Letter to Our Stockholders:
D.R. Horton, Inc. enjoyed another exceptional year in 1996. By growing
revenues and earnings to new records, our Company achieved its 19th consecutive
year of growth and profitability and is now the twenty-second largest
homebuilder in the United States.
SINCE COMPLETING OUR INITIAL PUBLIC OFFERING IN JUNE 1992, D.R. HORTON, INC.
HAS:
. Expanded from 8 to 24 markets
. Grown its revenues from $153 million to over $547 million
. Increased net income from $8.1 million to $27.4 million
. Increased stockholders' equity from $50.2 million to $177.6 million
. Provided stockholders with an annual return on average stockholders'
equity of 20%
The growth that we have experienced since June 1992 reinforces the belief that
we can achieve our goal of $1 billion in revenues by the year 2000.
KEY FINANCIAL ACCOMPLISHMENTS IN 1996 INCLUDE:
. 33% increase in net income to $27.4 million
. 25% increase in revenues to $547.3 million (3,284 homes)
. 30% increase in new sales orders to $585.5 million (3,488 homes)
. 22% increase in year end sales backlog to $208.9 million (1,204 homes)
DURING 1996 WE ALSO WERE SUCCESSFUL IN:
. Improving our pretax earnings by 70 basis points to 8.1% of revenues. This
was accomplished by improved gross margins (20 basis points), reduced
selling, general and administrative expenses as a percentage of revenues (40
basis points), and increased other income from mortgage and title activities
(10 basis points).
. Listing our Company on the New York Stock Exchange under the symbol "DHI",
which reduced the quoted spreads on our stock and improved the execution of
stockholder transactions.
. Raising $43.2 million of additional equity by issuing additional common
stock in January 1996. This provided us with the equity necessary for our
continued growth and increased our book value per share by 18%.
. Increasing our banking relationships with credit facilities approaching $300
million, all on an unsecured basis and at improved financing rates and
terms. $100 million of this amount is a five-year term note and $150 million
is a three-year revolver. By using bank financing instead of public debt,
the Company saved over $2 million in financing costs in 1996 alone.
. Expanding our operations to Pensacola and Albuquerque, which provided new
opportunities for future growth. D.R. Horton, Inc. served 24 markets and
is one of three homebuilding companies with operations in 19 states.
. Diversifying our activities to expand on the relationships we have with our
homebuyers by creating DRH Mortgage Company, Ltd., a joint venture, which
provides mortgage financing services primarily to purchasers of homes built
and sold by the Company. We presently offer these services in our Texas and
Arizona markets, with expansion planned to other markets. Our title agency
activities also were expanded to include operations in Florida and
additional markets in Texas. We continue exploring other ways to broaden the
services we provide to our homebuyers.
<PAGE>
. Using option contracts to control (rather than own) adequate land positions
to meet our future needs allows us to conserve our capital and reduce the
risk associated with land ownership. At September 30, 1996, D.R. Horton held
option contracts for 9,180 lots with an estimated aggregate purchase price
approximating $290 million. This represents about 64% of our total lot
position.
. Distributing an 8% stock dividend in May as a method of enhancing
stockholder value. We believe this also improves the liquidity of our common
stock.
. Establishing the D.R. Horton stock purchase plan to promote employee
purchases of D.R. Horton, Inc. common stock. Company employees own more
than 50% of the outstanding stock, thereby uniting employees and
stockholders in common goals.
COMPANY AWARDS
We reward excellence within our Company by issuing three annual awards:
. The Dallas/Fort Worth East Division, managed by Leon Horton, was named
"Division of The Year" by Mr. Horton's peer group within the Company.
. Our San Diego Division had an award winning Triana Project where the Company
enjoyed great success.
Nancy French, our sales person on this project, led the Company
by selling the highest dollar volume of homes and is our "Sales
Person of the Year".
Tom Lombardi, the construction manager for the same project,
is our "Construction Person of the Year" for supervising
construction of the most homes in 1996.
We congratulate the recipients of these awards and we emphasize that our
employees are key to the success of our Company.
THE FUTURE
D.R. Horton is well positioned to achieve its 20th consecutive year of growth
and profitability in 1997. We begin the year with a large backlog and strong
financial position. Most importantly, we have a dedicated group of employees to
accomplish our goals.
In the first three months of our 1997 fiscal year, we entered the Nashville
market and acquired substantially all the assets of SGS Communities in North and
Central New Jersey and Trimark Communities in Denver. SGS compliments our
geographic diversity and provides a vehicle for expansion into other Northeast
markets. Trimark expands our existing Denver activities by diversifying our
product offerings to include affordable townhomes and condominiums. We expect
immediate incremental earnings from these acquisitions, and now have operations
in 26 markets in 21 states.
Our history demonstrates our ability to grow by starting up operations in new
markets and successfully acquiring homebuilding companies that make immediate
contributions to our earnings. The growth of our Company through geographic
expansion is unmatched by anyone in the industry.
We are grateful for our success in 1996 and look forward to increased
profitability in the future.
/s/ Donald R. Horton
Donald R. Horton
Chairman of the Board and President
<PAGE>
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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 SEPTEMBER 30, 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 TO
COMMISSION FILE NUMBER 1-4112
--------------
D.R. HORTON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 ASCENSION BLVD, SUITE 100 76006
ARLINGTON, TEXAS (Zip Code)
(Address of principal executive
offices)
(817) 856-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value $.01 per The New York Stock Exchange
share
(Title of Class)
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 ((S)229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL
NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K
OR ANY AMENDMENT TO THIS FORM 10-K.
YES NO X
--- ---
AS OF DECEMBER 6, 1996, THERE WERE 32,377,695 SHARES OF COMMON STOCK, PAR
VALUE $.01 PER SHARE, ISSUED AND OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF
THESE SHARES HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY
$184,851,000. SOLELY FOR PURPOSES OF THIS CALCULATION, ALL DIRECTORS AND
EXECUTIVE OFFICERS WERE EXCLUDED AS AFFILIATES OF THE REGISTRANT.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on January 23, 1997, are incorporated herein by
reference in Part III.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
D.R. Horton, Inc. and its operating subsidiaries are engaged primarily in the
construction and sale of single-family homes in the Mid-Atlantic, Midwest,
Southeast, Southwest and Western regions of the United States. The Company
offers high-quality homes with custom features, designed principally for the
entry-level and move-up market segments. The Company's homes generally range in
size from 1,000 to 5,000 square feet and range in price from $80,000 to
$600,000. For the year ended September 30, 1996, the Company closed homes with
an average sales price approximating $166,600.
The Company is one of the most geographically diversified homebuilders in the
United States, with operating divisions in 21 states and 26 markets. These
markets include Albuquerque, Atlanta, Austin, Birmingham, Charlotte, Chicago,
Cincinnati, Dallas/Fort Worth, Denver, Greensboro, Houston, Kansas City, Las
Vegas, Los Angeles, Minneapolis/St. Paul, Nashville, New Jersey, Orlando,
Pensacola, Phoenix, Raleigh/Durham, Salt Lake City, San Diego, South Florida,
St. Louis and suburban Washington, D.C.
The Company was incorporated in Delaware on July 1, 1991, to acquire all of
the assets and businesses of 25 predecessor companies, which were residential
home construction and development companies owned or controlled by Donald R.
Horton.
The Company's principal executive offices are located at 1901 Ascension Blvd.,
Suite 100, Arlington, Texas 76006, and its telephone number is (817) 856-8200.
OPERATING STRATEGY
The Company believes that there are several important elements to its
operating strategy which have enabled it to achieve consistent growth and
profitability. The following are important elements of this strategy:
Geographic Diversification. From 1978 to late 1987, the Company's homebuilding
activities were conducted exclusively in the Dallas/Fort Worth area. The Company
then instituted a policy of diversifying geographically and commenced operations
in late 1987 in Phoenix. The Company entered Atlanta and Orlando in 1988;
Charlotte in 1989; Houston in 1990; suburban Washington, D.C. in 1991; Chicago,
Cincinnati, Raleigh/Durham and South Florida in 1992; Austin, Los Angeles, Salt
Lake City and San Diego in 1993; Minneapolis/St. Paul, Kansas City and Las Vegas
in 1994; Birmingham, Denver, Greensboro and St. Louis in 1995; and Albuquerque
and Pensacola in 1996. In the early months of fiscal 1997, the Company announced
the commencement of operations in Nashville and North Central New Jersey. The
Company continually monitors the sales and margins achieved in each of the
subdivisions in which it operates as part of an overall evaluation of the
employment of its capital. The Company believes there are significant growth
opportunities in its existing markets, however, it intends to continue its
policy of geographic diversification by seeking to enter new markets. The
Company believes that its diversification strategy mitigates the effects of
local and regional economic cycles and enhances its growth potential. Typically,
the Company will not invest material amounts in real estate, including raw land,
developed lots, models and speculative homes, or overhead in start-up operations
in new markets until such markets demonstrate significant growth potential and
acceptance of the Company and its products.
Acquisitions -- As an integral component of the Company's operational strategy
of continued expansion and geographic diversification, the Company continually
evaluates opportunities for strategic acquisitions. The Company believes that
the expansion of its operations through the acquisition of existing homebuilding
companies affords it several benefits not found in start-up operations. Such
benefits include established land positions and inventories; existing
relationships with land owners, developers, subcontractors and suppliers; brand
name recognition; and proven product acceptance by homebuyers in the market. In
evaluating potential acquisition candidates, the Company seeks homebuilding
companies that have an excellent reputation, a track record of profitability and
a strong management team with an entrepreneurial orientation. The Company has
limited the risks associated with acquiring a going concern by conducting
extensive operational, financial and legal due diligence on each acquisition
candidate and by structuring each transaction typically as a purchase of
1
<PAGE>
assets and assumption of only specific related liabilities. In addition, the
Company seeks to further limit acquisition risk by only acquiring homebuilding
companies that the Company believes should have an immediate positive impact on
the Company's earnings.
