
a party to which the Company or the Letter of Credit
Subsidiaries owe certain performance obligations in
connection with their ordinary course of business real
estate development activity (for example, for the benefit of
a municipality to support Company's obligation to widen
public streets in connection with a residential development
project). Issuing Bank shall not be required to issue any
Letter of Credit for the benefit of creditors to which the
Company or the Letter of Credit Subsidiaries are obligated
in respect of obligations for borrowed money.
-32-
<PAGE>
(b) Panel Concepts Sublimit. Subject to the
-----------------------
satisfaction of the conditions set forth in this Agreement
to the issuance of Letters of Credit, the Issuing Bank shall
issue commercial Letters of Credit for the account of the
Company or Panel Concepts (subject to Section 3.9.6) for the
-------------
benefit of trade creditors to which Panel Concepts owes
payment for supplies in connection with its furniture
manufacturing activity, so long as the L/C Obligations with
respect to such commercial Letters of Credit do not, and
with the issuance of the requested commercial Letter of
Credit would not, exceed $150,000 in the aggregate as to all
such commercial Letters of Credit. The Company shall be the
account party under, and shall be liable for the repayment
of any drawing under, all such commercial Letters of Credit.
(c) Letter of Credit Draws are Loans under this
-------------------------------------------
Agreement. Company and each Bank agree that any draws under
---------
any Letters of Credit shall constitute Revolving Loans under
this Agreement for all purposes. Without limiting the
foregoing, (i) all draws under any Letter of Credit shall
bear interest and be repaid as Revolving Loans outstanding
under this Agreement, and (ii) if, at the time any draw is
made under any Letter of Credit, an Event of Default has
occurred or the Revolving Loans Maturity Date has passed or
the Revolving Loans have been accelerated or are otherwise
due and payable, such draw under such Letter of Credit shall
be immediately due and payable in full. Promptly upon being
notified by the Agent (after Agent has received notice from
the Issuing Bank) that a draw has occurred under any Letter
of Credit, each Bank shall reimburse the Agent, for the
benefit of the Issuing Bank, for that Bank's Pro Rata Share
of such draw.
3.9.3 Request for Credit. The Company, on or after
------------------
the date of this Agreement, shall give the Issuing Bank notice of
its request for the issuance of a Letter of Credit by delivering
to the Issuing Bank (with a copy to the Agent) a duly
-33-
<PAGE>
executed and completed L/C Application on Issuing Bank's then
current form (herein, an "L/C Application"). Such request shall
specify: (i) the date on which the issuance of the Letter of
Credit is requested to be made (which day shall be a Banking
Day), and (ii) the amount of the Letter of Credit. Subject to the
conditions herein, the Issuing Bank will issue the Letter of
Credit as soon as reasonably practicable after receiving the
above described notice.
3.9.4 Issuance Fees. For each Letter of Credit
-------------
issued by the Issuing Bank (and upon any renewal thereof), the
Company shall pay to the Agent, for the account of each Bank in
accordance with its Pro Rata Share, from the Company's own funds
(and not from proceeds of Loans) a fee equal to 1.00% per annum
times the length of the term of the Letter of Credit (or renewal
-----
thereof) expressed in years times the dollar amount of the Letter
-----
of Credit and to the Agent, for the account of the Issuing Bank,
from the Company's own funds (and not from proceeds of Loans) a
fee equal to .25% per annum times the length of the term of the
-----
Letter of Credit (or renewal thereof) expressed in years times
-----
the dollar amount of the Letter of Credit (collectively, the
"Issuance Fee").
3.9.5 Conditions Precedent to Issuance of Letters of
----------------------------------------------
Credit. The obligation of the Issuing Bank to issue any Letter
------
of Credit requested by the Company is subject to satisfaction of
the following conditions precedent:
(a) Conditions to Loans shall be Satisfied. Each
--------------------------------------
of the conditions specified in Sections 6.2 and 6.3 to
--------------------
Borrowings shall also be applicable as conditions precedent
to the issuance of any Letter of Credit.
(b) L/C Application. The Issuing Bank shall have
---------------
received from the Company, in form and substance
satisfactory to the Issuing Bank, (i) a duly executed and
completed L/C Application which L/C Application shall set
forth, among other things, the beneficiary, the amount, and
the term of the proposed Letter of Credit, and (ii) a duly
executed and completed
-34-
<PAGE>
Request for Letter of Credit (in the form attached hereto as
Exhibit "C-2").
(c) Issuing Bank Approval. The Issuing Bank shall
---------------------
have determined that the amount of any requested Letter of
Credit, the beneficiary thereof and the other terms
contained in the documents pertaining to such Letter of
Credit are satisfactory to the Issuing Bank in the exercise
of its sole discretion.
(d) Payment of Fees. The Company shall pay the
---------------
applicable Issuance Fee. The applicable Issuance Fee shall
be payable prior to the issuance (or renewal) of any Letter
of Credit and shall be paid by the Company to the Agent. In
addition, the Company shall pay all reasonable and customary
fees and costs described in the documents pertaining to such
Letter of Credit.
(e) Telephone Confirmation. Prior to the issuance
----------------------
of any Letter of Credit, the Issuing Bank shall confirm by
telephone with the Agent that, following the issuance of
such Letter of Credit, none of the limitations set forth in
Section 3.9 would be violated.
-----------
3.9.6 Subsidiary Letters of Credit. The Company has requested
----------------------------
that Letters of Credit from time to time upon its request be issued by the
Issuing Bank (the "Subsidiary Letters of Credit") with Standard Pacific of
Texas, Inc. or Panel Concepts (the "Letter of Credit Subsidiaries") as the
"account party" (which would be liable under the reimbursement agreements
pertaining to such Subsidiary Letters of Credit) thereunder. Subsidiary
Letters of Credit shall constitute "Letters of Credit" hereunder, and all
terms and conditions specified above in this Section 3.9 with respect to
-----------
Letters of Credit shall be applicable to such Subsidiary Letters of Credit.
Without limiting the foregoing, any draws under such Subsidiary Letters of
Credit shall constitute Loans hereunder which the Company is obligated to
repay (as more fully set forth in Section 3.9.2(c) above), all amounts
----------------
remaining undrawn on under all such Subsidiary Letters of Credit shall
constitute part of the "L/C Obligations", the $150,000 sublimit for Panel
Concepts (specified in Section 3.9.2(b) above) shall include all Subsidiary
----------------
Letters of Credit in which Panel Concepts is the account party, and the
fees and
-35-
<PAGE>
issuance procedures shall be as specified above. In addition to all terms
and conditions specified in Section 3.9.5 above to the issuance of Letters
----------------
of Credit, it shall be a condition to the issuance of any Subsidiary Letter
of Credit that the Company shall have executed the Guaranty of the
Subsidiary Letters of Credit as well as such other documents as the Issuing
Bank may reasonably request (and shall have reaffirmed such guaranty from
time to time upon Issuing Bank's request). All waivers and releases made by
the Company which are set forth in the Guaranty of the Subsidiary Letters
of Credit are incorporated herein by this reference and shall also be
applicable to any Loans (and the Company's obligation to repay such Loans)
made or to be made under Section 3.9.2(c) hereof with respect to draws
----------------
under the Subsidiary Letters of Credit.
3.10 Term Loan Conversion Option.
---------------------------
3.10.1 Amount and Effect of Term Loan. Upon written notice to
------------------------------
each Bank not less than thirty (30) days prior to the end of a calendar
quarter up to and including the calendar quarter ending on the Term Loan
Election Date, the Company may elect to convert not less than $25,000,000
and not more than $75,000,000 of the Total Aggregate Commitment to a term
loan (the "Term Loan") effective at the beginning of the next calendar
quarter (the "Term Loan Conversion Date") under the terms and conditions
set forth herein. On the Term Loan Conversion Date, the Total Aggregate
Commitment shall be reduced by the amount of the Term Loan, the Commitment
of each Bank that makes a portion of the Term Loan shall also be ratably
reduced in accordance with such Bank's share of the Term Loan, and the
Commitment of each Bank that does not make a portion of the Term Loan shall
not be reduced; and the proceeds of the Term Loan shall first be applied to
-----
reduce the aggregate outstanding principal amount of the Revolving Loans to
the extent that the aggregate principal amount of the then outstanding
Revolving Loans exceeds the Total Aggregate Commitment as reduced by the
-- -------
amount of the Term Loan, before the Company may use the proceeds of the
Term Loan for any other purpose. This Term Loan conversion option may be
exercised only once.
3.10.2 Repayment of Term Loan. Principal and interest with
----------------------
respect to the Term Loan shall be paid in accordance with Article 4 hereof.
---------
3.10.3 Conditions Precedent to Term Loan Conversion. The Term
--------------------------------------------
Loan conversion is subject to the following conditions precedent:
(a) Conditions to Loans Shall be Satisfied. Each of the
--------------------------------------
conditions specified in Sections 6.2 and 6.3 to Borrowings shall also
------------ ---
be
-36-
<PAGE>
applicable to as conditions precedent to the Term Loan conversion.
(b) Payment of Fee. The Company shall have paid to the
--------------
Agent, for the account of each Bank in accordance with its Pro Rata
Share, from the Company's own funds (and not from proceeds of Loans) a
fee equal to .50% times the dollar amount of the Term Loan.
-----
(c) Term Notes. The Company shall have executed and
----------
delivered to each Bank a Term Note, substantially in the form of
Exhibit "A-2" attached hereto and made a part hereof, in the amount of
------------
its Pro Rata Share of the Term Loan.
3.10.4 All Banks Participate. All Banks shall be required to
---------------------
participate in accordance with their Pro Rata Share in the Term Loan,
including those Banks which refuse to extend the Revolving Loans Maturity
---------
Date pursuant to Section 4.18 hereof and the Term Loan Election Date
pursuant to Section 3.10.5 hereof; provided that:
--------
(a) Any non-renewing Bank need not participate in any Term
Loan as to which the Term Loan Conversion Date is to occur following
the Non-Renewing Bank Term Loan Election Date applicable to such non-
renewing Bank; and
(b) If less than all of the Banks are obligated to
participate in the Term Loan pursuant to the foregoing provisions of
this Agreement, the remaining renewing Banks may reduce the amount of
the Term Loan they are obligated to fund and participate in pursuant
to Section 3.10.1 ratably in accordance with the Commitments of the
non-renewing Banks that are no longer obligated to participate in the
Term Loan.
3.10.5 Extension of Term Loan Election Date. Term Loan Election
------------------------------------
Date may be extended to the first anniversary of the then applicable Term
Loan Election Date, at the sole discretion of each of the Banks, upon
receipt from the Company of an Extension Request delivered to the Agent not
earlier than 60 days and not later than 30 days prior to the then existing
Term Loan Election Date. No such extension shall be effective as to a
particular Bank without the approval of such extension by such Bank.
Approval or disapproval of each such extension shall be in the sole and
absolute discretion of each Bank. Each Bank shall notify the Agent and the
Company, in writing and within 20 days of receipt of an Extension Request,
whether it will extend
-37-
<PAGE>
the Term Loan Election Date. The Term Loan Election Date shall be extended
to the first anniversary of the then effective Term Loan Election Date as
to all Banks that approve such extension. If any Bank elects not to extend
the Term Loan Election Date, or does not give notice of its election to
extend the Term Loan Election Date on or before the date which is 10 days
before the then applicable Term Loan Election Date, the Term Loan Election
Date shall not be extended as to such non-renewing Bank. Furthermore, the
Term Loan Election Date shall not be extended as to any Bank unless such
Bank concurrently agrees to extend the Revolving Loans Maturity Date as to
such Bank pursuant to section 4.18 hereof (so that in no event shall the
Term Loan Election Date be extended if that would allow for the possibility
that the Term Loan Maturity Date could extend by more than one year past
the applicable Revolving Loans Maturity Date if the Term Loan conversion
option were exercised by the Company as provided for in Section 4.18).
ARTICLE 4: PAYMENTS AND FEES.
-----------------
4.1 Principal and Interest.
----------------------
(a) Interest shall be payable on the outstanding daily unpaid
principal amount of each Borrowing from the date thereof until payment in
full is made and shall accrue and be payable at the rates set forth herein
both before and after default and before and after maturity and judgment,
with interest on overdue interest to bear interest at the rate specified in
Section 4.4. Upon any partial prepayment or redesignation of outstanding
-----------
Reference Rate Borrowings, interest accrued through the date of such
prepayment or redesignation shall be payable on the next following Interest
Payment Date and shall be deducted from the Account on such date.
Insufficient funds in the Account shall not excuse the Company's obligation
to pay accrued interest on the Interest Payment Date. Upon any partial
prepayment or payment in full or redesignation or conversion of any IBOR
Borrowing, or upon any payment or redesignation in full of all outstanding
Reference Rate Borrowings, interest accrued through the date of such
prepayment, payment, redesignation or conversion shall be payable on the
next following Interest Payment Date.
(b) Interest on each Reference Rate Borrowing shall be computed
on the basis of a year of 360 days and the actual number of days elapsed,
at the Reference Rate times the total principal balance outstanding
-----
-38-
<PAGE>
under each Note. Interest accrued on each Reference Rate Borrowing shall be
payable on each Interest Payment Date, commencing with the first such date
to occur after the Closing Date, and shall be deducted from the Account on
each such Interest Payment Date. Insufficient funds in the Account shall
not excuse the Company's obligation to pay accrued interest on the Interest
Payment Date. The Agent shall use its best efforts to notify the Company of
the amount of interest so payable prior to each Interest Payment Date, but
failure of the Agent to do so shall not excuse payment of such interest
when payable. Except as otherwise provided in Section 4.4, the unpaid
------ -----------
principal amount of any Reference Rate Borrowing shall bear interest at a
fluctuating rate per annum equal to the Reference Rate. Each change in the
interest rate shall take effect simultaneously with the corresponding
change in the Reference Rate. Each change in the Reference Rate shall be
effective as of 12:01 a.m. on the Banking Day on which the change in the
Reference Rate is announced, unless otherwise specified in such
announcement, in which case the change shall be effective as so specified.
(c) Interest on each IBOR Borrowing shall be computed on the
basis of a year of 360 days and the actual number of days elapsed.