The Company has acquired five homebuilding companies since 1994. Joe Miller
Homes, Inc./Argus Development, Inc. in Minneapolis/St. Paul, Minnesota, were
acquired in April 1994. Arappco Inc., in Greensboro, North Carolina, and Regency
Development, Inc., in Birmingham, Alabama, were acquired in July and September,
1995, respectively. In October and December 1996 (fiscal 1997), the Company
acquired Trimark Communities, L.L.C. in Denver, Colorado and SGS Communities,
Inc. in North Central New Jersey, respectively. In both existing and new
markets, the Company anticipates that it will continue to evaluate potential
future acquisition opportunities that satisfy its acquisition criteria.
Market Focus -- Custom Features. The Company positions itself between large
volume homebuilders and local custom homebuilders by offering a broader
selection of homes that typically have more amenities and greater design
flexibility than homes offered by volume builders, at prices that are generally
more affordable than those charged by local custom builders. The Company
generally offers between five and ten home designs that it believes will appeal
to local homebuyers at each of its subdivisions, but is prepared to offer
additional building plans and options that may be more suitable or desirable to
homebuyers. The Company also is prepared to customize such designs to the
individual tastes and specifications of its homebuyers. While most design
modifications are significant to homebuyers, such changes typically involve
relatively minor adjustments including, among other things, modifying the
interior or exterior dimensions of the home and changing exterior materials.
Such changes generally improve the Company's gross margins. Consequently, the
Company believes that it is able to maintain the efficiencies of a volume
builder while delivering high-quality, personalized homes to its customers. The
Company believes that its ability to cater to the design tastes and desires of
the prospective homebuyer at competitive prices, even at the entry-level,
distinguishes it from many of its competitors.
Decentralized Operations. The Company's homebuilding activities are
decentralized to give more operating flexibility to its local division managers.
The Company's homebuilding activities are conducted through 30 operating
divisions, some of which are in the same general market area. Generally, each
operating division consists of a vice president, an office manager and staff, a
sales manager, one to eleven sales people and one construction manager, who
oversees one to nine construction supervisors. The Company believes that
division managers, who are intimately familiar with local conditions, make
better decisions regarding local operations than do the centralized, corporate
management teams who make such decisions for many of our competitors. Each
operating division is responsible for preliminary site selection, negotiation of
option or similar contracts, and overseeing land development activities. Site
selection and lot acquisition typically involve a feasibility study by the
operating division, including soil and environmental reviews, a review of
existing zoning and other governmental requirements, and a review of the need
for and extent of offsite work and additional lot preparation required to meet
local building codes. Each operating division also plans its homebuilding
schedule, selects the building plans and architectural scheme for its
subdivisions, obtains all necessary building approvals, and develops a marketing
plan for its homes. Division managers receive performance bonuses based upon
achieving targeted operating levels in their operating divisions.
The Company's corporate office controls key risk elements by retaining
oversight and responsibility for final approval of all land and lot
acquisitions, inventory levels, financing arrangements, accounting and
management reporting, payment of subcontractor invoices, payroll and employee
benefits.
Cost Management. The Company strives to control its overhead costs by
centralizing its administrative and accounting functions and by limiting the
number of field administrative personnel and middle level management positions.
The Company also attempts to minimize advertising costs by participating in
promotional activities, publications and newsletters sponsored by local real
estate brokers, mortgage companies, utility companies and trade associations,
and, in certain instances, by positioning its subdivisions in conspicuous
locations that permit it to take advantage of local traffic patterns.
The Company attempts to control construction costs through the efficient
design of its homes and by obtaining favorable pricing from certain
subcontractors based on the high volume of work they perform for the Company.
2
<PAGE>
The Company's management information systems, including the purchase order
system, also assist in controlling construction costs by allowing corporate and
division management to monitor expenditures on a home-by-home basis. In
addition, the Company's management information systems allow the Company to
monitor its inventory composition and levels, thereby controlling capital and
overhead costs.
Limited Real Estate Exposure. The Company generally acquires developed
building lots pursuant to lot option and similar contracts after all zoning and
other governmental entitlements and approvals are obtained. By utilizing lot
option contracts, the Company purchases the right, but not the obligation, to
buy building lots at predetermined prices on a takedown schedule commensurate
with anticipated home closings. The lot option contracts are generally on a
nonrecourse basis, thereby limiting the Company's financial exposure to earnest
money deposits given to property sellers. This practice enables the Company to
control significant lot positions with minimal up front capital and
substantially reduces the risks associated with land ownership and development.
The Company attempts to control a two to four year supply of building lots
within each market based on current and expected absorption rates. At September
30, 1996, the Company held lot option and similar contracts for 9,180 lots with
an estimated aggregate purchase price approximating $290 million. These options
are secured by cash deposits approximating $3.6 million and promissory notes
approximating $1.4 million.
MARKETS
The Company's homebuilding activities are conducted in five geographic
regions, comprised of the following markets:
<TABLE>
<CAPTION>
GEOGRAPHIC REGION MARKETS
----------------- -------
<S> <C>
Mid-Atlantic...... Charlotte, Greensboro, North Central New Jersey,
Raleigh/Durham, Suburban Washington, D.C.
Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul,
Midwest........... St. Louis
Atlanta, Birmingham, Nashville, Orlando, Pensacola, South
Southeast......... Florida
Southwest......... Albuquerque, Austin, Dallas/Fort Worth, Houston, Phoenix
Western........... Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego
</TABLE>
The Company's operations in each of its markets differ based on a number of
market-specific factors. These factors include regional economic conditions and
job growth, land availability and the local land development process, consumer
tastes, competition from other builders of new homes and secondary home sales
activity. The Company considers each of these factors when entering new markets
or conducting operations in existing markets.
Revenues for the Company by geographic region are:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mid-Atlantic...................................... $121,829 $113,251 $116,452
Midwest........................................... 54,072 69,929 88,461
Southeast......................................... 53,384 49,291 87,181
Southwest......................................... 139,420 153,074 173,802
Western........................................... 24,612 51,843 81,440
-------- -------- --------
Total........................................... $393,317 $437,388 $547,336
======== ======== ========
</TABLE>
Land Policies
While the Company expects to continue to rely predominantly on lot option and
similar contracts to secure developed lots, it will pursue selected land
acquisition and development opportunities to augment its inventory of low-cost,
quality building lots and to maximize profit opportunities. Substantially all of
the land acquired by the Company is purchased only after necessary entitlements
have been obtained so that the Company has the right to begin development or
construction. The Company generally limits its acquisitions to smaller tracts of
entitled land that will yield under 150 lots when developed and, where possible,
obtains options to acquire adjacent parcels for later development. By limiting
3
<PAGE>
its acquisition and development activities to smaller parcels of land, the
Company reduces the financial and market risks associated with holding land
during the development period. Before it acquires tracts of land, the Company
will, among other things, complete a feasibility study, which includes soil
tests, independent environmental studies and other engineering work, and
determine that all necessary zoning and other governmental entitlements required
to develop and use the property for home construction have been acquired. At
September 30, 1996, only about 36% of the Company's total lot position of 14,350
lots was being or had been developed by the Company. Although the Company
purchases land and engages in land development activities primarily to support
its own homebuilding activities, lots and land are occasionally sold to other
developers and homebuilders.
The following table sets forth a summary of the Company's land/lot positions
at September 30, 1996:
<TABLE>
<S> <C>
Finished lots owned by the Company.................................... 968
Lots under development owned by the Company........................... 4,202
------
Total owned lots.................................................... 5,170
Lots available under lot option and similar contracts................. 9,180
------
Total land/lot position............................................. 14,350
======
</TABLE>
The Company also seeks to limit its exposure to real estate inventory risks by
(i) generally commencing construction of homes under contract only after receipt
of a satisfactory down payment and, where applicable, the buyer's receipt of
mortgage approval, (ii) limiting the number of speculative homes (homes started
without an executed sales contract) built in each subdivision, and (iii) closely
monitoring local market and demographic trends, housing preferences and related
economic developments, such as new job opportunities, local growth initiatives
and personal income trends.
CONSTRUCTION
The Company's home designs are prepared by architects in each of the Company's
markets to appeal to the local tastes and preferences of the community. Optional
interior and exterior features also are offered by the Company to enhance the
basic home design and to promote the custom aspect of the Company's sales
efforts.
Substantially all of the Company's construction work is performed by
subcontractors. The Company's construction supervisors monitor the construction
of each home, participate in material design and building decisions, coordinate
the activities of subcontractors and suppliers, subject the work of
subcontractors to quality and cost controls and monitor compliance with zoning
and building codes. Subcontractors typically are retained for a specific
subdivision pursuant to a contract that obligates the subcontractor to complete
construction at a fixed price. Agreements with the Company's subcontractors and
suppliers generally are negotiated for each subdivision. The Company competes
with other homebuilders for qualified subcontractors, raw materials and lots in
the markets where it operates.
Construction time for the Company's homes depends on the weather, availability
of labor, materials and supplies, and other factors. The Company typically
completes the construction of a home within four months.
The Company does not maintain significant inventories of construction
materials, except for work in process materials for homes under construction.
Typically, the construction materials used in the Company's operations are
readily available from numerous sources. The Company does not have any long-term
contracts with suppliers of its building materials. In recent years, the Company
has not experienced any significant delays in construction due to shortages of
materials or labor.
MARKETING AND SALES
The Company markets and sells its homes through commissioned employees and
independent real estate brokers. Home sales are typically conducted from sales
offices located in furnished model homes used in each subdivision. At September
30, 1996, the Company owned 223 model homes. These model homes generally are
4
<PAGE>
not offered for sale until the completion of the respective subdivision. The
Company's sales personnel assist prospective homebuyers by providing them with
floor plans, price information, tours of model homes and the selection of
options and other custom features. Such personnel are trained by the Company and
kept informed as to the availability of financing, construction schedules and
marketing and advertising plans.