Interest accrued on each IBOR Borrowing which is for a term of 30 days or
less shall be payable on the next Interest Payment Date following the
maturity date of that IBOR Borrowing. Interest accrued on each other IBOR
Borrowing outstanding as of each Interest Payment Date, commencing with the
first such date to occur after the Closing Date: (i) shall be payable on
each such Interest Payment Date and shall be deducted from the Account on
such date, and (ii) shall be payable on the next Interest Payment Date
following the maturity date of that IBOR Borrowing. Insufficient funds in
the Account shall not excuse the Company's obligation to pay accrued
interest on the Interest Payment Date. The Agent shall use its best
efforts to notify the Company of the amount of interest so payable prior to
each such date, but failure of the Agent to do so shall not excuse payment
of such interest when payable. The unpaid principal amount of any IBOR
Borrowing shall bear interest at a rate per annum equal to the IBOR Rate
for that IBOR Borrowing plus the applicable IBOR Rate Spread.
----
(d) If not sooner paid, the principal indebtedness evidenced by
each Note shall be payable as follows:
(i) subject to the applicable provisions of this Agreement
providing for automatic redesignation of Borrowings upon compliance
-39-
<PAGE>
with Section 3.4, the principal amount of each Borrowing shall be
-----------
payable on the last day of the IBOR Period for such Borrowing;
(ii) the amount, if any, by which the principal indebtedness
evidenced by each Revolving Note at any time exceeds the applicable
Bank's Commitment shall be payable immediately;
(iii) the amount of each payment required pursuant to
Section 4.16 shall be payable immediately;
------------
(iv) all outstanding Revolving Loans (other than as
specified in subparagraph (v) below) shall be payable on the Revolving
Loans Maturity Date;
(v) the principal of any Revolving Note held by a Bank which
refuses to extend the Maturity Date pursuant to Section 4.18, if not
------------
sooner paid, shall be payable on such Bank's Non-Renewing Bank
Revolving Loan Maturity Date; and
(vi) The principal amount of the Term Loan shall be due and
payable in twelve (12) equal quarterly payments, due and payable
commencing on the last day of the calendar quarter in which the Term
Loan Conversion Date occurs, and continuing on the last day of each
calendar quarter thereafter until the Term Loan Maturity Date, at
which time any and all remaining outstanding principal under the Term
Loan (and any other amounts owing in connection with the Term Loan not
otherwise paid when due) shall be due and payable in full.
(e) Each Note may, at any time and from time to time, be paid or
prepaid in whole or in part, provided that (i) any partial prepayment shall
--------
be an integral multiple of $10,000, (ii) any partial prepayment shall be in
an amount not less than $100,000, (iii) except as required by subsection
------
(d) above, no IBOR Borrowing may be paid or prepaid in whole or in part
prior to the last day of the applicable IBOR Period without the prior
consent of each Bank, and, notwithstanding such required prepayment or such
consent, any payment or prepayment of all or any part of any IBOR Borrowing
on a day other than the last day of the applicable IBOR Period shall be
made on an IBOR Banking Day, as applicable, and shall be preceded by at
least five (5) IBOR Banking Days, as applicable, written notice to the
Agent of the date and amount of such payment
-40-
<PAGE>
or payments, and (iv) any prepayment of an IBOR Borrowing shall be
accompanied by a prepayment fee calculated in accordance with subsection
(f) below.
(f) Prepayment fees shall be calculated as follows (and
determined as though 100% of the IBOR Borrowing had been funded in the IBOR
Market):
(i) principal amount of the IBOR Borrowing, times [the
-----
number of days between the date of prepayment and the last day in the
applicable IBOR Period] divided by 360, times the applicable Interest
---------- -----
Differential; plus
----
(ii) all reasonable out-of-pocket expenses (including
Attorney Costs) incurred by the Banks and reasonably attributable to
such prepayment; provided that no prepayment fee shall be payable (and
--------
no credit or rebate shall be required) if the product of the foregoing
formula is not positive.
The Agent's determination of the amount of any prepayment fee shall be
conclusive in the absence of manifest error.
Nothing contained in this Section 4.1 shall relieve the Company from
-----------
its obligation to make interest payments to the Banks on each Interest Payment
Date (in accordance with the terms and conditions contained herein) in the event
the funds held in the Account are insufficient to make such interest payments on
any such Interest Payment Date.
4.2 Unused Fee. For the period commencing on the date of this
----------
Agreement and ending on the Revolving Loans Maturity Date, the Company shall pay
to the Agent for the account of each Bank in accordance with its Pro Rata Share
an unused fee, computed on the basis of a year of 360 days and the actual number
of days elapsed, at the rate of .250% per annum times the average daily
-----
difference between (a) the Total Aggregate Commitment, and (b) the total
principal balance outstanding under the Revolving Notes plus the L/C Obligations
(the "Unused Amounts"), for all Unused Amounts up to $100,000,000; and .375% per
annum times the average daily difference between (i) the Total Aggregate
-----
Commitment and (ii) the total principal balance outstanding under the Revolving
Notes plus the L/C Obligations, for all Unused Amounts over $100,000,000. The
unused fee accrued as of the last day of
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<PAGE>
September, December, March and June of each year shall be payable in arrears on
the day on which the Agent notifies the Company of the amount due, except that
------
upon payment of each Revolving Note in full, the unused fee accrued to the date
of payment shall be payable on the date of payment.
4.3 Commitment Fee. For the period commencing on the date of this
--------------
Agreement and ending on the Revolving Loans Maturity Date, the Company shall pay
to the Agent for the account of each Bank in accordance with its Pro Rata Share
a commitment fee, computed on the basis of a year of 360 days and the actual
number of days, at the rate of .125% per annum times the amount of the Total
-----
Aggregate Commitment. The Commitment Fee shall be payable quarterly in advance
on the first day of each January, April, July, and October of each year.
4.4 Late Payments. Should any installment of principal or interest
-------------
or any fee or cost or other amount payable under any Loan Document to the Banks
not be paid within 15 days of when due, it shall thereafter bear interest at a
fluctuating interest rate per annum at all times equal to the sum of the
Reference Rate plus 2.00% per annum, to the fullest extent permitted by
----
applicable Law. Accrued and unpaid interest on past due amounts (including,
---------
without limitation, interest on past due interest) shall be compounded monthly,
on the last day of each calendar month, to the fullest extent permitted by
applicable Law.
4.5 Taxes. All payments payable to the Banks hereunder or with
-----
respect to the Loan Documents shall be made to the Banks without deductions for
any Taxes or Other Taxes except to the extent the Company is required by any Law
or Governmental Authority to withhold and except in accordance with Section
-------
10.10 to the extent, if any, that such amounts are required to be withheld by
- - -----
the Agent under the laws of the United States of America or any other applicable
taxing authority.
4.6 Illegality.
----------
(a) If any Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for any Bank or its applicable Lending Office
to make IBOR Rate Loans, then, on notice thereof by the Bank to the Company
through the Agent, any obligation of that Bank to make IBOR Rate Loans
shall be suspended until the Bank notifies the Agent and the Company that
the
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<PAGE>
circumstances giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any IBOR
Rate Loan, the Company shall, upon its receipt of notice of such fact and
demand from such Bank (with a copy to the Agent), prepay in full such IBOR
Borrowings of that Bank then outstanding, together with interest accrued
thereon and amounts required under Section 4.8, either on the last day of
-----------
the IBOR Period thereof, if the Bank may lawfully continue to maintain such
IBOR Rate Loans to such day, or immediately, if the Bank may not lawfully
continue to maintain such IBOR Rate Loan. If the Company is required to so
prepay any IBOR Rate Loan, then concurrently with such prepayment, the
Company shall borrow from the affected Bank, in the amount of such
repayment, a Reference Rate Loan.
(c) If the obligation of any Bank to make or maintain IBOR Rate
Loans has been so terminated or suspended, the Company may elect, by giving
notice to the Bank through the Agent that all Loans which would otherwise
be made by the Bank as IBOR Rate Loans shall be instead Reference Rate
Loans.
(d) Before giving any notice to the Agent under this Section, the
affected Bank shall designate a different Lending Office with respect to
its Reference Rate Loans if such designation will avoid the need for giving
such notice or making such demand and will not, in the judgment of the
Bank, be illegal or otherwise disadvantageous to the Bank.
4.7 Increased Costs and Reduction of Return.
----------------------------------------
(a) If any Bank determines that, due to either (i) the
introduction of or any change (other than any change by way of imposition
of or increase in reserve requirements included in the calculation of the
IBOR Rate or in respect of the assessment rate payable by any Bank to the
FDIC for insuring U.S. deposits) in or in the interpretation of any law or
regulation or (ii) the compliance by that Bank with any guideline or
request from any central bank or other Governmental Authority (whether or
not having the force of law), there shall be any increase in the cost to
such Bank of agreeing to make or making, funding or maintaining any IBOR
Rate Loans, then the Company shall be liable for, and shall from time to
time, upon demand (with a copy of such demand to be sent to the Agent), pay
to the Agent for the account of such Bank, additional
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<PAGE>
amounts as are sufficient to compensate such Bank for such increased costs.
(b) If any Bank shall have determined that (i) the introduction
of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or
(iv) compliance by the Bank (or its Lending Office) or any corporation
controlling the Bank with any Capital Adequacy Regulation, affects or would
affect the amount of capital required or expected to be maintained by the
Bank or any corporation controlling the Bank and (taking into consideration
such Bank's or such corporation's policies with respect to capital adequacy
and such Bank's desired return on capital) determines that the amount of
such capital is increased as a consequence of its Commitment, loans,
credits or obligations under this Agreement, then, upon demand of such Bank
to the Company through the Agent, the Company shall pay to the Bank, from
time to time as specified by the Bank, additional amounts sufficient to
compensate the Bank for such increase.
4.8 Funding Losses. The Company shall reimburse each Bank and hold
--------------
each Bank harmless from any loss or expense which the Bank may sustain or incur
as a consequence of:
(a) the failure of the Company to borrow, continue or convert a
Loan after the Company has given (or is deemed to have given) a Request for
Borrowing or a Request for Redesignation of Borrowing; or
(b) the prepayment (including pursuant to Section 4.16) or other
------------
payment (including after acceleration thereof) of an IBOR Rate Loan on a
day that is not the last day of the relevant IBOR Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its IBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained. Such loss or
expense shall be calculated as follows (and determined as though 100% of the
IBOR Borrowing had been funded in the IBOR Market):
(i) principal amount of the IBOR Borrowing, times [the
-----
number of days between the date of the event and the last day in the
-44-
<PAGE>
applicable IBOR Period] divided by 360, times the applicable Interest
---------- -----
Differential; plus
----
(ii) all out-of-pocket expenses (including Attorney Costs)
incurred by the Banks and reasonably attributable to such event;
provided that no prepayment fee shall be payable (and no credit or
--------
rebate shall be required) if the product of the foregoing formula is
not positive.
4.9 Inability to Determine Rates. If any Bank determines that for
----------------------------
any reason adequate and reasonable means do not exist for determining the IBOR
Rate for any requested IBOR Period with respect to a proposed IBOR Rate Loan, or
that the IBOR Rate applicable pursuant to subsection 4.1(c) for any requested
IBOR Period with respect to a proposed IBOR Rate Loan does not adequately and
fairly reflect the cost to such Banks of funding such Loan, the Agent will
promptly so notify the Company and each Bank. Thereafter, the obligation of the
Banks to make or maintain IBOR Rate Loans, as the case may be, hereunder shall
be suspended until the Agent upon the instruction of such Bank revokes such
notice in writing. Upon receipt of such notice, the Company may revoke any
Request for Borrowing or Request for Redesignation of Borrowing then submitted
by it. If the Company does not revoke such Request, the Banks shall make,
convert or continue the Loans, as proposed by the Company, in the amount
specified in the applicable notice submitted by the Company, but such Loans
shall be made, converted or continued as Reference Rate Loans instead of IBOR
Rate Loans, as the case may be.
4.10 Reserves on IBOR Rate Loans. The Company shall pay to each Bank,
---------------------------
as long as such Bank shall be required under regulations of the FRB to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"),
additional costs on the unpaid principal amount of each IBOR Rate Loan equal to
the actual costs of such reserves allocated to such Loan by the Bank (as
determined by the Bank in good faith, which determination shall be conclusive),
payable on each date on which interest is payable on such Loan, provided the
Company shall have received at least 15 days' prior written notice (with a copy
to the Agent) of such additional interest from the Bank. If a Bank fails to
give notice 15 days prior to the relevant Interest Payment Date, such additional
interest shall be payable 15 days from receipt of such notice.
4.11 Certificates of Banks. Any Bank claiming reimbursement or
---------------------
compensation under this Article 4 shall deliver to the Company (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to the Bank
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<PAGE>
hereunder and such certificate shall be conclusive and binding on the Company in
the absence of manifest error.
4.12 Substitution of Banks. Upon the receipt by the Company from any
---------------------
Bank (an "Affected Bank") of a claim for compensation under Section 4.7 or
------------- -----------
Section 4.15, the Company may: (i) request the Affected Bank to use its best
- - ------------
efforts to obtain a replacement bank or financial institution satisfactory to
the Company to acquire and assume all or a ratable part of all of such Affected
Bank's Loans and Commitment (a "Replacement Bank"); or (ii) request one or more
----------------
of the other Banks to acquire and assume all or part of such Affected Bank's
Loans and Commitment; or (iii) designate a Replacement Bank. Any such
designation of a Replacement Bank under clause (i) or (iii) shall be subject to
the prior written consent of the Agent (which consent shall not be unreasonably
withheld).
4.13 Survival. The agreements and obligations of the Company in this
--------
Article 4 shall survive for one year following the payment in full of all
Obligations.
4.14 Manner and Treatment of Payments. The amount of each payment
--------------------------------
hereunder or on each Note shall be made to each applicable Bank in immediately
available funds on the day of payment (which must be a Banking Day). Any
payment received after 11:00 a.m., California time, on any Banking Day, shall be
deemed received on the next succeeding Banking Day. Whenever any payment to be
made hereunder or on each Note is due on a day that is not a Banking Day,
payment shall be made on the next succeeding Banking Day; provided that the
extension shall be included in the computation of interest owing on the next
following Interest Payment Date. Any payment of the principal of any IBOR
Borrowing shall be made on an IBOR Banking Day as applicable.