In addition to using model homes, the Company typically builds a limited
number of speculative homes in each subdivision to enhance its marketing and
sales activities. Construction of these speculative homes also is necessary to
satisfy the requirements of relocated personnel and independent brokers, who
often represent homebuyers requiring a completed home within 60 days. A majority
of these speculative homes are sold while under construction or immediately
following completion. The number of speculative homes is influenced by local
market factors, such as new employment opportunities, significant job
relocations, growing housing demand and the length of time the Company has built
in the market. Depending upon the seasonality of each of its markets, the
Company seeks to limit its speculative homes to approximately five homes per
subdivision. At September 30, 1996, the Company was operating in 184
subdivisions and averaged under five speculative homes in each subdivision.
The Company advertises on a limited basis in newspapers and in real estate
broker, mortgage company and utility publications, brochures, newsletters and
billboards. To minimize advertising costs, the Company attempts to operate in
subdivisions in conspicuous locations that permit it to take advantage of local
traffic patterns. The Company also believes that model homes play a significant
role in its marketing efforts. Consequently, the Company expends significant
efforts in creating an attractive atmosphere in its model homes.
Sales of the Company's homes generally are made pursuant to a standard sales
contract which requires a down payment of 5% to 10% of the sales price. The
contract includes a financing contingency which permits the customer to cancel
in the event mortgage financing at prevailing interest rates is unobtainable
within a specified period, typically four to six weeks, and may include other
contingencies, such as the sale of an existing home. The Company includes a home
sale in its sales backlog upon execution of the sales contract and receipt of
the initial down payment. The Company does not recognize revenue upon the sale
of a home until the home is closed and title passes. The Company estimates that
the average period between the execution of a sales contract for a home and
closing is approximately three to five months for presold homes.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customers' post-closing needs. The Company
believes that prompt and courteous response to homebuyers' needs during and
after construction reduces post-closing repair costs, enhances the Company's
reputation for quality and service, and ultimately leads to significant repeat
and referral business from the real estate community and homebuyers. The Company
provides its homebuyers with a limited one-year warranty on workmanship and
building materials. The subcontractors who perform most of the actual
construction, in turn provide warranties of workmanship to the Company, and
generally are prepared to respond to the Company and homeowner promptly upon
request. In most cases, the Company supplements its one-year warranty by
purchasing a ten-year limited warranty from a third party. To cover its
potential warranty obligations, the Company accrues an estimated amount for
future warranty costs.
CUSTOMER FINANCING
In 1996, the Company formed D.R. Horton Mortgage Company, Ltd., a joint
venture with a third party, to provide mortgage financing services, principally
to purchasers of homes built and sold by the Company. D.R. Horton Mortgage
presently provides services in Dallas/Fort Worth, Austin, Houston and Phoenix.
In its other markets, the Company does not underwrite or otherwise provide
mortgage financing. The Company works with a variety of mortgage lenders that
make available to homebuyers a range of conventional mortgage financing
programs. By making information about these programs available to prospective
homebuyers and maintaining a relationship with such mortgage lenders, the
Company is able to coordinate and expedite the entire sales transaction by
5
<PAGE>
ensuring that mortgage commitments are received and that closings take place on
a timely and efficient basis.
TITLE SERVICES
Through its wholly owned subsidiaries, DRH Title Company of Texas, Ltd. and
DRH Title Company of Florida, Inc., the Company serves as a title insurance
agent by providing title insurance policies and closing services to purchasers
of homes built and sold by the Company in the Dallas/Fort Worth, Austin and
Florida markets. The Company assumes no underwriting risk associated with these
title policies.
EMPLOYEES
At September 30, 1996, the Company employed 612 persons, of whom 203 were
sales and marketing personnel, 199 were executive, administrative and clerical
personnel, 198 were involved in construction, and 12 worked in title operations.
Fewer than 10 of the Company's employees are covered by collective bargaining
agreements. Certain of the subcontractors which the Company engages are
represented by labor unions or are subject to collective bargaining agreements.
The Company believes that its relations with its employees and subcontractors
are good.
ITEM 2. PROPERTIES
The Company owns a 52,000 square foot office complex, consisting of three
single-story buildings of steel and brick construction, located in Arlington,
Texas, that serves as the Company's principal executive offices and houses two
of the Company's Dallas/Fort Worth divisions. The Company also leases
approximately 52,100 square feet of space for its operating divisions under
leases expiring between November 1996 and July 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business. Such
matters, if decided adversely to the Company, would not, in the opinion of
management, have a material adverse effect upon the financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock (the "Common Stock") is listed on the New York
Stock Exchange under the symbol "DHI". The following table sets forth the high
and low sales prices for the Common Stock for the periods indicated, as reported
on the NASDAQ National Market (through December 13, 1995) and on the New York
Stock Exchange on and after December 14, 1995, adjusted for the 9% stock
dividend of June 1995, the seven for five stock split (effected as a 40% stock
dividend) of September 1995 and the 8% stock dividend of May 1996.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1995 1996
----------------- ------------------
HIGH LOW HIGH LOW
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Quarter Ended December 31............... $ 8 5/16 $5 3/8 $11 $8 15/16
Quarter Ended March 31.................. 6 5/16 5 5/16 11 15/16 8 15/16
Quarter Ended June 30................... 8 15/16 6 9/16 10 5/8 8 5/8
Quarter Ended September 30.............. 10 1/2 8 1/2 10 3/8 7 1/2
</TABLE>
As of September 30, 1996, there were approximately 189 holders of record. No
cash dividends have been declared since the completion of the initial public
offering.
6
<PAGE>
The declaration of cash dividends is at the discretion of the Company's Board
of Directors and will depend upon, among other things, future earnings, cash
flows, capital requirements, the general financial condition of the Company and
general business conditions. Other than as required to maintain the financial
ratios and net worth requirements under the credit facilities, there are no
restrictions on the payment of cash dividends by the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
consolidated financial statements, related notes thereto and other financial
data included elsewhere herein. These historical results are not necessarily
indicative of the results to be expected in the future.
In 1993, the Company changed its fiscal year end to September 30, thus
operating information for the nine months then ended represents the Company's
fiscal period.
<TABLE>
<CAPTION>
PERIODS ENDED SEPTEMBER 30,
----------------------------------
NINE
YEAR ENDED MONTHS YEARS
DECEMBER 31, ------ ---------------------------
1992 1993 1993 1994 1995 1996
------------- ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT NET INCOME PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $182.6 $190.1 $248.2 $393.3 $437.4 $547.3
Net Income.............. 9.2 8.9 12.2 17.7 20.5 27.4
Net Income per
share(1)............... .38 .32 .44 .63 .74 .87
<CAPTION>
AS OF AS OF SEPTEMBER 30,
DECEMBER 31, ---------------------------
1992 1993 1994 1995 1996
------------- ------ ------ ------ ------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Inventories............. $ 90.4 $129.0 $204.1 $282.9 $345.3
Total Assets............ 104.3 158.7 230.9 318.8 402.9
Notes Payable........... 31.6 62.2 108.6 169.9 169.9
Stockholders' Equity.... 55.9 65.9 84.6 106.1 177.6
</TABLE>
- --------
(1) Adjusted for stock dividends of 5% in 1993, 6% in 1994, 9% and 40% in 1995,
and 8% in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following tables set forth certain information regarding the Company's
operations for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGES OF REVENUE
-------------------------
YEAR ENDED
SEPTEMBER 30,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Costs and Expenses:
Cost of sales................................... 82.9% 82.2% 82.0%
Selling, general and administrative expenses.... 9.9 10.2 9.8
Interest expense................................ -- 0.3 0.3
------- ------- -------
Total costs and expenses......................... 92.8 92.7 92.1
Other (income)................................... (0.1) (0.1) (0.2)
Income before income taxes....................... 7.3 7.4 8.1
Income taxes..................................... 2.8 2.7 3.1
------- ------- -------
Net income....................................... 4.5% 4.7% 5.0%
======= ======= =======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
HOMES HOMES HOMES
HOMES CLOSED CLOSED PERCENT CLOSED PERCENT CLOSED PERCENT
- ------------ ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Mid-Atlantic (Charlotte,
Greensboro, Raleigh/Durham,
Suburban Washington,
D.C.)...................... 442 18.7% 436 17.6% 547 16.7%
Midwest (Chicago,
Cincinnati, Kansas City,
Minneapolis/St. Paul, St.
Louis)..................... 286 12.1 348 14.1 457 13.9
Southeast (Atlanta,
Birmingham, Orlando,
Pensacola, South Florida).. 398 16.9 303 12.2 519 15.8
Southwest (Albuquerque,
Austin, Dallas/Fort Worth,
Houston, Phoenix).......... 1,108 47.0 1,131 45.7 1,239 37.7
Western (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego)........... 126 5.3 256 10.4 522 15.9
----- -------- ----- -------- ----- --------
2,360 100.0% 2,474 100.0% 3,284 100.0%
===== ======== ===== ======== ===== ========
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
HOMES HOMES HOMES
NEW SALES CONTRACTS SOLD $ SOLD $ SOLD $
- ------------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, Raleigh/Durham,
Suburban Washington,
D.C.)...................... 402 $113,434 403 $103,952 495 $106,908
Midwest (Chicago,
Cincinnati, Kansas City,
Minneapolis/St. Paul, St.
Louis)..................... 272 51,890 339 68,675 527 100,990
Southeast (Atlanta,
Birmingham, Orlando,
Pensacola, South Florida).. 346 48,073 371 64,654 493 80,104
Southwest (Albuquerque,
Austin, Dallas/ Fort Worth,
Houston, Phoenix).......... 1,138 149,023 1,148 155,202 1,311 190,006
Western (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego)........... 169 32,167 292 56,777 662 107,481
----- -------- ----- -------- ----- --------
2,327 $394,587 2,553 $449,260 3,488 $585,489
===== ======== ===== ======== ===== ========
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
YEAR END SALES BACKLOG HOMES $ HOMES $ HOMES $
- ---------------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, Raleigh/Durham,
Suburban Washington,
D.C.)...................... 137 $ 42,886 198 $ 43,949 146 $ 34,405
Midwest (Chicago,
Cincinnati, Kansas City,
Minneapolis/St. Paul, St.