4.15 Change in Capital Requirements; Additional Costs. If a Bank at
------------------------------------------------
any time subsequent to the date of this Agreement determines that the amount of
capital required or expected to be maintained by the Bank or any corporation
controlling the Bank under any Law or any guideline, request or directive of any
Governmental Authority is based on or increased by advances and/or commitments
of the type contemplated by this Agreement, then Company shall pay to the Bank
on demand such additional amounts as the Bank may reasonably determine to be
sufficient to compensate the Bank or such other corporation in light of such
circumstances to the extent that the Bank reasonably determines that the
maintenance of such capital is allocable to advances and/or commitments under
this Agreement. If the occurrence of any Special Circumstance or other
regulatory development, or the
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<PAGE>
imposition of any Tax or Other Tax, or change in applicable Law, shall result in
an increase in the cost to the Bank of making, funding, maintaining or
continuing the funding of any Borrowing, then Company shall pay to the Bank on
demand such additional amounts as the Bank determines to be necessary to
compensate the Bank for such increased cost.
4.16 Mandatory Prepayment. In the event that the aggregate principal
--------------------
amount of the outstanding Loans plus the L/C Obligations at any time exceeds the
----
limitations specified in Section 3.6 (whether because of the outstanding amount
-----------
of the Loans or L/C Obligations, or because of the other outstanding Total
Borrowing Base Home Building Indebtedness), the Company shall immediately make a
prepayment of the Loans in such amount as is necessary to cause the amount of
outstanding Loans plus L/C Obligations to comply with the limitations of Section
---- -------
3.6. In the event that the L/C Obligations at any time exceed the Borrowing
- - ---
Base, the Company shall immediately upon demand by the Agent deposit with the
Agent, for the benefit of the Banks, an amount in cash equal to the amount by
which the outstanding L/C Obligations exceed the Borrowing Base. Such cash
shall be deposited in an interest bearing account with the Agent as to which the
Company shall have no right of withdrawal except as provided below. At such
time as the Borrowing Base once again equals or exceeds the outstanding L/C
Obligations, and provided no other Event of Default is outstanding and the
Company is otherwise in compliance with this Agreement, the amount so deposited
by the Company in such restricted account with the Agent, together with any
interest accrued thereon, shall be remitted to the Company.
4.17 Agency Fee And Other Consideration Payable To Agent. The Banks
---------------------------------------------------
acknowledge that pursuant to a fee letter agreement of even date herewith
between the Agent, BofA and the Company (the "Fee Letter Agreement"), the
Company has agreed to pay the Agent an agency fee and other fees and
compensation as consideration for the Agent's performance of its duties as Agent
under this Agreement, as more fully set forth in the Fee Letter Agreement. The
Borrower covenants and agrees to pay such agency fee and other fees and
compensation to the Agent at the times and in the manner set forth in the Fee
Letter Agreement. The agency fee and other fees and compensation payable to the
Agent under the Fee Letter Agreement shall belong solely to the Agent, and Agent
shall not be required to share any such agency fee or other fees or compensation
specified in the Fee Letter Agreement with any of the other Banks.
4.18 Maturity Date Extension Option.
------------------------------
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<PAGE>
(a) The Revolving Loans Maturity Date may be extended to the
first anniversary of the then applicable Revolving Loans Maturity Date, at
the sole discretion of each of the Banks, upon receipt from the Company of
an Extension Request delivered to the Agent not earlier than ninety (90)
days and not later than sixty (60) days prior to the date which is two (2)
years prior to the then existing Revolving Loans Maturity Date. No such
extension shall be effective as to a particular Bank without the approval
of such extension by such Bank, and no Bank may agree to an extension of
the applicable Revolving Loan's Maturity Date without concurrently agreeing
to an extension of the applicable Term Loan Conversion Date (and any Bank
that agrees to an extension of the application Revolving Loan's Maturity
Date shall automatically be deemed to have agreed to an extension of the
applicable Term Loan Conversion Date pursuant to Section 3.10.5 hereof).
Approval or disapproval of each such extension shall be in the sole and
absolute discretion of each Bank. Each Bank shall notify the Agent and the
Company, in writing and within 30 days of receipt of an Extension Request,
whether it will extend the Revolving Loans Maturity Date. If all Banks
approve such extension on or before the date for which the request is made,
the Revolving Loans Maturity Date shall be extended to the first
anniversary of the then effective Revolving Loans Maturity Date.
(b) If any Bank elects not to extend the Revolving Loans Maturity
Date, or does not give notice of its election to extend the Revolving Loans
Maturity Date on or before the date which is thirty (30) days before the
date which is two (2) years prior to the previously applicable Revolving
Loans Maturity Date, the Company may, at its option to be exercised in its
sole discretion, by delivery of written notice to all of the Banks at any
time prior to the previously applicable Revolving Loans Maturity Date,
either:
(i) Repay all Revolving Loans from the non-renewing Bank(s),
reduce the Total Aggregate Commitment by an amount equal to the Pro
Rata Share of the Revolving Loans of the non-renewing Bank(s)
effective on the date of repayment of the non-renewing Bank(s) (which
date must be on or before the Non-Renewing Bank Revolving Loans
Maturity Date), amend the Commitments of the renewing Banks to reflect
a ratable allocation of the Total Aggregate Commitment as thus
reduced, effective as of the date of repayment of the non-renewing
Bank(s), and extend the Revolving Loans Maturity Date by one year as
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<PAGE>
to the renewing Banks; or
(ii) Reduce the Total Aggregate Commitment by an amount
equal to the Pro Rata Share of the Revolving Loans of the non-renewing
Bank(s) effective on a date specified by the Company (which date must
be on or before the Non-Renewing Bank Revolving Loans Maturity Date),
amend the Commitments of the renewing Banks to reflect a ratable
allocation of the Total Aggregate Commitment as thus reduced,
effective as of the date specified by the Company as provided above,
extend the Revolving Loans Maturity Date by one year as to the
renewing Banks and retain the Non-Renewing Bank Revolving Loans
Maturity Date as the date of maturity of principal of the Pro Rata
Share of Revolving Loan proceeds disbursed by the non-renewing Banks;
or
(iii) Identify an Eligible Assignee to purchase, without
recourse, at par, all or the remaining portion of the non-renewing
Bank's Commitment on or before the Non-Renewing Bank Revolving Loans
Maturity Date for such Bank. Such Eligible Assignee must agree to a
Revolving Loans Maturity Date and a Term Loan Election Date which is
coterminous with the Revolving Loans Maturity Date and the Term Loan
Election Date for all of the renewing Banks and must be approved by
the Agent, which approval shall not be unreasonably withheld or
delayed.
ARTICLE 5: SECURITY.
--------
5.1 Unsecured Credit. The Obligations shall be unsecured.
----------------
ARTICLE 6: CONDITIONS.
----------
6.1 Conditions to Disbursement of First Borrowings. The obligation
----------------------------------------------
of the Banks to make the first new disbursement of the Loan Proceeds (other than
those Proceeds already outstanding under the Fourth Amended Credit Agreement) is
subject to the conditions precedent specified in Section 11.21.
-------------
6.2 Conditions for Subsequent Borrowings or for a Redesignation of
--------------------------------------------------------------
Borrowings. The obligation of the Banks to make any subsequent Borrowing or
- - ----------
redesignation of Borrowing is subject to the following conditions precedent:
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<PAGE>
(a) the representations and warranties contained in Sections 7.1
------------
through 7.12, inclusive, and Sections 7.13 and 7.14, inclusive, as of the
------------ ----------------------
latest reporting required under this Agreement, shall be correct in all
Material respects on and as of the date of the Borrowing, or redesignation
thereof, as though made on and as of that date, and no Event of Default or
event that could become an Event of Default upon the giving of notice
and/or the passage of time shall have occurred and be continuing; and
(b) the Company shall, at its sole expense, deliver or cause to
be delivered to the Agent, in form and substance satisfactory to the Agent,
a Request for Borrowing or a Request for Redesignation of Borrowing, as
applicable.
6.3 Any Borrowing. In addition to any applicable conditions
-------------
precedent set forth elsewhere in this Article 6, the obligation of the Banks to
make any Loan is subject to the conditions precedent that the representations
and warranties con tained in Section 7.2 shall be true and correct in all
-----------
Material respects on and as of the date of such Loan as though made on and as of
that date, and that there shall not have occurred any default which would
constitute an Event of Default or which would upon notice or the passage of time
constitute an Event of Default.
ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to each Bank that:
7.1 Incorporation, Qualification, Powers and Capital Stock. The
------------------------------------------------------
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of Delaware, is duly qualified to do
business as, and is in good standing as, a foreign corporation in each
jurisdiction in which the conduct of its business or the ownership or leasing of
its properties makes such qualification necessary, and has all requisite power
and authority to conduct its business and to own and lease its properties. All
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid, nonassessable, and issued in compliance with all applicable
state and federal securities and other Laws.
7.2 Execution, Delivery and Performance of Loan Documents.
-----------------------------------------------------
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<PAGE>
(a) The Company has all requisite power and authority to execute
and deliver, and to perform all of its obligations under, the Loan
Documents.
(b) Guarantor has all requisite power and authority to execute
and deliver, and to perform all of its obligations under the Guaranty.
(c) The execution and delivery by the Company of, and the
performance by the Company of each of its obligations under, each Loan
Document, and the execution and delivery by each Guarantor of, and the
performance by each Guarantor of each of its obligations under the
Guaranty, have been duly authorized by all necessary action and do not and
will not:
(i) require any consent or approval not heretofore obtained
of any stockholder, security holder or creditor of the Company, any
Subsidiary or any Guarantor;
(ii) violate any provision of the certificate of incor
poration or bylaws of the Company or any Guarantor or any provision of
the articles or certificate of incorporation, bylaws or partnership
agreement of any Subsidiary;
(iii) result in or require the creation or imposition of
any lien, claim or encumbrance (except to the extent that any lien is
created under this Agreement) upon or with respect to any property now
owned or leased or hereafter acquired by the Company, any Subsidiary
or any Guarantor;
(iv) violate any provision of any Law, order, writ,
judgment, injunction, decree, determination or award presently in
effect having applicability to the Company, any Subsidiary or any
Guarantor; or
(v) result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement or any other Material agreement,
lease or instrument to which the Company, any Subsidiary or any
Guarantor is a party or by which the Company, any Subsidiary or any
Guarantor or any property of the Company, any Subsidiary or any
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<PAGE>
Guarantor is bound or affected.
(d) The Company, each Subsidiary and each Guarantor is
not in default under any Law, order, writ, judgment, injunction,
decree, determination, award, indenture, agreement, lease or
instrument described in Sections 7.2(c)(iv) or 7.2(c)(v) above,
--------------------------------
in any respect that is Materially adverse to the interests of any
Bank, or that could Materially impair the ability of the Company,
its Subsidiaries and each Guarantor taken as a whole to perform
its obligations, under the Loan Documents, as applicable or that
has a Material adverse effect on the business or financial
condition of the Company, any Subsidiary or any Guarantor.
(e) No authorization, consent, approval, order,
license, permit or exemption from, or filing, registration or
qualification with, any Governmental Authority not heretofore
obtained is or will be required under applicable Law to authorize
or permit the execution, delivery and performance by the Company
or any Guarantor of, all of its obligations under, the Loan
Documents.
(f) Each of the Loan Documents, when executed and
delivered, will constitute the legal, valid and binding
obligations of the Company and each Guarantor enforceable against
it in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws relating to or affecting
creditors' rights generally or equitable principles relating to
the granting of specific performance or other equitable remedies
as a matter of judicial discretion.
7.3 Compliance with Laws and Other Requirements. The
-------------------------------------------
Company is in compliance in all Material respects with all Laws and
other requirements applicable to its business and has obtained all
Material authorizations, consents, approvals, orders, licenses,
permits and exemptions from, and has accomplished all Material
filings, registrations or qualifications with, any Governmental
Authority that is necessary for the transaction of its business.
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<PAGE>
7.4 Subsidiaries.
------------
(a) Exhibit "F" hereto correctly sets forth the names
and jurisdictions of incorporation or formation of all present
Subsidiaries. Except as described in Exhibit "F", the Company
does not own any capital stock or equity interest or partnership
interest in any Person other than the Subsidiaries with the
exception of certain real estate development joint ventures in
which the Company is a joint venturer which have previously been
disclosed to the Banks in writing (and in which the Company's net
investment does not exceed the $15,000,000 limitation of Section
-------
8.13). All outstanding shares of capital stock or partnership
----
interests, as the case may be, of each Subsidiary that are owned
by the Company or any Subsidiary are (i) owned of record and
beneficially by the Company and/or by one or more Subsidiaries,
free and clear of all liens, claims, encumbrances and rights of
others, and are (ii) duly authorized, validly issued, fully paid,
nonassessable, and issued in compliance with all applicable state
and federal securities and other Laws. The Company may update
Exhibit "F" from time to time by sending written notice to the
Agent.
(b) Each Subsidiary is a corporation, partnership or
limited liability company duly incorporated or formed, validly
existing and in good standing under the laws of its respective
jurisdiction of incorporation or formation, is duly qualified to
do business as, and is in good standing as, a foreign
corporation, partnership or limited liability company in each
jurisdiction in which the conduct of its business or the
ownership or leasing of its properties makes such qualification
necessary, and has all requisite power and authority to conduct
its business and to own and lease its properties.
(c) Each Subsidiary is in compliance in all Material
respects with all Laws and other requirements applicable to its
business and has obtained all Material authorizations, consents,
approvals, orders, licenses, permits and exemptions from, and has
accomplished all Material filings, registrations or
qualifications with, any Governmental Authority that is necessary
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<PAGE>
for the transaction of its business.
7.5 Affiliated Partnerships. There are no Affiliated
-----------------------
Partnerships presently in existence which are not Subsidiaries listed
on Exhibit "F" hereto, with the exception of certain real estate
development joint ventures in which the Company is a joint venturer
which have previously been disclosed to the Banks in writing (and in
which the Company's net investment does not exceed the $15,000,000
limitation of Section 8.13).