Louis)..................... 123 23,585 114 22,332 184 34,861
Southeast (Atlanta,
Birmingham, Orlando,
Pensacola, South Florida).. 68 10,216 190 33,557 164 26,479
Southwest (Albuquerque,
Austin, Dallas/Fort Worth,
Houston, Phoenix).......... 400 56,004 417 58,132 489 74,336
Western (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego)........... 45 7,833 81 12,766 221 38,807
----- -------- ----- -------- ----- --------
773 $140,524 1,000 $170,736 1,204 $208,888
===== ======== ===== ======== ===== ========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATION AND FINANCIAL CONDITION
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Revenues increased by 25.1% to $547.3 million in 1996 from $437.4 million in
1995. The number of homes closed by the Company increased by 32.7%, to 3,284
homes in 1996 from 2,474 homes in 1995. Home closings increased in all of the
Company's market regions, with percentage increases ranging from 9.5% in the
Southwest region to 103.9% in the Western region. Of the 32.7% increase in 1996
home closings, 13.4% was the result of acquisitions made in Greensboro and
Birmingham in the last quarter of 1995. The 1996 increase in revenues was
achieved in spite of a 4.1% decrease in the average selling price of homes
closed, to $166,600 in 1996 from $173,700 in 1995. The decrease was due to
changes in the geographic mix of homes closed within the Company and different
price points in certain markets.
New net sales contracts increased 36.6% to 3,488 homes in 1996 from 2,553 in
1995. Percentage increases in new net sales contracts ranging from 126.7% to
14.2% were achieved in the Company's market regions. The 1996 average sales
price was $167,900, compared to $176,000 in 1995.
The Company was operating in 184 subdivisions at September 30, 1996, compared
to 162 at September 30, 1995. At September 30, 1996, the Company's backlog of
sales contracts was 1,204 homes, a 20.4% increase over the comparable figure at
September 30, 1995. The average sales price of homes in backlog increased to
$173,500 at September 30, 1996, from $170,700 at September 30, 1995.
Cost of sales increased by 24.8%, to $449.1 million in 1996 from $359.7
million in 1995. As a percentage of revenues, cost of sales decreased by 0.2%,
to 82.0% in 1996 from 82.2% in 1995. This improvement resulted from good market
conditions during the year, proactive efforts to maintain sales prices and
control costs, and higher margins on homes closed on internally developed lots.
The Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 20.9%, to
$53.9 million in 1996 from $44.5 million in 1995. The increase in SG&A expense
was due largely to the increases in sales and construction activity required to
sustain the higher levels of revenues. SG&A expense as a percentage of revenues
decreased by 0.4%, to 9.8% in 1996 from 10.2% in 1995, as the Company was
successful in controlling its variable overhead costs while the revenue increase
offset more fixed costs.
Interest expense increased to $1.5 million in 1996, from $1.2 million in 1995,
caused by average interest-bearing debt growing at a slightly faster pace than
the average amount of inventory under construction and development. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. During both 1996 and 1995, a portion of incurred interest and
other financing costs could not be charged to inventory and was expensed.
Capitalized interest and other financing costs are included in cost of sales at
the time of home closings.
Other income, which consists mainly of interest income, pretax earnings from
the Company's title operations and, in 1996, pretax earnings from the Company's
mortgage operations, increased to $1.5 million in 1996, from $0.6 million in
1995. The increase was due primarily to the fact that 1996 comprised a full year
of operations for DRH Title Company of Texas, Ltd., compared to only six months
in 1995. Additionally, DRH Title Company of Florida, Inc., and DRH Mortgage
Company, Ltd. commenced operation in 1996 and provided pretax earnings.
The provision for income taxes increased 41.9%, to $17.1 million in 1996 from
$12.0 million in 1995, due in part to the corresponding increase in income
before income taxes. The effective tax rate increased to 38.4% in 1996 from
36.9% in 1995. As a percentage of revenues, the income tax provision increased
0.4% to 3.1% in 1996. The increases in the effective tax rate and in the tax
provision as a percentage of revenues were due primarily to higher expected
rates of state and local income taxes.
9
<PAGE>
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Revenues increased by 11.2%, to $437.4 million in 1995 from $393.3 million in
1994. The number of homes closed by the Company increased by 4.8% to 2,474 homes
in 1995 from 2,360 homes in 1994, led by a 103.2% increase in the Company's
Western region and a 21.7% increase in the Company's Midwest region. The large
increase in the Western region resulted from earlier investments incurred to
enter markets within this region and illustrates a normal progression for newer
markets. The 1995 increase in revenues also was due in part to a 4.3% increase
in the average selling price of homes closed, to $173,700 in 1995 from $166,600
in 1994. The increase was due primarily to changes in the geographic mix of
homes closed within the Company, as homes closed in the newer markets were at
higher prices. Miscellaneous land/lot sales in 1995 and the impact of
acquisitions also contributed to the increase in revenues.
New net sales contracts increased by 9.7%, to 2,553 homes in 1995 from 2,327
in 1994. Percentage increases in new net sales contracts were achieved in all of
the Company's market regions, led by 72.8% and 24.6% increases in the Western
and Midwest regions, respectively. The 1995 average selling price was $176,000,
compared to $169,600 in 1994.
The Company was operating in 162 subdivisions at September 30, 1995, compared
to 137 at September 30, 1994. At September 30, 1995, the Company's backlog of
sales contracts was 1,000 homes, a 29.4% increase over the comparable figure at
September 30, 1994. The average sales price of homes in backlog decreased to
$170,700 at September 30, 1995, from $181,800 at September 30, 1994.
Cost of sales increased by 10.3%, to $359.7 million in 1995 from $326.1
million in 1994. As a percentage of revenues, cost of sales decreased by 0.7%,
to 82.2% in 1995 from 82.9% in 1994. This improvement resulted from proactive
efforts to maintain sales prices and control costs, higher margins on homes
closed on internally developed lots, and miscellaneous land/lot sales. The
Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 14.0%, to
$44.5 million in 1995 from $39.1 million in 1993. The increase in SG&A expense
was due largely to the increases in sales and construction activity required to
sustain the higher levels of revenues. SG&A expense as a percentage of revenues
increased by 0.3%, to 10.2% in 1995 from 9.9% in 1994, due partly to costs
associated with expansion into new markets which had not yet generated
significant revenues.
Interest expense totalled $1.2 million in 1995, compared to none in 1994. The
Company follows a policy of capitalizing interest only on inventory under
construction or development. During 1995, the Company expensed a portion of
incurred interest and other financing costs due to increased levels of developed
lots and finished homes. During the 1994 period, all such costs were capitalized
in inventory. Capitalized interest and other financing costs are included in
cost of sales at the time of home closings.
Other income, which consisted mainly of interest income and pretax earnings of
DRH Title Company of Texas, Ltd. in 1995, increased to $621,000 in 1995, from
$446,000 in 1994.
The provision for income taxes increased 10.0%, to $12.0 million in 1995 from
$10.9 million in 1994, due primarily to the corresponding increase in income
before income taxes. The effective tax rate decreased to 36.9% in 1995 from
38.2% in 1994. As a percentage of revenues, the income tax provision decreased
by 0.1% to 2.7% in 1995. The decreases in the effective tax rate and in the tax
provision as a percentage of revenues were due primarily to the effects of
certain tax planning strategies relating to state income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company believes it has adequate financial resources and sufficient credit
lines to meet its working capital needs. At September 30, 1996, the Company had
available cash and cash equivalents of $32.5 million. Inventories (including
finished homes and construction in progress, residential lots developed and
10
<PAGE>
under development, and land) had increased by 22.0%, to $345.3 million, from
$282.9 million at September 30, 1995. The increase was due to higher business
activity and the fact that the Company was operating in a greater number of
markets and subdivisions. In several markets, the Company is limited in its
ability to acquire finished lots under option contracts, which results in an
increase in residential lot inventory. The Company financed the inventory
increase by borrowing under credit facilities, retaining earnings, and the $43.2
million net proceeds of a public stock offering in January 1996. The Company's
ratio of notes payable to total capital decreased to 48.9% at September 30,
1996, from 61.6% at September 30, 1995. The equity to total assets ratio
increased during the year to 44.1% at September 30, 1996, from 33.3% at
September 30, 1995.
The Company's financing needs depend upon the results of its operations, sales
volume, inventory levels, inventory turnover, and acquisitions of other
homebuilding companies. The Company has financed its operations by borrowing
from financial institutions, by retaining earnings and from the sale of common
stock. Common stock options exercised in 1994, 1995 and 1996, provided funding
of $0.9 million, $0.8 million and $0.7 million, respectively.
Beginning in 1994, the Company began acquiring the principal assets of other
homebuilding companies, and had made three acquisitions through September 30,
1996. Two additional acquisitions were completed in October and December of
1996, the first three months of the Company's 1997 fiscal year. To date, all
acquisitions have been for cash with the assumption of certain liabilities,
typically trade accounts and notes payable. The acquisitions have been funded
through working capital and borrowings under existing credit facilities.
During April 1996, the Company entered a new facility with eight financial
institutions to provide unsecured borrowings. At September 30, 1996, the Company
had outstanding debt of $169.9 million. The majority of that amount represents
borrowings under the terms of the Company's new $260 million unsecured bank
credit facility, which has multi-year terms. The Company also has $47.5 million
in additional borrowing capacity under separate unsecured bank revolving credit
facilities with annual terms. The completion of the public sale of common stock
in January 1996 and the new credit facilities provide the Company with a strong
financial position, with resources adequate to fund near-term growth objectives.
To secure the Company's performance under its contractual development and
building obligations, the Company obtained performance bonds and letters of
credit for the benefit of third parties (principally municipalities in which the
Company conducts homebuilding activities) approximating $21.7 million and $5.2
million, respectively, at September 30, 1996.
The Company's rapid growth requires significant amounts of cash. It is
anticipated that future home construction, lot and land purchases and
acquisitions will be funded through internally generated funds and new and
existing lending relationships. The Company continuously evaluates its capital
structure and in the future, may seek to increase unsecured debt and obtain
additional equity to further solidify the capital structure or to provide funds
for acquisitions.
Except for ordinary expenditures for the construction of homes and, to a
limited extent, the acquisition of land and lots for development and sale of
homes, at September 30, 1996, the Company had no material commitments for
capital expenditures.
Inflation
The Company, as well as the homebuilding industry in general, may be adversely
affected during periods of high inflation, primarily because of higher land and
construction costs. Inflation also increases the Company's financing, labor and
material costs. In addition, higher mortgage interest rates significantly affect
the affordability of permanent mortgage financing to prospective homebuyers. The
Company attempts to pass through to its customers any increases in its costs
through increased sales prices and, to date, inflation has not had a material
adverse effect on the Company's results of operations. However, there is no
assurance that inflation will not have a material adverse impact on the
Company's future results of operations.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... 13
Consolidated Balance Sheets, September 30, 1996 and 1995................. 14
Consolidated Statements of Income for the three years ended September 30,
1996.................................................................... 15
Consolidated Statements of Stockholders' Equity for the three years ended
September 30, 1996...................................................... 16
Consolidated Statements of Cash Flows for the three years ended September
30, 1996................................................................ 17
Notes to Consolidated Financial Statements............................... 18
</TABLE>
12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
D.R. Horton, Inc.
We have audited the accompanying consolidated balance sheets of D. R.
Horton, Inc. and subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 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 consolidated financial position of D. R. Horton, Inc.
and subsidiaries at September 30, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
November 8, 1996
Fort Worth, Texas
13
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash......................................................... $ 16,737 $ 32,467
Inventories:
Finished homes and construction in progress................. 182,772 216,264
Residential lots -- developed and under development......... 98,824 127,707
Land held for development................................... 1,312 1,312
-------- --------
282,908 345,283
Property and equipment (net)................................. 5,359 5,631
Earnest money deposits and other assets...................... 10,680 15,247
Excess of cost over net assets acquired (net)................ 3,103 4,285
-------- --------
$318,787 $402,913
======== ========
LIABILITIES
Accounts payable............................................. $ 29,312 $ 34,391
Accrued expenses and customer deposits....................... 13,523 21,011
Notes payable................................................ 169,879 169,873
-------- --------
212,714 225,275
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares autho-
rized, no shares issued..................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized,
25,437,067 shares in 1995 and 32,362,036 in 1996, issued and
outstanding................................................. 254 324
Additional capital........................................... 91,635 159,714
Retained earnings............................................ 14,184 17,600
-------- --------
106,073 177,638
-------- --------
$318,787 $402,913
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1994 1995 1996
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE)
<S> <C> <C> <C>
Revenues....................... $393,317 $437,388 $547,336
Cost of sales.................. 326,099 359,742 449,054
-------------- -------------- --------------
67,218 77,646 98,282
Selling, general and adminis-
trative expense............... 39,073 44,549 53,860
-------------- -------------- --------------
Operating income............... 28,145 33,097 44,422
Other:
Interest expense.............. -- (1,161) (1,474)
Other income.................. 446 621 1,484
-------------- -------------- --------------
446 (540) 10
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES... 28,591 32,557 44,432
Provision for income taxes..... 10,928 12,018 17,053
-------------- -------------- --------------
NET INCOME................... $ 17,663 $ 20,539 $ 27,379
============== ============== ==============
Net income per share........... $ 0.63 $ 0.74 $ 0.87
============== ============== ==============
Weighted average number of
shares of common stock
outstanding, including common
stock equivalents............. 27,845 27,849 31,420
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances at October 1, 1993.......... $155 $ 61,305 $ 4,413 $ 65,873
Net income.......................... -- -- 17,663 17,663
Exercise of stock options (109,860
shares)............................ 1 907 -- 908
Issuance under D.R. Horton, Inc.
employee benefit plans (7,200
shares)............................ -- 110 -- 110
Six percent stock dividend.......... 9 11,225 (11,235) (1)
---- -------- -------- --------
Balances at September 30, 1994....... 165 73,547 10,841 84,553
Net income.......................... -- -- 20,539 20,539
Exercise of stock options (116,400
shares)............................ 1 772 -- 773
Issuances under D.R. Horton, Inc.
employee benefit plans (20,549
shares)............................ -- 208 -- 208
Nine percent stock dividend......... 15 17,181 (17,196) --
Seven for five stock split.......... 73 (73) -- --
---- -------- -------- --------
Balances at September 30, 1995....... 254 91,635 14,184 106,073
Net income.......................... -- -- 27,379 27,379
Stock sold through public offering
(4,375,000 shares)................. 44 43,149 -- 43,193
Exercise of stock options (124,619
shares)............................ 1 696 -- 697
Issuances under D.R. Horton, Inc.
employee benefit plans (29,300
shares) ........................... 1 296 -- 297
Eight percent stock dividend........ 24 23,938 (23,963) (1)
---- -------- -------- --------
Balances at September 30, 1996....... $324 $159,714 $ 17,600 $177,638
==== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1995 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 17,663 $ 20,539 $ 27,379
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization................ 1,190 2,025 2,583
Expense associated with issuance of stock
under certain D.R. Horton employee benefit
plans....................................... 110 208 229
Changes in operating assets and liabilities:
Increase in inventories..................... (61,234) (56,401) (62,375)
Increase in earnest money deposits and other
assets..................................... (393) (910) (4,271)
Increase (decrease) in accounts payable,
accrued expenses and customer deposits..... (1,317) 2,197 12,567
-------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES.......... (43,981) (32,342) (23,888)
-------- --------- ---------
INVESTING ACTIVITIES
Net purchase of property and equipment........ (2,563) (2,414) (2,667)
Net cash paid for acquisitions................ (3,583) (4,577) (1,370)
-------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (6,146) (6,991) (4,037)
-------- --------- ---------
FINANCING ACTIVITIES
Proceeds from notes payable................... 133,297 232,964 238,987
Repayment of notes payable.................... (92,791) (188,857) (239,289)
Proceeds from common stock offerings,
including stock associated with certain
employee benefit plans....................... -- -- 43,260
Proceeds from exercise of stock options....... 907 773 697
-------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 41,413 44,880 43,655
-------- --------- ---------
INCREASE (DECREASE) IN CASH................ (8,714) 5,547 15,730
Cash at beginning of year...................... 19,904 11,190 16,737
-------- --------- ---------
Cash at end of year............................ $ 11,190 $ 16,737 $ 32,467
======== ========= =========
Supplemental cash flow information:
Interest paid................................. $ 7,059 $ 11,689 $ 14,628
======== ========= =========
Income taxes paid............................. $ 11,561 $ 11,336 $ 16,143
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. The Company is engaged primarily in the construction and sale of
single-family housing in 19 states in the United States. The Company designs,
builds and sells single-family houses on finished lots which it purchases ready
for home construction or which it develops. The Company purchases undeveloped
land to develop into finished lots for future construction of single-family
houses and for sale to others. The Company also provides title agency and
mortgage services in selected markets; however, such activities are not material
to the consolidated operating results of the Company.
Principles of Consolidation: The consolidated financial statements include
the accounts of D.R. Horton, Inc. (the Company) and its subsidiaries, all of
which are wholly owned. Intercompany accounts and transactions have been
eliminated in consolidation.
Accounting Principles: The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Statements of Financial Accounting Standards: During the fourth quarter of
1996, the Company elected to adopt Statement 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") retroactive to October 1, 1995. The
adoption of FAS 121 did not impact the Company's results of operations or
financial position and did not result in a restatement of any of the financial
results for fiscal 1996. The Company believes the adoption of FAS 121 would not
have had an effect on financial results in fiscal 1995 and 1994 had FAS 121 been
adopted in those years.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("FAS 123"), issued in October 1995, establishes financial
accounting and reporting standards for stock-based employee compensation plans.
As permitted by FAS 123, the Company has elected to continue to use Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations, in accounting for its Stock Incentive Plan.
Refer to Note F.
Cash: The Company considers all highly liquid investments with an initial
maturity of three months or less when purchased to be cash equivalents. Amounts
in transit from title companies for home closings are included in cash.
Cost of Sales: Cost of sales includes home warranty costs, purchased discounts
for customer financing, and sales commissions paid to third parties.
Fair Value of Financial Instruments: The fair value of financial instruments
is determined by reference to various market data and other valuation techniques
as appropriate. The carrying amounts of cash and cash equivalents and trade
payables approximate fair value because of the short maturity of these financial
instruments. Generally, the homebuilding notes payable bear interest at rates
indexed to LIBOR or the Federal Funds rate. Therefore, the carrying amounts of
the outstanding borrowings at September 30, 1996, approximate fair value. At
both September 30, 1996 and 1995, the estimated fair value of the Company's
debt, including the interest rate swap agreement described in Note B,
approximated its carrying value.
Fair value estimates are made at specific points in time based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve matters of significant judgment,
and therefore, cannot be determined with precision. Changes in assumptions could
significantly affect estimates.
18
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories: Inventories are stated at the lower of cost (specific
identification method) or net realizable value. In addition to direct land
acquisition, land development and direct housing construction costs, inventory
costs include interest and real estate taxes, which are capitalized in inventory
during the development and construction periods. Residential lots are
transferred to construction in progress when building permits are requested.
Land and development costs, capitalized interest and real estate taxes incurred
during land development are allocated to individual lots on a prorata basis.
Interest. The Company capitalizes interest during development and
construction. Capitalized interest is charged to cost of sales as the related
inventory is delivered to the home buyer. The summary of interest for 1994, 1995
and 1996 is:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized interest, beginning of year....... $ 1,581 $ 4,325 $ 7,118
Interest incurred............................. 7,269 12,002 14,835
Interest expensed.............................