------------
7.6 Financial Statements of the Company and the
-------------------------------------------
Subsidiaries. The Company has furnished to the Banks a copy of the
------------
Form 10-K of the Company and the Subsidiaries as of December 31, 1995,
a copy of the Form 1O-Q of the Company and the Subsidiaries dated as
of September 30, 1996, and the related unaudited financial statements
(and for the September 30, 1996 1O-Q the other information required by
Section 8.10(b) was also furnished to the Banks). Such financial
---------------
statements and the notes thereto fairly present in all Material
respects the consolidated financial position of the Company and the
Subsidiaries as at the dates specified therein and the consolidated
results of operations and cash flows for the period then ended, all in
conformity with generally accepted accounting principles applied on a
consistent basis.
7.7 No Material Adverse Change. There has been no Material
--------------------------
adverse change in the condition, financial or otherwise, of the
Company and the Subsidiaries, taken as a whole, from the financial
condition of the Company and the Subsidiaries, taken as a whole, since
December 31, 1995, and the Company and the Subsidiaries, taken as a
whole, do not have any Material liability or, to the best knowledge of
the Company, Material contingent liability, not reflected or disclosed
in the financial statements or notes thereto described in Section 7.6.
-----------
7.8 Tax Liability. The Company and each Subsidiary have
-------------
filed all tax returns (federal, state and local) required to be filed
by them and have paid all taxes shown thereon to be due and all
property taxes due, including interest and penalties, if any. To the
best knowledge of the Company, there does not exist any substantial
likelihood that any Governmental Authority will successfully assert a
tax deficiency against
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<PAGE>
the Company or any Subsidiary that is Material to the Company and the
Subsidiaries, taken as a whole, that has not been adequately reserved
against in the financial statements described in Section 7.6. The
-----------
Company and each Subsidiary has established and is maintaining
adequate reserves for tax liabilities, if any, sufficient to comply
with generally accepted accounting principles.
7.9 Litigation. There are no actions, suits or proceedings
----------
pending or, to the best knowledge of the Company, threatened against
or affecting the Company or any Subsidiary or any Affiliated
Partnership, or any property of the Company or any Subsidiary or any
Affiliated Partnership, before any Governmental Authority which, if
determined adversely to the Company or the Subsidiary or any
Affiliated Partnership, could have a Material adverse effect on the
interests of any Bank, or could Materially impair the ability of the
Company to perform its obligations under the Loan Documents, or could
have a Material adverse effect on the business or financial condition
of the Company and the Subsidiaries, taken as a whole.
7.10 Pension Plan. Neither the Company nor any Subsidiary
------------
maintains or contributes to any employee Plan (other than the 401K
plans presently established by the Company and Panel Concepts, Inc.,
as to which both corporations have Materially complied with all
applicable Laws).
7.11 Regulations U and X; Investment Company Act. Neither
-------------------------------------------
the Company nor any Subsidiary is engaged principally, or as one of
its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" within the
meanings of Regulation U of the FRB. No part of the Loan Proceeds
will be used to purchase or carry any margin stock, or to extend
credit to others for that purpose, or for any purpose that violates
the provisions of Regulations U or X of the Board of Governors.
Neither the Company nor any Subsidiary is or is required to be
registered under the Investment Company Act of 1940.
7.12 No Default. No event has occurred and is continuing
----------
that is an Event of Default or that could become an Event of Default
upon the giving of notice and/or the passage of time.
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<PAGE>
7.13 Borrowing Base. The Total Borrowing Base Home
--------------
Building Indebtedness does not exceed the Borrowing Base.
7.14 Borrowing Base Components. At any time of deter
-------------------------
mination thereof, the value of any component of Real Estate Inventory
used to calculate the Borrowing Base does not exceed the GAAP Value of
such component of Real Estate Inventory.
ARTICLE 8: COVENANTS OF THE COMPANY.
------------------------
As long as any Note remains unpaid or any other Obligation
remains outstanding or any Commitment remains in effect, unless each
Bank otherwise consents in writing:
8.1 Consolidated Tangible Net Worth.
-------------------------------
(a) The Company shall not permit Consolidated Tangible
Net Worth at any time to be less than the sum of (a) $230,000,000
(the "Base Amount") plus (b) the greater of (i) 50% of the
----
cumulative consolidated net income (without deduction for losses
sustained during any fiscal year) of the Company and its
consolidated Subsidiaries for each fiscal quarter subsequent to
the fiscal quarter ended December 31, 1995 or (ii) $2,500,000 per
year for each year subsequent to the year ended December 31,
1995; provided, however, that in the event that (i) the Company
-------- -------
divests itself of all its equity interest in Standard Pacific
Savings in a stock spin-off to shareholders of the Company, or in
the case of changes in the applicable regulations affecting the
holding company, through sale, (ii) as a result of such stock
spin-off or sale, the Company has no further Material liability
or obligation with respect to Standard Pacific Savings, and (iii)
such stock spin-off or sale reduces Consolidated Tangible Net
Worth by no more than the sum of the Tangible Net Worth of
Standard Pacific Savings determined at the time of such stock
spin-off or sale plus all reasonable transaction expenses
----
relating to such stock spin-off or sale, then the Base Amount
shall be reduced to $207,000,000.
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<PAGE>
(b) In addition to complying with the requirements of
subparagraph (a) above, the Company shall not permit the
Consolidated Tangible Net Worth of the Company, less the Tangible
----
Net Worth of Standard Pacific Savings, at any time to be less
than $207,000,000 plus (b) the greater of (i) 50% of the
----
cumulative consolidated net income (without deduction for losses
sustained during any fiscal year) of the Company and its
consolidated Subsidiaries for each fiscal quarter subsequent to
the fiscal quarter ended December 31, 1995, or (ii) $2,500,000
per year for each year subsequent to the year ended December 31,
1995.
8.2 Leverage Covenants.
------------------
(a) The Company shall not permit, at any time, the
ratio of Home Building Debt to Home Building Net Worth to exceed
1.6 to 1.0.
(b) The Company shall not permit, at any time, the
ratio of Consolidated Debt to Consolidated Tangible Net Worth to
exceed 2.5 to 1.0.
8.3 Payment of Taxes and Other Potential Liens. The
------------------------------------------
Company shall pay and discharge promptly, and cause each Subsidiary to
pay and discharge promptly, all taxes, assessments and governmental
charges or levies imposed upon it, upon its property or any part
thereof, upon its income or profits or any part thereof, or upon any
right or interest of any Bank under or in respect of any Loan
Document, except that neither the Company nor any Subsidiary shall be
------
required to pay or cause to be paid (a) any income or gross receipts
tax generally applicable to banks and imposed on any Bank, or (b) any
tax, assessment, charge or levy that is not yet past due, or being
actively contested in good faith by appropriate proceedings, as long
as the Company or Subsidiary, as the case may be, has established and
maintains adequate reserves for the payment of the same and, by reason
of nonpayment, no property of the Company or any Subsidiary is in
danger of being lost or forfeited. If Standard Pacific Savings elects
not to pay property taxes on its undivided interest in the parcel of
land in its real estate owned portfolio described
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<PAGE>
as Rose Canyon Ranch located in the County of Orange, California, and
also known as Ferber Ranch, the Company will not be in violation of
this Section 8.3.
-----------
8.4 Preservation of Existence. The Company shall preserve
-------------------------
and maintain, and cause each Subsidiary to preserve and maintain, its
corporate or partnership existence, as the case may be, and all
licenses, rights, franchises and privileges in the jurisdiction of its
incorporation or formation and all authorizations, consents,
approvals, orders, licenses, permits or exemptions from, or
registrations or qualifications with, any Governmental Authority that
are necessary for the transaction of its business, and qualify and
remain qualified, and cause each Subsidiary to qualify and remain
qualified, to do business as a foreign corporation or partnership in
each jurisdiction in which such qualification is necessary in view of
its business or the ownership or leasing of its properties, except
-------
that neither the complete liquidation or dissolution of any
Subsidiary, nor the failure to preserve and maintain any particular
license, right, franchise, privilege, authorization, consent,
approval, order, permit, exemption, registration or qualification, or
to qualify or remain qualified in any jurisdiction, that is not
Material to the business or financial condition of the Company and its
Subsidiaries taken as a whole will constitute a violation of this
covenant, and except that neither the sale of Standard Pacific Savings
------
nor the sale of Panel Concepts, Inc. will constitute a violation of
this covenant.
8.5 Maintenance of Properties. The Company shall maintain,
-------------------------
preserve and protect, and cause each Subsidiary to maintain, preserve
and protect, all of its properties in good order and condition,
subject to wear and tear in the ordinary course of business and, in
the case of unimproved properties, damage caused by the natural
elements, and not permit any Subsidiary to permit, any waste of its
properties, except that neither (i) the failure to maintain, preserve
------
and protect a par ticular item of property that is not of Material
value, either intrinsically or to the operations of the Company or any
Subsidiary, nor (ii) the failure to maintain, preserve and protect a
particular item of property due to full compliance with a final
written order from a Governmental Agency, will constitute a violation
of this covenant.
8.6 Maintenance of Insurance. Except as permitted by
------------------------
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<PAGE>
Section 8.21 below, the Company shall maintain, and cause each
------------
Subsidiary to maintain: (a) insurance with responsible companies in
such amounts and against such risks as is usually carried by companies
engaged in similar businesses and owning similar properties in the
same general area in which the Company or any Subsidiary operates, and
(b) insurance required by any Governmental Authority having
jurisdiction over the Company or any Subsidiary.
8.7 Mergers. The Company shall not merge or consolidate,
-------
or permit any Subsidiary to merge or consolidate, with or into any
Person, except that any Subsidiary existing on the date hereof may
merge into the Company (provided that the surviving entity is the
Company) or into any other Subsidiary; provided that no Subsidiary who
is a Guarantor shall merge with or into a non-guarantying Subsidiary.
8.8 Books and Records. The Company shall maintain, and
-----------------
cause each Subsidiary to maintain, full and complete books of account
and other records reflecting the results of its operations in
conformity with generally accepted accounting principles applied on a
consistent basis and all applicable requirements of any Governmental
Authority having jurisdiction over the Company or any Subsidiary or
any business or properties of the Company or any Subsidiary.
8.9 Inspection Rights. At any time during regular business
-----------------
hours and at any other reasonable time, and as often as requested, the
Company shall permit, and cause each Subsidiary to permit, each Bank
or any employee, agent or representative thereof to inspect and make
copies and abstracts from the records and books of account of, and to
visit and inspect the properties of, the Company and any Subsidiary,
and to discuss any affairs, finances and accounts of the Company and
any Subsidiary with any of their respective officers or directors.
8.10 Reporting Requirements. The Company shall cause to be
----------------------
delivered to each Bank, in form and detail satisfactory to such Bank:
(a) as soon as practicable and in any event within 15
days after the occurrence of an Event of Default becomes
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<PAGE>
known to the Company, a written statement setting forth the
nature of the Event of Default and the action that the Company
proposes to take with respect thereto;
(b) as soon as available and in any event within 45
days after the end of each of the first three quarters of each
calendar year, a Form 10-Q of the Company and the Subsidiaries as
of the end of the quarter most recently ended, and unaudited
consolidated balance sheets, statements of income, retained
earnings and cash flows of the Company and unaudited
consolidating balance sheets and statements of income of the
Subsidiaries in the form attached as Schedule 8.10(b) hereto, for
such period, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by the chief financial officer or
the treasurer of the Company; (additionally, a schedule shall
accompany the unaudited consolidating and consolidated balance
sheets which shall reconcile the amounts used to calculate the
covenants pursuant to Sections 8.1 and 8.2 above to such
------------ ---
unaudited consolidated and consolidating balance sheets);
(c) as soon as available and in any event within 90
days after the end of each calendar year, a Form 10-K and a
consolidating and consolidated balance sheet of the Company and
the Subsidiaries as of the end of the year most recently ended
and consolidated statements of income, retained earnings and cash
flows of the Company and the Subsidiaries for such year, setting
forth in each case in comparative form the corresponding figures
for the preceding fiscal year, audited by and with the opinion of
Arthur Andersen LLP or some other independent certified public
accountants of recognized standing selected by the Company and
acceptable to the Majority Banks, which opinion shall be
unqualified except as to such matters as are acceptable to the
Majority Banks ("Acceptable Audit Opinion");
(d) as soon as available and in any event within 90
days after the end of the fiscal year of Standard Pacific Savings
most recently ended, (i) an audited balance sheet, statements of
income, retained earnings and cash flows of Standard Pacific
Savings for such fiscal year, together with an Acceptable Audit
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<PAGE>
Opinion; and (ii) unaudited balance sheets and statements of
income of the Subsidiaries described in Schedule 8.10(d); all in
reasonable detail and duly certified by the chief financial
officer or the treasurer of the Company;
(e) at the time of the delivery of the financial
statements described in (b), (c) and (d) above, a certificate of
the chief financial officer or the treasurer of the Company
stating that no event exists that is, or with the giving of
notice and/or the passage of time would be, an Event of Default,
or if such an event exists, stating the nature thereof and the
action that the Company proposes to take with respect thereto;
(f) as soon as available and in any event within 45
days after the end of each calendar year, a projected operating
budget of the Company for the succeeding twelve months (which for
1997 will be in the form previously delivered to Agent); and
including for each of the Company's real estate development
projects for each quarter (a) the number of projected closings of
Units, and (b) projected revenue (including the aggregate of all
amounts projected to be generated from any source in connection
with the sale of Units to the public);
(g) [Intentionally Left Blank.]
(h) [Intentionally Left Blank.]
(i) promptly upon the Company learning thereof, notice
in writing of any action, suit or proceeding before any
Governmental Authority which, if determined adversely to the
Company or any Subsidiary, might reasonably be expected to have a
Material adverse effect on the business, assets, operation or
condition, financial or otherwise, of the Company or Subsidiary
or could impair the ability of the Company to perform its
obligations under the Loan Documents;
(j) such other information about the business, assets,
operation or condition, financial or otherwise, of the
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<PAGE>
Company or any Subsidiary, as each Bank may reasonably request
from time to time;
(k) as soon as available and in any event within 45
days after the end of each calendar quarter, a residential
development summary substantially in the form previously
submitted to each Bank;
(l) as soon as practicable, and in any event within
forty-five (45) days after the end of each calendar quarter,
monthly projections for the next succeeding twelve (12) month
period of cash flow for the Company (except for the March 31
reporting which may be for the next succeeding 9 months), in the
form previously delivered to each Bank;
(m) as soon as practicable, and in any event within
forty-five (45) days after the end of each calendar quarter,
reports showing the actual operating results for the calendar
quarter most recently ended, in the form of the projected
operating budget required under Section 8.10(f) above; and
---------------
(n) within forty-five (45) days after the end of each
calendar quarter, a certificate of the Company's chief financial
officer or treasurer, together with such backup infor mation as
each Bank may reasonably require, demonstrating in reasonable
detail that the Company was in compliance during the applicable
period with the covenants set forth in Sections 8.1, 8.2, 8.13,
------------ --- ----
8.17, 8.19, 8.23, 8.24, and 8.25.