Directly..................................... -- (1,161) (1,474)
Amortized to cost of sales................... (4,525) (8,048) (9,437)
-------- -------- --------
Capitalized interest, end of year............. $ 4,325 $ 7,118 $ 11,042
======== ======== ========
</TABLE>
Property and Equipment: Property and equipment, including model home
furniture, are stated on the basis of cost. Major renewals and improvements are
capitalized. Repairs and maintenance are expensed as incurred. Depreciation
generally is provided using the straight-line method over the estimated useful
life of the asset. Accumulated depreciation was $3,481,000 and $5,000,000 as of
September 30, 1995 and 1996, respectively.
Excess of Cost Over Net Assets Acquired: The excess of amounts paid for
business acquisitions over the net fair value of the assets acquired and
liabilities assumed is amortized using the straight-line method over twenty
years. Additional consideration paid in subsequent periods under the terms of
purchase agreements are included as acquisition costs. Amortization expense was
$42,000, $114,000 and $188,000 in 1994, 1995 and 1996, respectively. Accumulated
amortization was $156,000 and $344,000 at September 30, 1995 and 1996,
respectively.
Revenue Recognition: Revenue generally is recognized at the time of the
closing of a sale, when title to and possession of the property transfer to
the buyer.
Net Income Per Share: Net income per share is based upon the average number of
shares of common stock outstanding during each year and the effect of common
stock equivalents related to dilutive stock options.
19
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- NOTES PAYABLE
Notes payable (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Unsecured: Banks
$250,000 term and revolving credit facility, maturing
April, 1999 to April,2001, rates range from Federal
Funds + 1.6% to LIBOR + 2%.............................. $134,800 $158,600
$10,000 revolving line of credit, maturing March 1997,
LIBOR + 2%.............................................. -- --
$20,000 revolving line of credit, maturing September 1997,
LIBOR + 1 1/2%.......................................... 7,000 --
$17,500 revolving line of credit, payable on demand with
six months' notice, LIBOR + 1 1/4%...................... 13,770 4,000
Other notes payable....................................... 14,309 7,273
-------- --------
Total notes payable..................................... $169,879 $169,873
======== ========
</TABLE>
Maturities of notes payable, assuming the revolving lines of credit are not
extended, are $10.3 million in 1997, $0.4 million in 1998, $59.2 million in
1999, and $100.0 million in 2001. The weighted average interest rates at
September 30, 1995 and 1996 were 7.9% and 7.5%, respectively.
In addition to the stated interest rates, various credit facilities require
the Company to pay certain fees. The $250 million credit facility also provides
$10 million for use as letters of credit. Effective October 1, 1996, there was a
reduction in the interest rate on the revolving portion of $250 million credit
facility. Certain of the notes and loan agreements contain financial covenants
generally relating to cash dividends, minimum interest coverage, net worth,
leverage, inventory levels and other matters.
The Company uses an interest rate swap agreement to help manage a portion of
its interest rate exposure. The agreement converts from a variable rate to a
fixed rate on a notional amount of $100 million. The agreement expires April
2001. The Company does not expect non-performance by the counterparty, and any
losses incurred in the event of non-performance would not be material. As a
result of this agreement, the Company incurred net interest expense of $0.4
million during 1996. Net payments or receipts under the Company's interest rate
swap agreement are recorded as adjustments to interest expense.
NOTE C -- ACQUISITIONS
In 1994 and 1995, the Company made the following acquisitions:
<TABLE>
<CAPTION>
COMPANY ACQUIRED DATE ACQUIRED CONSIDERATION
---------------- -------------- -------------
<S> <C> <C>
Regency Development, Inc. (Birmingham)........ September 1995 $12.3 million
Arappco, Inc. (Greensboro).................... July 1995 $12.2 million
Joseph M. Miller Construction, Inc./Argus
Development, Inc. (Minneapolis).............. April 1994 $16.6 million
</TABLE>
Consideration includes cash paid, promissory notes and assumption of certain
accounts payable and notes payable which were repaid subsequent to the
acquisitions.
The acquisitions contain provisions for additional consideration to be paid
annually for up to three years subsequent to the acquisition date, based upon
subsequent pretax income. Such additional consideration will be recorded when
paid as excess cost over net assets acquired, which is amortized using the
20
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
straight line method over 20 years. All of the acquired companies are involved
in homebuilding and land development. The Company has accounted for these
acquisitions under the purchase method and has included the operations of the
acquired businesses in its Consolidated Statements of Income since their
acquisition.
The Company's unaudited pro forma summary consolidated results of operations
as if the above noted acquisitions had occurred at October 1, 1995 are presented
below. In preparing the pro forma information, various assumptions were made and
the Company does not purport this information to be indicative of what would
have occurred had the acquisitions been made as of October 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1995
------------------
(IN THOUSANDS,
EXCEPT NET INCOME
PER SHARE)
<S> <C>
Revenues............................................... $474,476
Net Income............................................. $ 22,359
Net Income per share................................... $ 0.80
</TABLE>
NOTE D -- STOCKHOLDERS' EQUITY
The Board of Directors of the Company declared the following common stock
dividends:
<TABLE>
<CAPTION>
DECLARED DATE AMOUNT PAID RECORD DATE
------------- ------ ------- -----------
<S> <C> <C> <C>
5/12/94 6% 6/30/94 5/31/94
4/20/95 9% 6/30/95 5/31/95
4/22/96 8% 5/24/96 5/08/96
</TABLE>
Stock Split: On August 15, 1995, the Board of Directors declared a seven-
for-five stock split effected in the form of a 40% stock dividend on its common
stock. Accordingly, the $.01 par value for the additional shares issued, in
respect of the seven-for-five stock split, was transferred from additional
paid-in-capital to common stock.
Net income per share and weighted average shares outstanding for all periods
presented have been restated to reflect the stock dividends and the stock split.
Other than as required to maintain the financial ratios and net worth
requirements under the credit agreements, there are no restrictions on the
payment of cash dividends by the Company.
21
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- PROVISION FOR INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. These differences
primarily relate to the capitalization of inventory costs, the accrual of
warranty costs, and depreciation. The Company's deferred tax assets and
liabilities are not significant.
The difference between income tax expense and tax computed by applying the
federal statutory income tax rate to income before taxes is due primarily to the
effect of applicable state income taxes. Income tax expense consists of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal....................................... $ 10,477 $ 11,767 $ 17,650
State......................................... 963 1,274 1,829
-------- -------- --------
11,440 13,041 19,479
-------- -------- --------
Deferred:
Federal....................................... (468) (923) (2,198)
State......................................... (44) (100) (228)
-------- -------- --------
(512) (1,023) (2,426)
-------- -------- --------
$ 10,928 $ 12,018 $ 17,053
======== ======== ========
</TABLE>
NOTE F -- EMPLOYEE BENEFIT PLANS
The D.R. Horton, Inc. Profit Sharing Plus Plan is a 401(k) plan for Company
employees. The Company matches 50% of employees' voluntary contributions up to a
maximum of 3% of each participant's earnings. Additional employer contributions
in the form of profit sharing are at the discretion of the Company. Expenses for
this Plan were $158,000, $233,000 and $327,000 for 1994, 1995 and 1996,
respectively.
Effective January 1, 1994, the Company adopted the D.R. Horton, Inc. Stock
Tenure Plan (an Employee Stock Ownership Plan), covering those employees
generally not participating in certain other D.R. Horton benefit plans.
Contributions are made at the discretion of the Company. Expenses of $110,000,
$106,000 and $229,000 were recognized for 1994, 1995 and 1996, respectively,
related to Company contributions of common stock to the Plan.
The Company's Supplemental Executive Retirement Plans (SERP's) are
non-qualified deferred compensation programs that provide benefits payable to
certain management employees upon retirement, death, or termination of
employment with the Company. SERP No. 1 provides for voluntary deferral of
compensation which is invested under a trust agreement. All salary deferrals
under this Plan have been accrued and the investments are recorded as an other
asset. Under SERP No. 2, the Company accrues an unfunded benefit, as well as an
interest factor based upon a predetermined formula. The Company recorded
$231,000, $347,000 and $313,000 of expense for SERP No. 2 in 1994, 1995 and
1996, respectively.
In 1996, the Company approved the D.R. Horton, Inc. Employee Stock Purchase
Plan which allows employees to purchase stock directly from the Company at
market value.
At September 30, 1996, 237,500 shares of common stock have been reserved for
future issuance under the stock tenure and stock purchase plans.
22
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The D.R. Horton, Inc. 1991 Stock Incentive Plan provides for the granting of
stock options to certain key employees of the Company to purchase shares of
common stock. Options are granted at exercise prices which approximate the
market value of the Company's common stock at the date of the grant. Options
generally expire 10 years after the dates on which they were granted and vest
evenly over the life of the option. At September 30, 1996, 3,034,250 shares of
common stock have been reserved for future issuance under this plan. Activity
under the plan is:
<TABLE>
<CAPTION>
1994 1995 1996
------------------ ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
STOCK OPTIONS OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
------------- -------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 872,655 $ 7.32 992,713 $ 8.60 1,782,517 $ 6.56
Granted................. 185,700 13.98 313,000 12.15 559,000 10.15
Exercised............... (109,860) 3.62 (116,400) 3.84 (124,619) 3.24
Cancelled............... (6,500) 7.86 (19,940) 9.80 (122,022) 8.54
Effects of stock
dividends.............. 50,718 8.26 613,144 6.87 145,908 6.69
-------- ------ --------- ------ --------- ------
Outstanding at end of
year................... 992,713 $ 8.60 1,782,517 $ 6.56 2,240,784 $ 7.11
======== ====== ========= ====== ========= ======
Exercisable at end of
year................... 403,997 $ 5.55 565,551 $ 4.44 659,615 $ 4.74
======== ====== ========= ====== ========= ======
</TABLE>
Exercise prices for options outstanding at September 30, 1996, ranged from
$1.804 to $10.185. The weighted average remaining contractual lives of those
options are as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE MATURITY EXERCISE MATURITY
PRICE RANGE OPTIONS PRICE (YEARS) OPTIONS PRICE (YEARS)
----------- --------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than $4.............. 161,631 $1.89 5.0 161,631 $1.89 5.0
$4-$8..................... 1,239,792 5.99 6.9 459,841 5.35 6.4
More than $8.............. 839,361 9.76 9.1 38,143 9.47 7.9
--------- ----- --- ------- ----- ---
Total................... 2,240,784 $7.11 7.6 659,615 $4.74 6.2
========= ===== === ======= ===== ===
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25
in accounting for its employee stock options. The exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, therefore, no compensation expense is recognized.