---- ---- ---- ---- ----
8.11 Liens. The Company shall not create, incur, assume or
-----
allow to exist, or permit any Subsidiary to create, incur, assume or
allow to exist, any lien of any nature upon or with respect to any
property of the Company or any Subsidiary, whether now owned or
hereafter acquired, except the following permissible liens:
(a) liens securing indebtedness existing on the date
hereof and disclosed in the notes to the financial statements
incorporated in the Form 10-K described in Section 7.6, but only
-----------
to the extent of the indebtedness secured thereby and the
property
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<PAGE>
subject thereto on the date hereof and renewals, extensions or
refundings thereof that do not increase the principal amount of
in debtedness secured thereby or the property subject thereto;
(b) liens for taxes, assessments or governmental
charges or levies to the extent that neither the Company nor any
Subsidiary is required to pay the amount secured thereby under
Section 8.3;
-----------
(c) liens imposed by law, such as carrier's,
warehouseman's, mechanic's, materialman's and other similar
liens, arising in the ordinary course of business in respect of
obligations that are not overdue or are being actively contested
in good faith by appropriate proceedings, as long as the Company
or Subsidiary, as the case may be, has established and maintains
adequate reserves for the payment of the same and, by reason of
nonpayment, no property of the Company or any Subsidiary is in
danger of being lost or forfeited;
(d) liens on property located in the State of Texas
which do not in the aggregate secure indebtedness exceeding
$10,000,000 (provided that liens held by the Company or any
Subsidiary, as lender, on properties in the State of Texas which
are owned by the Company or any Subsidiary shall not be included
in the $10,000,000 limitation specified above, and shall be
permitted);
(e) purchase money liens upon or in any property
acquired or held by the Company or any Subsidiary in the ordinary
course of business, including, without limitation real property,
to secure the purchase price of such property, or liens upon or
in such property to secure indebtedness incurred solely for the
purpose of financing the acquisition of such property;
(f) liens existing on purchase money property at the
time of its acquisition;
(g) leases of model units;
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<PAGE>
(h) liens on property owned by joint ventures with
respect to which the Company or any Subsidiary is a partner;
(i) liens or assignments by the Company, Standard
Pacific Financing, L.P. or Standard Pacific Financing, Inc. (or
an operating limited partnership formed to perform the same
functions as Standard Pacific Financing, Inc. in which the
Company will have a 99% interest in allocations of profits,
losses, distributions and credits) of mortgages made in
connection with financing transactions entered into in the
ordinary course of business;
(j) liens on property owned by Panel Concepts, Inc. to
finance its operations in the ordinary course of business; and
(k) liens incurred in the ordinary course of business
on property or assets owned by Standard Pacific Savings.
8.12 Prepayment of Indebtedness. If an Event of Default
--------------------------
has occurred and is continuing or an acceleration of the indebtedness
evidenced by each Note has occurred, the Company shall not prepay the
principal amount, in whole or in part, of any indebtedness other than
(a) indebtedness owed to each Bank hereunder or under some other
agreement between the Company and such Bank and (b) indebtedness which
ranks pari passu with indebtedness evidenced by each Note which is or
becomes due and owing whether by reason of acceleration or otherwise.
8.13 Bank Approval of Joint Ventures. Neither the Company
-------------------------------
nor any Subsidiary shall become a partner in a joint venture or any
other partnership, other than the existing Subsidiaries, without the
prior written approval of the Majority Banks, provided that the
---------
foregoing shall not apply to joint ventures and partnerships with
respect to which the total amount of the net investment of the Company
and all Subsidiaries does not exceed $15,000,000 in the aggregate.
8.14 Compliance with Laws and Other Requirements.
-------------------------------------------
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<PAGE>
(a) The Company shall comply, and cause each Subsidiary
to comply, with the requirements of all applicable Laws and
orders of any Governmental Authority, noncompliance with which
might Materially adversely affect the business or financial
condition of the Company or any Subsidiary.
(b) The Company shall comply, and cause each Subsidiary
(to the extent they are so engaged) to comply, with all Material
applicable Laws and other requirements relating to the
development of each of its projects and the sale of units
therein, and shall obtain, and cause each Subsidiary (to the
extent they are so engaged) to obtain, all necessary Material
authorizations, consents, approvals, licenses and permits of any
Governmental Authority with respect thereto.
8.15 Change in Nature of Business. The Company shall not
----------------------------
make, or permit any Subsidiary to make, any change in the nature of
its or their respective businesses as carried on at the date hereof
that is Material to the Company and Subsidiaries, taken as a whole,
which has not been consented to by each Bank in writing. Neither the
sale of Standard Pacific Savings nor the sale of Panel Concepts, Inc.
will constitute a violation of this covenant.
8.16 Pension Plan. The Company shall not enter into,
------------
maintain or make contributions to, or permit any Subsidiary to enter
into, maintain or make contributions to, directly or indirectly, any
Plan that is subject to Title IV of ERISA.
8.17 Dividends and Subordinated Debt. The Company shall
-------------------------------
not declare or pay any dividend on, or purchase, redeem, retire or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, return any capital to its stockholders or make any
distribution of assets to its stockholders, whether in cash, property
or obligations, or pay all or any part of any Subordinated Debt,
transfer any property in payment of or as security for the payment of
all or any part of any Subordinated Debt, or establish any sinking
fund, reserve or like set aside of funds or other property for the
redemption, retirement or repayment of all or any part of any
Subordinated Debt, except (so long as no Event of Default has occurred
------
and is continuing):
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<PAGE>
(a) the Company may make payments in respect of any
Subordinated Debt as and when required by the terms thereof, but
in any event not more than 90 days in advance of the due date
thereof; provided, however, that the Company may prepay
-------- -------
Subordinated Debt at any time from the proceeds of indebtedness
issued by the Company following the Closing Date so long as the
maturity date of all such indebtedness is at least one year
beyond the Maturity Date;
(b) the Company may declare and pay dividends in any
calendar quarter so long as (i) at the time each such dividend is
declared the Consolidated Tangible Net Worth requirement of
Section 8.1 remains satisfied and any such dividend would not
-----------
cause Section 8.1 to be violated and (ii) all such dividends paid
-----------
in such calendar quarter do not in the aggregate exceed the sum
of (A) $1,000,000, plus (B) 50% of the amount by which the
----
cumulative net income (without deduction for net losses) of the
Company for the preceding calendar quarter exceeds $1,000,000;
and
(c) the Company may from time to time repurchase shares
of its capital stock for an amount not to exceed $25,000,000 in
the aggregate.
8.18 Disposition of Properties. The Company shall not, and
-------------------------
shall not permit the Subsidiaries to, sell, assign, exchange,
transfer, lease or otherwise dispose of any of their respective
properties (whether real or personal), other than properties sold,
assigned, exchanged, transferred, leased or otherwise disposed of for
fair value and in the ordinary course of business or properties
transferred to the Company or a Subsidiary pursuant to the dissolution
of a Subsidiary permitted under Section 8.4, or properties with an
-----------
aggregate value which does not exceed $2,500,000 in any one year;
provided, however, any transfer of the respective properties of
-------- -------
Standard Pacific Savings and Panel Concepts, Inc. shall be permitted
and shall not be counted toward the limitation in this covenant.
8.19 Limitation on New Operating Subsidiaries or
-------------------------------------------
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<PAGE>
Affiliated Partnerships. Without the prior written consent of each
-----------------------
Bank, the Company shall not form, acquire, or permit to exist, or
transfer any of the business of the Company or any Subsidiary or
Affiliated Partnership to, any new Subsidiaries or Affiliated
Partnerships not in existence as of the date hereof, except as
contemplated by Sections 8.11(i), 8.13, 8.20 and 8.21; provided,
---------------- ---- ---- ---- --------
however, the Company may form or acquire new Subsidiaries or
-------
Affiliated Partnerships without such consent if the aggregate capital
contributions to such Subsidiaries or Affiliated Partnerships in any
single year shall not at any time exceed $2,500,000 in the aggregate.
Upon the formation of any new Subsidiary or Affiliated Partnership,
the Company shall provide the Banks with a revised Exhibit "F" to this
Agreement, which revised exhibit shall be effective for all purposes
under this Agreement upon such formation.
8.20 Operating Subsidiaries of Panel Concepts, Inc. Panel
----------------------------------------------
Concepts, Inc. may form one or more new operating Subsidiaries (owned
by Panel Concepts, Inc.) following the date hereof, provided that (i)
the aggregate capital contributions to any Subsidiary of Panel
Concepts, Inc. shall not at any time exceed $100,000.00, and (ii) the
aggregate capital contributions to all Subsidiaries of Panel Concepts,
Inc. shall not at any time exceed $500,000.00 in the aggregate.
8.21 Maintenance of General Liability, Workers Compensation
------------------------------------------------------
and Subsidence Insurance. The Company has previously formed The
------------------------
Boston Casualty Co. Ltd. in order to provide the Company with general
liability, workers compensation and subsidence insurance policies.
The parties hereto agree that the following terms, covenants and
conditions shall apply to The Boston Casualty Co. Ltd. and all
policies issued by The Boston Casualty Co. Ltd.:
(a) Other than its initial capital contribution of
$1,000,000 and to comply with future minimum capital requirements
for The Boston Casualty Co. Ltd., the Company shall not, without
the prior written consent of the Majority Banks (which consent
shall not to be unreasonably and arbitrarily withheld), make any
additional capital contributions, payments or other transfers of
funds to The Boston Casualty Co. Ltd. or any entity under its
control or under the joint control of the Company and The Boston
Casualty Co. Ltd., other than payments of
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<PAGE>
insurance premiums which are reasonable and standard for the
industry in light of the claims experience or reasonably expected
claims experience of the Company and The Boston Casualty Co.
Ltd., so long as such contributions, payments or other transfers
of funds would not otherwise cause an Event of Default. Insurance
premiums may be paid only for the permitted types of insurance
coverage and reinsurance policies described in Sections 8.21(c)
----------------
and 8.21(d) below.
-------
(b) The Boston Casualty Co. Ltd. shall insure only the
Company, Subsidiaries and, directly or indirectly, non-commercial
consumers of Units and no other Person; provided, however, that
-------- -------
"additional insureds" may appear in policies under which the
Company or any Subsidiary is the primary insured.
(c) The policies of insurance to be provided by The
Boston Casualty Co. Ltd. to the Company and/or Subsidiaries shall
be limited to general liability, workers compensation, product
warranty and subsidence insurance only, unless the Majority Banks
otherwise consent in writing (which consent shall not be
unreasonably and arbitrarily withheld).
(d) The Company and/or any Subsidiary may obtain, prior
to the expiration of its current insurance policies, and
thereafter may maintain, insurance coverage and reinsurance
policies through The Boston Casualty Co. Ltd. with respect to the
types of insurance specified in subparagraph (c) above, and the
Company and Subsidiaries shall promptly notify each Bank of any
Material increases to their exposure retained by The Boston
Casualty Co. Ltd. as a result of this new insurance structure and
any renewals of these policies; provided, however, that such
-------- -------
notification shall not be required with respect to any increase
in exposure that is within the level of self-insurance that is
reasonable and standard for the homebuilding industry.
(e) Any Material failure by the Company (which failure
is not cured within 30 days after written notice from the Banks
to the Company) to observe or perform, or any Material failure
(which failure is not cured within 30 days after written
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<PAGE>
notice from the Banks to the Company) to cause The Boston
Casualty Co. Ltd. to observe or perform, any of the terms,
agreements, or conditions contained in this Section 8.21, shall
------------
constitute an Event of Default, and allow the Banks to exercise
all rights and remedies specified in Section 9.2 of this
-----------
Agreement, or otherwise available under applicable Law.
8.22 Transfers to Saddleback Inns of the Americas. The
--------------------------------------------
Company acknowledges that the Banks shall not at this time require
Saddleback Inns of the Americas to execute and deliver to the Banks a
Guaranty of the Obligations. Notwithstanding the immediately
preceding sentence, in the event that the Company or any Subsidiary
transfers assets to Saddleback Inns of the Americas which in the
aggregate exceed $50,000.00, the Company hereby agrees to cause
Saddleback Inns of the Americas to execute and deliver to the Banks a
Guaranty in the form (other than as to the identity of the Guarantor)
of Exhibit "D" hereto. For the purposes of this Section 8.22, a
------------
transfer of assets by the Company or any Subsidiary to Saddleback Inns
of the Americas shall be deemed to be a transfer in excess of
$50,000.00 if the amount of such transfer, when combined with all
previous transfers of assets by the Company or any Subsidiary to
Saddleback Inns of the Americas on or after the date hereof, exceeds
$50,000.00 in the aggregate.
8.23 Management. The Company shall at all times, unless
----------
each Bank otherwise agrees, maintain in senior management positions at
the Company at least three (3) of the following individuals: Arthur
Svendsen, Stephen Scarborough, Scott Stowell and Andrew Parnes.
8.24 Investments in Standard Pacific Savings. The Company
---------------------------------------
shall not, and shall not permit any Subsidiary to, at any time,
without the prior written consent of the Majority Banks, which consent
will not be unreasonably withheld, make any Investment in Standard
Pacific Savings, if at the time of such Investment or as a result of
such Investment, the aggregate of all Investments by the Company and
its Subsidiaries in Standard Pacific Savings exceed or would exceed
the sum of:
(i) the amount of the Company's and its Subsidiaries'
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Investment in Standard Pacific Savings, as of June 30, 1993, plus
----
(ii) 5% of the Company's Consolidated Tangible Net Worth at
the time of the proposed Investment, plus
----
(iii) the amount of all dividends and distributions paid by
Standard Pacific Savings to the Company as a shareholder after June
30, 1993;
provided, however, that in the event of the creation of, or change in, any
-------- -------
applicable law, rule, regulation, official interpretation thereof or
official directive after the date hereof which has the effect of increasing
the capital maintenance, net worth or similar regulatory requirements
applicable to Standard Pacific Savings to maintain its Well Capitalized
rating from the Office of Thrift Supervision, the Company and its
subsidiaries may, without the prior written consent of the Majority Banks,
make an Investment or Investments in Standard Pacific Savings for the
purpose of causing Standard Pacific Savings to meet such regulatory
requirements. All calculations required to be made pursuant to this
Section 8.24 shall be based upon information derived from quarterly
------------
financial statements for the quarter immediately preceding the date of any
such calculations; provided, however, that by doing so the Company confirms
-------- -------
that no event has occurred following the date of such quarterly financial
statements which would require a Material downward adjustment of such
calculations, and if such an event has occurred, such calculations shall be
adjusted to reflect the same.