Application of the fair value method, as specified by FAS 123, had no material
impact on net income or net income per share amounts. However, such pro forma
effects are not indicative of future fair value effects until the rules
stipulated by FAS 123 are applied to all outstanding, nonvested awards.
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company is involved in lawsuits and other contingencies in the ordinary
course of business. Management believes that, while the ultimate outcome of the
contingencies cannot be predicted with certainty, the ultimate liability, if
any, will not have a material adverse effect on the Company's financial
position.
In the ordinary course of business, the Company enters into option agreements
to purchase land and developed lots. Deposits of approximately $5.0 million at
September 30, 1996, secure the Company's performance under these agreements.
23
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases office space under noncancelable operating leases. Minimum
annual lease payments under these leases at September 30, 1996, are
approximately:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997............................... $342
1998............................... 199
1999............................... 46
2000............................... 38
2001............................... 33
----
$658
====
</TABLE>
Rent expense approximated $840,000, $989,000 and $1,140,000, for 1994, 1995
and 1996, respectively.
In the normal course of its business activities, the Company provides letters
of credit and performance bonds, issued by third parties, to secure performance
under various contracts. At September 30, 1996, outstanding letters of credit
totalled $5.2 million and performance bonds totalled $21.7 million.
NOTE H -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations are:
<TABLE>
<CAPTION>
1996
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31
------------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................ $ 168,943 $ 143,283 $ 114,042 $ 121,068
Gross Margin............ 30,677 25,897 20,175 21,533
Net income.............. 9,408 7,434 5,122 5,415
Net income per
share(1)............... .29 .23 .16 .19
<CAPTION>
1995
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31
------------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................ $ 132,827 $ 120,529 $ 87,076 $ 96,956
Gross Margin............ 23,992 21,647 15,359 16,648
Net income.............. 6,681 6,090 3,948 3,820
Net income per
share(1)............... .24 .22 .14 .14
<CAPTION>
1994
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31
------------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................ $ 124,024 $ 107,782 $ 82,606 $ 78,905
Gross Margin............ 21,038 17,729 14,416 14,035
Net income.............. 5,679 4,690 3,698 3,596
Net income per
share(1)............... .20 .17 .13 .13
</TABLE>
- --------
(1) Net income per share differs from that previously reported due to the effect
of the 1996 eight percent stock dividend.
24
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- SUBSEQUENT EVENTS (UNAUDITED)
In October and December 1996, the Company acquired substantially all the
assets of two homebuilding companies, Trimark Communities L.L.C., in Denver,
Colorado and SGS Communities, Inc., in North Central New Jersey, respectively.
Total consideration for these acquisitions was $31 million which includes cash
paid, and the assumption of certain accounts payable and notes payable. The
acquisitions contain provisions for additional consideration to be paid annually
for up to four years based upon subsequent pretax income of the acquired
businesses. Any such additional consideration will be recorded when paid as
excess cost over net assets acquired which will be amortized on a straight line
method over 20 years. These acquisitions will be accounted for under the
purchase method and their operations will be included in the Company's
Consolidated Statements of Income from the date of their acquisition.
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the caption "Election
of Directors" at pages 2 through 4 of the registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on January 23, 1997, and incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" at pages 6 and 7 of the registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on January 23, 1997,
and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Beneficial Ownership of Common Stock" at page 5 of the registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on January 23,
1997, and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Executive Compensation -- Transactions with Management" at page 11 of the
registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on January 23, 1997, and incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
See Item 8 above.
2. Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission (the "Commission") are not required
under the related instructions or are not applicable, and therefore have been
omitted.
26
<PAGE>
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation, as amended(1)
3.2 -- Bylaws, as amended(2)
10.1 -- Form of Indemnification Agreement between the Company and each
of its directors and executive officers and schedule of
substantially identical documents(1)
10.2 -- D.R. Horton, Inc. 1991 Stock Incentive Plan(3)(4)
10.2a -- Amendment No. 1 to 1991 Stock Incentive Plan(3)(4)
10.2b -- Amendment No. 2 to 1991 Stock Incentive Plan(3)(4)
10.2c -- Amendment No. 3 to 1991 Stock Incentive Plan(4)(5)
10.2d -- Amendment No. 4 to 1991 Stock Incentive Plan(4)(5)
10.2e -- Amendment No. 5 to 1991 Stock Incentive Plan(1)(4)
10.3 -- Form of Non-Qualified Stock Option Agreement (Term Vesting)(6)
10.4 -- Form of Non-Qualified Stock Option Agreement (Performance
Vesting)(7)
10.5 -- Form of Incentive Stock Option (Term Vesting)(7)
10.6 -- Form of Incentive Stock Option (Performance Vesting)(7)
10.7 -- Form of Restricted Stock Agreement (Term Vesting)(7)
10.8 -- Form of Restricted Stock Agreement (Performance Vesting)(7)
10.9 -- Form of Stock Appreciation Right Agreement (Term Vesting)(7)
10.10 -- Form of Stock Appreciation Right Agreement (Performance
Vesting)(7)
10.11 -- Form of Stock Appreciation Right Notification (Tandem)(7)
10.12 -- Form of Performance Share Notification(7)
10.13 -- Form of Performance Unit Notification(7)
10.14 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan No.
1(2)(4)
10.15 -- D.R. Horton, Inc. Supplemental Executive Retirement Trust No.
1(2)(4)
10.16 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan No.
2(2)(4)
10.17 -- Master Loan and Inter-Creditor Agreement dated as of April 15,
1996, by and among D.R. Horton, Inc., as Borrower, and
NationsBank, N.A. (South), Bank of America National Trust and
Savings Association, and certain other lenders (collectively,
"Lenders"), and NationsBank, N.A. (South) as a Bank, Issuing Bank
and Administrative Agent for Lenders and Bank of America National
Trust and Savings Association as a Bank and Co-Agent for
Lenders(8)
10.18 -- Working Capital Line of Credit Agreement dated as of July 31,
1996, by and between D.R. Horton, Inc., as Borrower, and Barnett
Bank, N.A., as Lender(8)
10.19 -- Revolving Credit Agreement dated as of September 17, 1996, by and
between D.R. Horton, Inc., as Borrower, and PNC Bank, National
Association, and Lender(8)
21.1 -- Subsidiaries of D.R. Horton,Inc.(8)
23.1 -- Consent of Ernst & Young LLP, Fort Worth, Texas(8)
</TABLE>
- --------
(1) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995, filed with the Commission on
November 22, 1995.
(2) Incorporated by reference from the Registrant's Transition Report on Form
10-K for the period from January 1, 1993 to September 30, 1993, filed with
the Commission on December 28, 1993.
27
<PAGE>
(3) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 33-46554) declared effective by the Commission
on June 4, 1992.
(4) Management contract or compensatory plan or arrangement.
(5) Incorporated by reference from the Registrant's Annual Report Form 10-K
for the fiscal year ended September 30, 1994, filed with the Commission on
December 9, 1994.
(6) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 33-81856) filed with the Commission on July 22,
1994.
(7) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, filed with the Commission on
March 29, 1993.
(8) Filed herewith.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Acts of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: November 21, 1996 D.R. HORTON, INC.
By /s/ Donald R. Horton
----------------------------------
Donald R. Horton,
Chairman of the Board and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald R. Horton Chairman of the November 21, 1996
- ------------------------------------- Board and President
DONALD R. HORTON (Principal
Executive Officer)
/s/ Richard Beckwitt Director November 21, 1996
- -------------------------------------
RICHARD BECKWITT
/s/ Richard I. Galland Director November 21, 1996
- -------------------------------------
RICHARD I. GALLAND
/s/ Richard L. Horton Director November 21, 1996
- -------------------------------------
RICHARD L. HORTON
/s/ Terrill J. Horton Director November 21, 1996
- -------------------------------------
TERRILL J. HORTON
/s/ David J. Keller Treasurer, Chief November 21, 1996
- ------------------------------------- Financial Officer
DAVID J. KELLER and Director
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Francine I. Neff Director November 21, 1996
- -------------------------------------
FRANCINE I. NEFF
/s/ Scott J. Stone Director November 21, 1996
- -------------------------------------
SCOTT J. STONE
/s/ Donald J. Tomnitz Director November 21, 1996
- -------------------------------------
DONALD J. TOMNITZ
</TABLE>
29
<PAGE>
CORPORATE INFORMATION
D.R. Horton, Inc. (the "Company") is engaged primarily in the construction
and sale of single-family homes. The Company offers high-quality homes with
custom features, designed principally for the entry-level and move-up
segments.
Horton has established a unique marketing niche, offering a broader selection
of homes that typically have more amenities and greater design flexibility than
homes offered by volume builders, at prices that are generally more affordable
than those charged by local custom builders. Horton homes range in size from
1,000 to 5,000 square feet and are priced from $80,000 to $600,000. For the year
ended September 30, 1996, the Company closed 3,284 homes with an average sales
price of approximately $166,600.
The Company is geographically diversified, operating in 21 states and 26
markets. Plans call for continued expansion in current markets, as well as entry
into new markets that have significant entry-level and move-up market segments
consistent with the Company's product and pricing strategy.