8.25 Total Borrowing Base Home Building Indebtedness Not to Exceed
-------------------------------------------------------------
Borrowing Base. The Company shall not permit the Total Borrowing Base Home
- - --------------
Building Indebtedness to at any time exceed the Borrowing Base.
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT.
-------------------------------------------
9.1 Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an Event of Default hereunder:
(a) failure to pay within 15 days after the date when due the
principal of each Note or any portion thereof or any interest thereon; or
(b) failure to pay any fee or any other amount payable by the
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Company or any Subsidiary under the Loan Documents within 15 days after the
date when due; or
(c) failure to perform or observe any other Material term,
covenant or agreement contained in any Loan Document on the Company's or
any Subsidiary's part to be performed or observed (except that with respect
to a failure of the Company or The Boston Casualty Co. Ltd. to observe or
perform any term, agreement or condition contained in Section 8.21, the
------------
cure period shall be as specified in Section 8.21(e)); or
---------------
(d) any representation or warranty in any Loan Document or in any
certificate, agreement, instrument or other document made or delivered
pursuant to or in connection with any Loan Document proves to have been
incorrect when made in any respect that is Materially adverse to the
interests of any Bank under the Loan Documents; or
(e) the occurrence of any default under any other agreement
between the Company and any Bank, including without limitation, the failure
to pay when due (or within any stated grace period) the principal or any
principal installment of, or any interest, on any present or future
indebtedness for borrowed money owed by the Company to any Bank; or
(f) the Company, any Subsidiary or any Guarantor (except as
provided in Section 8.4 with respect to Subsidiaries) is dissolved or
-----------
liquidated or all or substantially all of the assets of the Company are
sold or otherwise transferred or encumbered without the prior written
consent of each Bank; or
(g) the Company, any Subsidiary or any Guarantor is the subject
of an order for relief by any bankruptcy court, or is unable or admits in
writing its inability to pay its debts as they mature or makes an
assignment for the benefit of creditors; or applies for or consents to the
appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any part of its
property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or
consent of the Company, Subsidiary or Guarantor and the appointment
continues undischarged or unstayed for 60 days; or institutes or consents
to any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, custodianship, conservatorship, liquidation,
rehabilitation or similar proceeding relating to it or to all or any part
of its
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property under the laws of any jurisdiction; or any similar proceeding is
instituted without the consent of the Company, Subsidiary or Guarantor and
continues undismissed or unstayed for 45 days; or any judgment, writ,
warrant of attachment or execution or similar process is issued or levied
against all or any part of the property of the Company, any Subsidiary or
any Guarantor and is not released, vacated or fully bonded within 45 days
after its issue or levy; or
(h) the Majority Banks have reasonably determined that a Material
adverse change has occurred since the date hereof in the operations,
business or financial condition of the Company and the Subsidiaries taken
as a whole, and 15 calendar days have elapsed since the date that notice of
such determination is given to the Company; or
(i) the Company, any Subsidiary or any Guarantor shall (i) fail
to pay any indebtedness to any other Person or any interest or premium
thereon, when due (whether by Scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after
the applicable grace period, if any, specified in the agreement or
instrument relating to such indebtedness, or (ii) fail to perform any term,
covenant or condition on its part to be performed under any agreement or
instrument relating to any such indebtedness, when required to be
performed, and such failure shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of
such failure to perform is to accelerate, or to permit the acceleration of,
the maturity of such indebtedness; or any such indebtedness shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity
thereof; or
(j) without the prior written consent of each Bank, any
Subsidiary that is a partner or venturer in a partnership or joint venture
shall withdraw as a partner or venturer in any partnership or joint
venture, unless (i) none of the Banks has made any loans or extended any
credit accommodations to any such partnership or joint venture, and (ii)
the aggregate net investment of the Company and any Subsidiary in such
partnership or joint venture does not exceed $15,000,000; or
(k) any Guarantor shall reject or disaffirm its Guaranty, or
otherwise notify the Agent that it does not intend the Guaranty or its
liability thereunder to apply to any one or more future Borrowings or other
Obligations;
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or
(l) any Borrowing Base Certificate proves to have been incorrect
in any Material respect when delivered to the Agent.
9.2 Remedies Upon Event of Default.
------------------------------
(a) Upon the occurrence of any Event of Default: (i) all
obligations of the Banks and all rights of the Company under the Loan
Documents will terminate without notice to or demand upon the Company,
which are expressly waived by the Company; (ii) each Bank may declare the
unpaid principal of its own Note (or Notes), all interest accrued and
unpaid thereon and its Pro Rata Share of all other amounts payable under
the Loan Documents to be due and payable 10 days after demand, whereupon
the same shall be due and payable 10 days after demand without protest,
presentment, notice of dishonor or further notice or demand of any kind,
all of which are expressly waived by the Company; (iii) the Company shall
immediately pay to Agent an amount (the "L/C Obligations Amount") equal to
the aggregate outstanding L/C Obligations; and (iv) all consent and
approval rights will be based solely upon the aggregate unpaid principal
amount of the Loans by each Bank then outstanding.
(b) Upon acceleration, each Bank may, without notice to or demand
upon the Company, which are expressly waived by the Company, proceed to
protect, exercise and enforce its rights and remedies under the Loan
Documents and such other rights and remedies as are provided by law or
equity in such order and manner as such Bank may determine in its sole
discretion, and all payments received by each Bank shall be applied by such
Bank in such order and manner as such Bank may determine in its sole
discretion. No application of the payments will cure any Event of Default
or prevent acceleration, or continued acceleration, of amounts payable
under the Loan Documents or prevent the exercise, or continued exercise, of
any rights or remedies of any Bank hereunder or under law. The rights,
powers and remedies of each Bank provided herein and in each Note are
cumulative and not exclusive of any right, power or remedy provided by law
or equity.
(c) Upon receipt of the payment of the L/C Obligations Amount,
the Agent shall deposit such funds in an interest-bearing cash account (the
"Cash Account") in the name of the Company maintained with the Agent as
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to which the Company shall have no right of withdrawal except as provided
below. The Agent shall apply amounts on deposit in the Cash Account against
draws on the outstanding Letters of Credit as such draws are made. Upon
expir ation of all Letters of Credit and payment in full of all draws
thereunder and all outstanding Loans, the amounts then on deposit in the
Cash Account and any interest accrued thereon shall then be returned to the
Company.
9.3 Notice of Default. The Banks will refrain from exercising their
-----------------
default rights and remedies (whether hereunder or under any Loan Document)
arising as a result of the occurrence of an Event of Default under Sections 7.3,
-------------
8.5, 8.6 and 8.14 of this Agreement for a period of 15 days after notice of such
- - -------- ----
Event of Default has been given by the Agent to the Company during which the
Company may cure such default. Provided, however, any Bank may, during such
period, immediately ter minate further Loans and all rights of the Company and
obligations of such Bank under the Loan Documents. Provided further, that such
rights and obligations, including, without limitation, obligations to make
Loans, shall be reinstated upon timely cure by the Company. Provided further,
that no Bank will be required to give such notice or delay in exercising its
default rights and remedies for any period of time if the Company knowingly
failed to immediately give the Agent the statement provided in Section 8.10(a).
---------------
ARTICLE 10: THE AGENT.
---------
10.1 Appointment and Authorization. Each Bank hereby irrevocably
-----------------------------
appoints, designates and authorizes the Agent to take such action in its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, 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 Agent.
10.2 Delegation of Duties. The Agent may execute any of its duties
--------------------
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters
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pertaining to such duties. The Agent shall not be responsible for the negligence
or misconduct of any agent or attorney-in-fact that it selects with reasonable
care.
10.3 Liability of Agent. None of the Agent-Related Persons shall:
------------------
(a) be liable for any action taken or omitted to be taken by any
of them under or in connection with this Agreement or any other Loan
Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or
(b) be responsible in any manner to any of the Banks for any
recital, statement, representation or warranty made by the Company or any
Subsidiary or Affiliate of the Company, or any officer thereof, contained
in this Agreement or in any other Loan Document, or in any certificate,
report, statement or other document referred to or provided for in, or
received by the Agent under or in connection with, this Agreement or any
other Loan Document, or for the value of or title to any collateral, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Company or
any other party to any Loan Document to perform its obligations hereunder
or thereunder.
No Agent-Related Person shall be under any obligation to any Bank 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 or any of the Company's
Subsidiaries or Affiliates.
10.4 Reliance by Agent.
-----------------
(a) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement 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 counsel to the Company), independent accountants and other
experts selected by the Agent. The 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
each Bank as it deems appropriate and, if it so requests, it
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shall first be indemnified to its satisfaction by the Banks against any and
all liability and expense which may be incurred by it by reason of taking
or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or
consent of each Bank and such request and any action taken or failure to
act pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Article 6, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with,
each document or other matter either sent by the Agent to such Bank for
consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to the Bank.
10.5 Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Banks, unless the Agent shall
have received written notice from a Bank or the Company referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its receipt
of any such notice. The Agent shall take such action with respect to such
Default or Event of Default as may be requested by each Bank in accordance with
Article 9; provided, however, that unless and until the Agent has received any
-------- -------
such request, the 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 or in the best interest of the Banks.
10.6 Credit Decision. Each Bank acknowledges that none of the Agent-
---------------
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, the value of and title to any collateral, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this
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Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any Agent-
Related Person 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 investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports and
other documents expressly herein required to be furnished to the Banks by the
Agent, the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of any of the Agent-Related Persons.
10.7 Indemnification. Whether or not the transactions contemplated
---------------
hereby are consummated, the Banks shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Company and without
limiting the obligations of the Company to do so), pro rata, from and against
any and all liabilities covered by any indemnification hereunder; provided,
--------
however, that no Bank shall be liable for the payment to the Agent-Related
- - -------
Persons of any portion of such liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including attorney costs) incurred by the 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, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
10.8 Agent in Individual Capacity. BofA and its Affiliates may make
----------------------------
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Banks. Each Bank acknowledges that,
pursuant to such activities, BofA or its Affiliates may receive information
regarding the Company or its Affiliates (including
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information that may be subject to confidentiality obligations in favor of the
Company or such Subsidiary) and acknowledge that the Agent shall be under no
obligation to provide such information to it. With respect to its Loans, BofA
shall have the same rights and powers under this Agreement as any other bank and
may exercise the same as though it were not the Agent, and the terms "Bank" and
"Banks" include BofA in its individual capacity.
10.9 Successor Agent. The Agent may resign as Agent upon 30 days'
---------------
notice to the Banks. If the Agent resigns under this Agreement, the Majority
Banks shall appoint from among the Banks a successor agent for the Banks upon
the written consent of the Company and the Banks (which consents shall not be
unreasonably withheld). If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint a
successor agent from among the Banks upon the written consent of the Company and
the Banks (which consents shall not be unreasonably withheld). Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article 10 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor agent has accepted
appointment as Agent by the date which is 30 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Banks shall perform all of the duties of the
Agent hereunder until such time, if any, as the Majority Banks appoint a
successor agent as provided for above.
10.10 Withholding Tax.
---------------
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code,
such Bank agrees with and in favor of the Agent, to deliver to the Agent:
(i) if such Bank claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under
this Agreement;
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(ii) if such Bank claims that interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Bank and in each succeeding taxable year of such Bank during
which interest may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001
and such Bank sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of the Company to such Bank in
accordance with Section 11.6, such Bank agrees to notify the Agent of the
------------
percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
the Company to such Bank in accordance with Section 11.6, such Bank agrees
------------
to undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such
Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required
by subsection (a) of this Section are not delivered to the Agent, then the
Agent may withhold from any interest payment to such Bank not providing
such forms or other documentation an amount equivalent to the applicable
withholding tax.
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(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered, was not properly executed,
or because such Bank failed to notify the Agent of a change in
circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Bank shall
indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this
subsection shall survive the payment of all Obligations and the resignation
or replacement of the Agent.
10.11 Collateral Matters.
------------------
(a) The Agent is authorized on behalf of all the Banks, without
the necessity of any notice to or further consent from the Banks, from time
to time to take any action with respect to any collateral.
(b) The Banks irrevocably authorize the Agent, at its option and
in its discretion, to release any Lien granted to or held by the Agent upon
any collateral (i) upon termination of the Commitments and payment in full
of all Loans and all other Obligations known to the Agent and payable under
this Agreement or any other Loan Document; (ii) constituting property sold
or to be sold or disposed of as part of or in connection with any
disposition permitted hereunder; (iii) constituting property in which the
Company of any Subsidiary owned no interest at the time the Lien was
granted or at any time thereafter; (iv) constituting property leased to the
Company or any Subsidiary under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to
expire and which has not been, and is not intended by the Company or such
Subsidiary to be, renewed or extended; (v) consisting of an instrument
evidencing Indebtedness or other debt instrument, if the indebtedness
evidenced thereby has been paid in full; or (vi) if approved, authorized or
ratified in writing by all the Banks. Upon request by the Agent at any
time, the Banks will confirm in writing the Agent's authority to release
particular types or items of collateral.
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(c) Each Bank agrees with and in favor of each other (which
agreement shall not be for the benefit of the Company or any Subsidiary)
that the Company's obligation to such Bank under this Agreement and the
other Loan Documents is not and shall not be secured by any real property
collateral now or hereafter acquired by such Bank.
10.12 Performance by the Agent. In the event that the Company shall
------------------------
default in or fail to perform any of its obligations under the Loan Documents,
which default is not cured within any applicable cure period, the Agent shall
have the right, but not the duty, without limitation upon any of the Agent's or
the Banks' rights pur suant thereto, to perform the same, and the Company agrees
to pay to the Agent within five (5) Banking Days after demand, all reasonable
costs and expenses incurred by the Agent in connection therewith, including
without limitation reasonable Attorney Costs, together with interest thereon
from the date which is 5 Banking Days after demand until paid at a rate per
annum equal to the Reference Rate plus 3%.
----
10.13 Actions. The Agent shall have the right to commence, appear in,
-------
and defend any action or proceeding purporting to affect the rights or duties of
the Banks hereunder or the payment of any funds, and in connection therewith the
Agent may pay necessary expenses, employ counsel, and pay Attorney Costs. The
Company agrees to pay to the Agent, within 5 Banking Days after demand, all
reasonable costs and expenses incurred by the Agent in connection therewith,
including without limitation reasonable Attorney Costs, together with interest
thereon from the date which is 5 Banking Days after demand until paid at a rate
per annum equal to the Reference Rate plus 3%.
----
10.14 Co-Agent. Notwithstanding anything contained herein which may
--------
be construed to the contrary, the Co-Agent shall not exercise any of the rights
or have any of the responsibilities of the Agent hereunder, or any other rights
or responsibilities other than its rights and responsibilities as a Bank
hereunder.
ARTICLE 11: MISCELLANEOUS.
-------------
11.1 Amendments and Waivers. No amendment or waiver of any provision
----------------------
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks (or by the Agent at the written
request of the Majority Banks) and the Company and acknowledged by the Agent,
and then any
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such waiver of consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no such waiver,
-------- -------
amendment, or consent shall, unless in writing and signed by all the Banks and
the Company and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Bank, unless such
Bank has consented thereto in writing;
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or any fees or other amounts payable hereunder or under
any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any
of them to take any action hereunder;
(e) amend the definitions of Borrowing Base or Majority Banks or
Sections 3.5 or 3.6;
-------------------
(f) amend this Section or any provision herein providing for
consent or other action by all Banks;
(g) discharge any Guarantor, or release any Material portion of
any collateral except where the consent of the Majority Banks only is
specifically provided for; or
(h) amend, or perform any act pursuant to, any provision herein
expressly requiring the consent of each Bank;
and, provided further, that no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document. Each Bank shall bear its Pro Rata Share
of all costs and expenses incurred in any amendment, waiver or consent pursuant
to this Agreement. Notwithstanding the definition of "Majority Banks", or
anything else contained herein which may be
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construed to the contrary, in determining whether all Banks shall have voted for
the matters specified in subparagraph (d) above, or any other matter which the
Agent reasonably determines affects only the Revolving Loans, only those Banks
which retain a Commitment to make Revolving Loans (and not simply have a portion
of the Term Loan owed to them) may vote or otherwise consent to any particular
action or inaction which affects only the Commitments or the Revolving Loans.
11.2 Costs, Expenses and Taxes. The Company shall pay on demand the
-------------------------
reasonable costs and expenses of the Agent and the Banks in connection with the
negotiation, preparation, execution, delivery, administration, amendment, waiver
and enforcement of the Loan Documents and any matter related thereto and any
litigation or dispute with respect thereto (including any bankruptcy or similar
proceedings), including without limitation attorney's fees and disbursements;
provided, however, the Company shall not be liable for any expenses of any Bank
- - -------- -------
other than BofA (for itself and as Agent) in connection with the negotiation and
preparation of the Loan Documents (provided further, that the immediately
----------------
preceding proviso shall not be deemed to limit the right of each Bank to payment
from the Company of all reasonable costs and expenses incurred by each Bank as
aforesaid in connection with any and all future administration, amendments,
waivers, enforcement actions, litigation, negotiations and other actions or
matters [other than assignments or participations with respect to which the only
amounts payable shall be the processing fee owing pursuant to Section 11.6(a)]
relating to the Loans and Loan Documents). Any amount payable to the Agent and
the Banks under this Section 11.2 shall, from the date of demand for payment,
------------
and any other amount payable to the Agent under the Loan Documents which is not
paid when due or within any applicable grace period shall, thereafter, bear
interest at the rate in effect under each Note with respect to Reference Rate
Borrowings.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Agent or any Bank, 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.
11.4 Payments Set Aside. To the extent that the Company makes a
------------------
payment to the Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subse quently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement
entered into by the Agent or such Bank in its
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<PAGE>
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar proceeding relating to or affecting creditors'
rights generally or otherwise, then (a) to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred, and (b) each Bank severally agrees to pay to the
Agent upon demand its Pro Rata Share of any amount so recovered from or repaid
by the Agent.
11.5 Successors and Assigns. The provisions of this Agreement shall
----------------------
be binding upon and inure to the benefit of the parties hereto 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 the Agent and each Bank, and no Bank may assign or transfer
any of its rights or obligations under this Agreement except in accordance with
Section 11.6.
- - ------------
11.6 Assignments, Participations, etc.
---------------------------------
(a) Any Bank may, with the written consent of (i) the Company at
all times other than during the existence of an Event of Default (which
consent shall not be unreasonably withheld) and (ii) the Agent (which
consent shall not be unreasonably withheld), at any time assign and
delegate to one or more Eligible Assignees (provided that no written
consent of the Company or the Agent shall be required in connection with
any assignment and delegation by a Bank to an Eligible Assignee that is an
affiliate of such Bank) which have not been a party to any Material
litigation with the Agent or the Company (each an "Assignee") all, or any
--------
ratable part of all, of the Loans, the Commitments and the other rights and
obligations of such Bank hereunder, in an initial minimum amount of
$15,000,000 and in minimum amounts of $5,000,000 after the first
assignment; provided, however, that (A) each Bank (including each Eligible
-------- -------
Assignee) must retain a Commitment of not less than $15,000,000 after
giving effect to such assignment (except for the Banks which act as the
Agent and Co-Agent, respectively, which each must retain a Commitment of
not less than $25,000,000), and (B) the Company and the Agent may continue
to deal solely and directly with such Bank in connection with the interest
so assigned to an Assignee until (1) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been given to the Company and the Agent
by such Bank and the Assignee; (2) such Bank and its Assignee shall have
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delivered to the Company and the Agent an Assignment and Acceptance in the
form of Exhibit "H" ("Assignment and Acceptance") together with any Note or
Notes subject to such assignment and (3) the assignor Bank or Assignee has
paid to the Agent a processing fee in the amount of $5,000. All costs and
expenses incurred by an assigning Bank in such assignment shall be borne by
such Bank.
(b) From and after the date that the Agent notifies the assignor
Bank that it has received (and provided its consent with respect to and
received the consent of the Company with respect to) an executed Assignment
and Acceptance and payment of the above-referenced processing fee, (i) the
Assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Bank
under the Loan Documents, and (ii) the assignor Bank shall, to the extent
that rights and obligations hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Loan
Documents.
(c) Within five Banking Days after its receipt of notice by the
Agent that it has received an executed Assignment and Acceptance and
payment of the processing fee (and provided that it consents to such
assignment in accordance with Section 11.6(a)), the Company shall execute
---------------
and deliver to the Agent, new Notes evidencing such Assignee's assigned
Loans and Commitment and, if the assignor Bank has retained a portion of
its Loans and its Commitment, replacement Notes in the principal amount of
the Loans retained by the assignor Bank (such Notes to be in exchange for,
but not in payment of, the Notes held by such Bank). Immediately upon each
Assignee's making its processing fee payment under the Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and
the resulting adjustment of the Commitments arising therefrom. The
Commitment allocated to each Assignee shall reduce such Commitments of the
assigning Bank pro tanto.
--- -----
(d) Any Bank may, with the written consent of (i) the Company at
all times other than during the existence of an Event of Default (which
consent shall be at the Company's sole and absolute discretion) and (ii)
the Agent (which consent shall not be unreasonably withheld), at any time
sell to one or more commercial banks or other Persons not Affiliates of the
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Company (a "Participant") participating interests in any Loans, the
Commitment of that Bank and the other interests of that Bank (the
"originating Bank") hereunder and under the other Loan Documents; provided,
--------
however, that (A) the originating Bank's obligations under this Agreement
-------
shall remain unchanged, (B) the originating Bank shall remain solely
responsible for the performance of such obligations, (C) the Company and
the Agent shall continue to deal solely and directly with the originating
Bank in connection with the originating Bank's rights and obligations under
this Agreement and the other Loan Documents, and (D) no Bank shall transfer
or grant any participating interest under which the Participant has rights
to approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such amendment,
consent or waiver would require unanimous consent of the Banks as described
in the first proviso to Section 11.1. In the case of any such
----- ------- ------------
participation, the Participant shall be entitled to the benefit of Sections
--------
4.5, 4.7 and 11.12 as though it were also a Bank hereunder, and, if amounts
-------- -----
outstanding under this Agreement are due and 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 to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement. Each
Bank understands and acknowledges that the Company does not presently
intend to permit the sale of participations to Participants pursuant to
this subparagraph (d), and will not likely consent to any such request of
any Bank during the term of this Agreement.
(e) Each Bank agrees to take normal and reasonable precautions
and exercise due care to maintain the confidentiality of all information
identified as "confidential" or "secret" by the Company and provided to it
by the Company or any Subsidiary, or by the Agent on such Company's or
Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information other
than in connection with or in enforcement of this Agreement and the other
Loan Documents; except to the extent such information (i) was or becomes
generally available to the public other than as a result of disclosure by
the Bank, or (ii) was or becomes available on a non-confidential basis
from a source other than the Company, provided that such source is not
bound by a confidentiality agreement with the Company known to the Bank;
provided, however, that any Bank may disclose such information (A) at the
-------- -------
request or pursuant to any
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<PAGE>
requirement of any Governmental Authority to which the Bank is subject or
in connection with an examination of such Bank 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 Requirement of Law; (D) to
the extent reasonably required in connection with any litigation or
proceeding to which the Agent, any Bank or their respective Affiliates may
be party; (E) to the extent reasonably required in connection with the
exercise of any remedy hereunder or under any other Loan Document; (F) to
such Bank's independent auditors and other professional advisors; (G) to
any Participant or Assignee, actual or potential, provided that such Person
agrees in writing to keep such information confidential to the same extent
required of the Banks hereunder, and (H) as to any Bank, as expressly
permitted under the terms of any other document or agreement regarding
confidentiality to which the Company is party or is deemed party with such
Bank.
(f) Notwithstanding any other provision in this Agreement, any
Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Note
held by it in favor of any Federal Reserve Bank in accordance with
Regulation A of the FRB or U.S. Treasury Regulation 31 CFR (S)203.14, and
such Federal Reserve Bank may enforce such pledge or security interest in
any manner permitted under applicable Law.
11.7 Set-off. In addition to any rights and remedies of the Banks
-------
provided by Law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Company, any such notice being waived by the Company to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final excluding the
Company's customer trust accounts) at any time held by, and other indebtedness
at any time owing by, such Bank to or for the credit or the account of the
Company against any and all Obligations owing to the Banks, now or hereafter
existing, irrespective of whether or not the Agent or such Bank shall have made
demand under this Agreement or any Loan Document and although such Obligations
may be contingent or unmatured. Each Bank agrees promptly to notify the Company
and the Agent after any such set-off and application made by such Bank;
provided, however, that the failure to give such notice shall not affect the
- - -------- -------
validity of such set-off and application.
11.8 Automatic Debits. With respect to any principal or interest
----------------
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<PAGE>
payment, commitment fee or usage fee due and payable to the Agent or the Banks
under the Loan Documents, the Company hereby irrevocably authorizes the Agent to
debit any deposit account of the Company with BofA (excluding the Company's
customer trust accounts), and hereby agrees to irrevocably direct in writing the
holder of any deposit account to debit any deposit account of the Company
(excluding the Company's customer trust accounts), in amounts specified by the
Agent from time to time such that the aggregate amount debited from all such
deposit accounts does not exceed such payment, fee, other cost or expense. The
Agent shall use its best efforts to give the Company advance notice of each
debit, but failure of the Agent to give such notice shall not invalidate its
authorization hereunder. If there are insufficient funds in such deposit
accounts to cover the amount of the payment, fee, other cost or expense then
due, such debits will be reversed (in whole or in part, in the Agent's sole
discre tion) and such amount not debited shall be deemed to be unpaid. No such
debit under this Section shall be deemed a set-off.
11.9 Notification of Addresses, Lending Offices, Etc. Each Bank shall
------------------------------------------------
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
11.10 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties of the Company contained herein or in any certificate or other
writing delivered by or on behalf of the Company pursuant to any Loan Document
will survive the making and repayment of the Loan and the execution and delivery
of each Note, and have been or will be relied upon by each Bank, notwithstanding
any investigation made by such Bank or on its behalf.
11.11 Notices. Except as otherwise provided herein or in each Note:
-------
(a) all notices, requests, demands, directions and other
communications provided for hereunder and under each Note must be in
writing and must be mailed, telecopied, delivered or sent by telex or cable
to the appropriate party at the address set forth on the signature pages of
this Agreement or, as to any party, at any other address as may be
designated by it in a written notice sent to the other party in accordance
with this Section 11.11, and
-------------
(b) if any notice, request, demand, direction or other
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<PAGE>
communication is given by mail it will be effective on the earlier of
receipt or the third calendar day after deposit in the United States mails
with first class or airmail postage prepaid; if given by telecopier, when
receipt is confirmed by the recipient; if given by cable, when delivered to
the telegraph company with charges prepaid; if given by telex, when sent;
or if given by personal delivery, when delivered.
11.12 Indemnity by the Company. The Company agrees to indemnify, save
------------------------
and hold harmless each Bank, the Agent and their directors, officers, agents,
attorneys and employees (collectively the "indemnitees") from and against (a)
any and all claims, demands, actions or causes of action that are asserted
against any indemnitee by any Person if the claim, demand, action or cause of
action directly or indirectly relates to a claim, demand, action or cause of
action that the Person has or asserts against the Company or any officer,
director or shareholder of the Company, and (b) any and all liabilities, losses,
costs or expenses (including Attorney Costs) that any indemnitee suffers or
incurs as a result of the assertion of any such claim, demand, action or cause
of action.
11.13 Integration and Severability. This Agreement and the other Loan
----------------------------
Documents comprise the complete and integrated agreement of the parties on the
subject matter hereof and supersede all prior agreements, written or oral, on
the subject matter hereof. Any provision in any Loan Document that is held to
be inoperative, unenforceable or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable or invalid without affecting the
remaining provisions or the operation, enforceability or validity of that
provision in any other jurisdiction, and to this end the provisions of the Loan
Documents are declared to be severable.
11.14 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.15 No Third Parties Benefited. This Agreement is made and entered
--------------------------
into for the sole protection and legal benefit of the Company, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
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<PAGE>
11.16 Section Headings. Section headings in this Agreement are
----------------
included for convenience of reference only and are not part of this Agreement
for any other purpose.
11.17 Further Acts by the Company. The Company agrees, at its own
---------------------------
expense, to do such acts and execute and deliver such documents as any Bank from
time to time reasonably requires for the purpose of carrying out the intention
or facilitating the performance of the terms hereof.
11.18 Time of the Essence. Time is of the essence of the Loan
-------------------
Documents.
11.19 Governing Law. The Loan Documents shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws of the State of
California without regard to the conflict of law provisions thereof.
11.20 Reference and Arbitration.
-------------------------
(a) In any judicial action between or among the parties,
including any action or cause of action arising out of or relating to this
Agreement or the Loan Documents or based on or arising from an alleged
tort, all decisions of fact and law shall at the request of any party be
referred to a referee in accordance with California Code of Civil Procedure
Sections 638 et seq. The parties shall designate to the court a referee or
-- ---
referees selected under the auspices of the American Arbitration
Association ("AAA") in the same manner as arbitrators are selected in AAA-
sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be
entered in the court in which such proceeding was commenced in accordance
with California Code of Civil Procedure Sections 644 and 645.
(b) Any controversy or claim between or among the parties,
including those arising out of or relating to this Agreement or the Loan
Documents and any claim based on or arising from an alleged tort, shall at
the request of any party be determined by arbitration. The arbitration
shall be conducted in accordance with the United States Arbitration Act
(Title 9, U.S. Code), notwithstanding any choice of law provision in this
Agreement, and under the Commercial Rules of the AAA. The arbitrator(s)
shall give effect to
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<PAGE>
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall not constitute
a waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action
for judicial relief.
(c) No provision of this Section 11.20 shall limit the right of
-------------
any party to this Agreement to exercise self-help remedies such as setoff,
foreclosure against or sale of any real or personal property collateral or
security, or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any
arbitration or other proceeding. The exercise of a remedy does not waive
the right of either party to resort to arbitration or reference.
11.21 Effectiveness of this Agreement. Notwithstanding anything
-------------------------------
contained herein to the contrary, the effectiveness of this Agreement and the
Banks' and the Agent's obligations hereunder are expressly conditioned upon
satisfaction of all of the following conditions precedent (any one or more of
which the Banks may waive in their sole discretion):
(a) The Agent shall have received the following original executed
documents (in form and substance satisfactory to the Agent and legal
counsel for the Agent in sufficient number for the Agent and each Bank):
(i) this Agreement;
(ii) each Note;
(iii) the Guaranty and the Guaranty of the Subsidiary
Letters of Credit;
(iv) the Opinion of Counsel;
(v) a certified copy of resolutions of the board of
directors of the Company authorizing the execution of the Loan
Documents, together with an incumbency certificate executed by the
corporate secretary of the Company;
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<PAGE>
(vi) a certified copy of resolutions of the board of
directors of Standard Pacific of Texas, Inc. authorizing the execution
of the Guaranty, together with an incumbency certificate executed by
the corporate secretary of Standard Pacific of Texas, Inc.;
(vii) a Borrowing Base Certificate calculated as of
September 30, 1996, showing the Company to be in compliance with
Sections 3.6 and 8.25 hereof; and
---------------------
(viii) such other agreements, instruments and documents as
any Bank shall reasonably request.
(b) The Agent shall have received evidence satisfactory to the
Agent and legal counsel to the Agent that the Company has been duly incor
porated, validly exists and is in good standing under the laws of the State
of Delaware, is duly qualified to do business as, and is in good standing
as, a foreign corporation in each jurisdiction in which the conduct of its
business or the ownership or leasing of its properties makes such
qualification necessary, and has all requisite power and authority to
conduct its business and to own and lease its properties.
Within two (2) Banking Days following the date that this Agreement
becomes effective, and subject to the satisfaction (or waiver by Agent in its
sole discretion) of all applicable conditions to advances hereunder, Borrower
authorizes and directs BofA to disburse sufficient funds under this Agreement to
pay to each of the financial institutions specified on Schedule 11.21 hereto the
amounts specified on Schedule 11.21 hereto (including any specified per diem)
which are owing to each such financial institution under the credit facilities
described in Schedule 11.21 hereto (herein, the "Terminated Credit Facilities").
Upon disbursement hereunder to repay the sums owing under the Terminated Credit
Facilities, each of the Terminated Credit Facilities shall be deemed terminated
and the Company shall have no further right to borrow any further sums
thereunder, and Borrower agrees that it shall not request or receive any further
advances or funds under any of such Terminated Credit Facilities. The financial
institutions described in Section 11.21 hereto shall be deemed third party
beneficiaries of the provisions of this paragraph regarding the termination of
the Terminated Credit Facilities and may enforce the Company's agreements herein
with respect thereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
The Company:
-----------
STANDARD PACIFIC CORP., a Delaware corporation
By:
------------------------------------
------------------------------------
[Printed Name and Title]
By:
------------------------------------
------------------------------------
[Printed Name and Title]
Address for notices:
Standard Pacific Corp.
1565 West MacArthur Boulevard
Costa Mesa, California 92626
Attn: Andrew H. Parnes
Telephone: (714) 668-4300
Telecopier: (714) 641-5570
The Banks:
---------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association
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<PAGE>
By:
------------------------------------
Cynthia K. Hamilton, Vice President
Address for notices:
Bank of America National
Trust and Savings Association
5 Park Plaza, Suite 500
Irvine, California 92714-8525
Attn: Ms. Cynthia K. Hamilton
Telephone: (714) 260-5702
Telecopier: (714) 260-5639
IBOR Lending Office:
Bank of America National Trust and Savings Association
5 Park Plaza, Suite 500
Irvine, California 92714-8525
Attn: Ms. Edie Messerschmidt
Telephone: (714) 260-5770
Telecopier: (714) 260-5639
The Agent:
---------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association
By:
------------------------------------
William D. Balfour III, Vice President
Address for notices:
(Agent's Payment Office)
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<PAGE>
Bank of America National
Trust and Savings Association
5 Park Plaza, Suite 500
Irvine, California 92714-8525
Attn: Mr. William D. Balfour
Vice President
Telephone: (714) 260-5698
Telecopier: (714) 260-5639
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<PAGE>
EXHIBIT "A-1"
REVOLVING NOTE
--------------
$
----------------- ------------------
Irvine, California
FOR VALUE RECEIVED, Standard Pacific Corp., a Delaware corporation
(the "Company"), promises to pay to the order of __________________
______________________________ ("Bank") the principal amount of
_________________________________ AND NO/100 DOLLARS ($___________), or such
lesser aggregate amount of Revolving Loans as may be made pursuant to Bank's
Commitment under the Fifth Amended and Restated Revolving Credit Agreement
hereinafter described, payable as hereinafter set forth. Company promises to
pay interest on the principal amount hereof remaining unpaid from time to time
from the date hereof until the date of payment in full, payable as hereinafter
set forth.
Reference is made to the Fifth Amended and Restated Revolving Credit
Agreement of even date herewith among Company and the Banks (the "Agreement").
Terms defined in the Agreement and not otherwise defined herein are used herein
with the meanings defined for those terms in the Agreement. This is one of the
Revolving Notes referred to in the Agreement, and any holder hereof is entitled
to all of the rights, remedies, benefits and privileges provided for in the
Agreement as originally executed or as it may from time to time be supplemented,
modified or amended. The Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
upon the terms and conditions therein specified.
The principal indebtedness evidenced by this Note shall be payable as
provided in the Agreement and in any event on the Applicable Maturity Date
(which shall be July 31, 1999, subject to possible extension as provided in
Section 4.18 of the Agreement).
Interest shall be payable on the outstanding daily unpaid principal
amount of each Revolving Loan hereunder from the date thereof until payment in
full and shall accrue and be payable at the rates and on the dates set forth in
the Agreement both before and after default and before and after maturity and
judgment, with interest on overdue interest to bear interest at the rate set
forth in Section 4.4 of the Agreement, to the fullest extent permitted by
applicable Law.
SCHEDULE 11.21
<PAGE>
The amount of each payment hereunder shall be made to Bank at Agent's
office located in Irvine, California, for the account of Bank, in lawful money
of the United States of America and in immediately available funds not later
than 11:00 a.m., California time, on the day of payment (which must be a Banking
Day). All payments received after 11:00 a.m., California time, on any Banking
Day, shall be deemed received on the next succeeding Banking Day. Bank shall
use its best efforts to keep a record of Revolving Loans made by it and payments
of principal with respect to this Note, and such record shall be presumptive
evidence of the principal amount owing under this Note.
Company hereby promises to pay all costs and expenses of any holder
hereof incurred in collecting the undersigned's obligations hereunder or in
enforcing or attempting to enforce any of any holder's rights hereunder,
including Attorney Costs, whether or not an action is filed in connection
therewith.
Company hereby waives presentment, demand for payment, dishonor,
notice of dishonor, protest, notice of protest and any other notice or
formality, to the fullest extent permitted by applicable Laws.
Assignment of this Note is subject to the consent of certain parties
pursuant to Section 11.6 of the Agreement.
This Note shall be delivered to and accepted by Bank in the State of
California, and shall be governed by, and construed and enforced in accordance
with, the internal Laws thereof without regard to the choice of law provisions
thereof.
"Company"
STANDARD PACIFIC CORP., a Delaware corporation
By:
------------------------------------
------------------------------------
[Printed Name and Title]
By:
------------------------------------
SCHEDULE 11.21
<PAGE>
------------------------------------
[Printed Name and Title]
SCHEDULE 11.21
<PAGE>
EXHIBIT 11.0
STANDARD PACIFIC CORP. AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Primary Earnings (Loss) Per Common
and Equivalent Share:
Income (loss) before taxes 13,998,000 (45,889,000) 9,990,000
(Provision) benefit for income taxes (5,605,000) 18,526,000 (4,103,000)
----------- ------------ -----------
Net income (loss) 8,393,000 (27,363,000) 5,887,000
=========== ============ ===========
Common and Equivalent Shares:
Weighted average shares outstanding 30,000,492 30,488,676 30,616,991
Equivalent shares outstanding 11,103 -- 57,358
----------- ------------ -----------
Weighted average common and equivalent
shares outstanding 30,011,595 30,488,676 30,674,349
=========== ============ ===========
Primary earnings (loss) per common
and equivalent share $ 0.28 $ (0.90) $ 0.19
=========== ============ ===========
Fully-Diluted Earnings (Loss) Per Common
and Equivalent Share:
Net income (loss) 8,393,000 (27,363,000) 5,887,000
=========== ============ ===========
Common and Equivalent Shares:
Weighted average shares outstanding 30,000,492 30,488,676 30,616,991
Equivalent shares outstanding 11,103 -- 57,358
----------- ------------ -----------
Total 30,011,595 30,488,676 30,674,349
=========== ============ ===========
Fully-Diluted earnings (loss) per
common and equivalent share $ 0.28 $ (0.90) $ 0.19
=========== ============ ===========
</TABLE>
<PAGE>
EXHIBIT 22.0
SUBSIDIARIES OF REGISTRANT
1. Saddleback Inns of America, a California corporation.
2. Panel Concepts, Inc., a Delaware corporation.
3. Standard Pacific Savings, F.A., a Federally chartered stock savings and
loan association.
4. Standard Pacific Financing, Inc., a California corporation.
5. SPS Affiliates, Inc., a subsidiary of Standard Pacific Savings, F.A.
and a California corporation.
6. Standard Pacific Financing, L.P., a Delaware limited partnership in which
the registrant owns a 99% interest in all profits, losses, credits and
distributions.
7. Standard Pacific of Texas, Inc., a Delaware corporation.
8. The Boston Casualty Co., Ltd., a Bermuda corporation.
9. StanPac Corp., a Delaware corporation.
10. Standard Pacific of Fullerton, Inc., a Nevada corporation.
11. Standard Pacific of Orange County, Inc., a Nevada corporation.
Neither the subsidiaries nor the limited partnership in which the registrant has
an interest have done business under names other than their own, with the
exception of the following:
1. Standard Pacific of Orange County, a division of Standard Pacific Corp.
2. Standard Pacific of San Diego, a division of Standard Pacific Corp.
3. Standard Pacific of Ventura, a division of Standard Pacific Corp.
4. Standard Pacific of Northern California, a division of Standard Pacific
Corp.
5. Standard Pacific of Dallas.
6. Standard Pacific of Texas.
7. Standard Pacific Homes.
8. Standard Pacific of Houston, a division of Standard Pacific of Texas, Inc.
9. Standard Pacific.
<PAGE>
EXHIBIT 24.0
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Standard Pacific Corp.:
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated January 27, 1997, included in this Form 10-K
into Standard Pacific Corp.'s previously filed Form S-8 Registration Statement
File No. 33-44954.
ARTHUR ANDERSEN LLP
Orange County, California
January 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996 FORM 10-K 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,234
<SECURITIES> 47,730
<RECEIVABLES> 215,848
<ALLOWANCES> 1,899
<INVENTORY> 374,077
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,777
<DEPRECIATION> 7,509
<TOTAL-ASSETS> 695,379
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 100,000
0
0
<COMMON> 296
<OTHER-SE> 260,054
<TOTAL-LIABILITY-AND-EQUITY> 695,379
<SALES> 419,174
<TOTAL-REVENUES> 439,246
<CGS> 383,565
<TOTAL-COSTS> 422,425
<OTHER-EXPENSES> (4,784)
<LOSS-PROVISION> 465
<INTEREST-EXPENSE> 7,142
<INCOME-PRETAX> 13,998
<INCOME-TAX> 5,605
<INCOME-CONTINUING> 13,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,393
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<FN>
Amounts for current assets and current liabilities are not shown since the
balance sheet presented is unclassified.
</FN>
</TABLE>