THE BOARD OF DIRECTORS
TRANSFER AGENT AND REGISTRAR
DONALD R. HORTON
Chairman and President (2) Society National Bank
Cleveland, Ohio
RICHARD BECKWITT
President -- Investments Division (2) INVESTOR RELATIONS
RICHARD I. GALLAND David J. Keller
Former Chief Executive Officer and D.R. Horton, Inc.
Chairman of Fina, Inc. (1) (2) 1901 Ascension Blvd., Suite 100
Arlington, Texas 76006
(817) 856-8200
RICHARD L. HORTON
Vice President -- Dallas/Fort Worth
East Division
ANNUAL MEETING
TERRILL J. HORTON
Vice President -- Dallas/Fort Worth
North Division
January 23, 1997 9:30 a.m. C.S.T.
DAVID J. KELLER
Executive Vice President, Treasurer and At the Corporate Offices of
Chief Financial Officer (2) D.R. Horton, Inc.
1901 Ascension Blvd., Suite 100
Arlington, Texas 76006
FRANCINE I. NEFF
Former Treasurer of the United States (1)
SCOTT J. STONE
Former Vice President -- Eastern Region
DONALD J. TOMNITZ
President -- Homebuilding Division
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(1) Audit Committee Member
(2) Compensation Committee Member
30
MASTER LOAN AND INTER-CREDITOR AGREEMENT
among
D. R. HORTON, INC., as Borrower,
NATIONSBANK, N.A. (SOUTH),
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
SANWA BANK CALIFORNIA,
FIRST AMERICAN BANK, SSB,
COMERICA BANK,
SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION,
BANK ONE TEXAS, NA
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Banks,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Co-Agent for the Banks,
and
NATIONSBANK, N.A. (SOUTH),
as Administrative Agent for the Banks, and as Issuing Bank
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.............................................. 1
ARTICLE 2 LOANS AND LETTERS OF CREDIT.............................. 15
2.1 Extension of Credit...................................... 15
2.2 Manner of Borrowing and Disbursement Under Loans......... 16
2.3 Interest on Loans........................................ 18
2.4 Issuance and Administration of Letters of Credit......... 18
2.5 Fees and Commissions on Loans and Letters of Credit...... 23
2.6 Notes, Loan and Letters of Credit Accounts............... 24
2.7 Repayment of Loans and Letters of Credit................. 25
2.8 Manner of Payment........................................ 25
2.9 Application of Payments.................................. 26
ARTICLE 3 INVENTORY AND FUNDING AVAILABILITY ...................... 27
3.1 Loan Funding Availability................................ 27
ARTICLE 4 LOAN DISBURSEMENTS....................................... 30
4.1 Prior to the First Disbursement or Letter of Credit...... 30
4.2 Subsequent Disbursements................................. 31
ARTICLE 5 BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS
AND WARRANTIES........................................... 32
5.1 Payment.................................................. 32
5.2 Performance.............................................. 32
5.3 Additional Information................................... 32
5.4 Quarterly Financial Statements and Other Information..... 32
5.5 Compliance Certificates.................................. 32
5.6 Annual Financial Statements and Information; Certificate
of No Default............................................ 33
5.7 Financial and Inventory Covenants........................ 33
5.8 Other Financial Documentation............................ 34
5.9 Security Interest in Loan Inventory...................... 34
5.10 Payment of Contractors................................... 34
5.11 Inspection and Appraisal................................. 35
5.12 Fees and Expenses........................................ 35
5.13 Hazardous Substances..................................... 35
5.14 Insurance................................................ 36
5.15 Litigation............................................... 36
5.16 Reportable Event......................................... 36
5.17 Secured Indebtedness..................................... 37
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Page
5.18 Interest Rate Hedging.................................... 37
ARTICLE 6 DEFAULT AND REMEDIES..................................... 37
6.1 Defaults................................................. 37
6.2 Remedies................................................. 40
6.3 Waivers.................................................. 41
6.4 Cross-Default............................................ 41
6.5 No Liability of the Banks................................ 42
ARTICLE 7 THE ADMINISTRATIVE AGENT................................. 42
7.1 Appointment and Authorization............................ 42
7.2 Delegation of Duties..................................... 43
7.3 Interest Holders......................................... 43
7.4 Consultation with Counsel................................ 43
7.5 Documents................................................ 43
7.6 Administrative Agent and Affiliates...................... 43
7.7 Responsibility of the Administrative Agent............... 43
7.8 Action by Administrative Agent........................... 44
7.9 Notice of Default or Event of Default.................... 44
7.10 Responsibility Disclaimed................................ 45
7.11 Indemnification.......................................... 45
7.12 Credit Decision.......................................... 45
7.13 Successor Administrative Agent........................... 46
7.14 Co-Agent................................................. 46
ARTICLE 8 GENERAL CONDITIONS....................................... 46
8.1 Benefit.................................................. 46
8.2 Assignment............................................... 47
8.3 Amendment and Waiver..................................... 47
8.4 Additional Obligations and Amendments.................... 48
8.5 Consideration of Renewal................................. 48
8.6 Terms.................................................... 48
8.7 Governing Law and Jurisdiction........................... 49
8.8 Publicity................................................ 49
8.9 Attorneys' Fees.......................................... 49
8.10 Mandatory Arbitration.................................... 50
8.11 Invalidation of Provisions............................... 50
8.12 Execution in Counterparts................................ 51
8.13 Captions................................................. 51
8.14 Notices.................................................. 51
8.15 Final Agreement.......................................... 54
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EXHIBITS
Exhibit A - Commitment Ratios
Exhibit B - Form of Inventory Quarterly Report
Exhibit C - Form of Inventory Summary Report
Exhibit D - Form of Request for Advance
Exhibit E - Form of Request for Issuance of Letter of Credit
Exhibit F - Form of Letter of Credit Application
Exhibit G - Form of Quarterly Compliance Certificate
Exhibit H - Existing Interest Rate Hedge Agreement
SCHEDULE
Schedule 1.56 - Prior Letters of Credit
Schedule 1.84 - Subsidiaries of the Borrower
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MASTER LOAN AND INTER-CREDITOR AGREEMENT
THIS MASTER LOAN AND INTER-CREDITOR AGREEMENT (this "Agreement") dated as
of the 16th day of April, 1996, is by and among D. R. HORTON, INC., a Delaware
corporation (the "Borrower"); NATIONSBANK, N.A. (SOUTH); BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION; SANWA BANK CALIFORNIA; FIRST AMERICAN
BANK, SSB; COMERICA BANK; SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION; BANK
ONE TEXAS, NA; and THE FIRST NATIONAL BANK OF CHICAGO (collectively, the
"Banks"); NATIONSBANK, N.A. (SOUTH), as issuing bank for letters of credit (in
such capacity, the "Issuing Bank"), NATIONSBANK, N.A. (SOUTH), as agent for the
Banks (in such capacity, the "Agent"), BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as co-agent for the Banks (in such capacity, the "Co-
Agent"), and NATIONSBANK, N.A. (SOUTH), as administrative agent for the Banks
and the Issuing Bank (in such capacity, the "Administrative Agent").
IN CONSIDERATION of the sum of TEN AND NO/100 DOLLARS ($10.00) in hand paid
by each party to the other and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by each of the
undersigned, the undersigned hereby covenant and agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the words and phrases set forth below
shall have the following meanings:
1.1 Acquisition Cost. If the subject Developed Lot or Land Parcel was
purchased individually, the Acquisition Cost for such Developed Lot or Land
Parcel shall be the actual purchase price and closing costs approved by the
Administrative Agent and paid by the Borrower or its Restricted Subsidiaries for
the acquisition of such individual Developed Lot or Land Parcel excluding
Administrative Costs, together with all applicable Development Costs. If the
subject Developed Lot or Land Parcel was part of a larger group of Developed
Lots or Land Parcels, the Acquisition Cost for such Developed Lot or Land Parcel
shall be the pro rata portion of the overall actual purchase price and closing
costs approved by the Administrative Agent and paid by the Borrower and its
Restricted Subsidiaries for the acquisition of such larger group of Developed
Lots or Land Parcels allocable to the subject Developed Lot or Land Parcel
excluding Administrative Costs, together with a pro rata portion of all
applicable Development Costs.
1.2 Administrative Agent. NationsBank, N.A. (South), in its capacity as
Administrative Agent hereunder.
<PAGE>
1.3 Administrative Costs. Costs and expenses incurred by the Borrower
or its Restricted Subsidiaries in connection with (a) the marketing and selling
of Inventory which is part of the Loan Inventory and (b) the administration,
management and operation of the Borrower's and its Restricted Subsidiaries'
businesses (excluding, without limitation, Interest Expense and fees payable
hereunder).
1.4 Advance or Advances. Amounts advanced by the Banks to the Borrower
pursuant to Article 2 hereof on the occasion of any borrowing or in connection
with draws under Letters of Credit.
1.5 Affiliate. Any Person (other than a Person whose sole relationship
with the Borrower is as an employee) directly or indirectly controlling,
controlled by, or under common control with the Borrower. For purposes of this
definition, "control" when used with respect to any Person means the direct or
indirect beneficial ownership of more than twenty percent (20%) of the voting
securities or voting equity or partnership interests, of such Person or the
power to direct or cause the direction of the management and policies of such
Person, whether by control or otherwise.
1.6 Agreement. This Master Loan and Inter-Creditor Agreement.
1.7 Agreement Date. The date as of which the Borrower, the
Administrative Agent, the Issuing Bank and the Banks execute this Agreement.
1.8 Applicable Law. In respect of any Person, all provisions of
constitutions, statutes, rules, regulations, and orders of governmental bodies
or regulatory agencies applicable to such Person, including, without limitation,
all orders and decrees of all courts and arbitrators in proceedings or actions
to which the Person in question is a party or by which it is bound.
1.9 Authorized Signatory. With respect to the Borrower, such personnel
of the Borrower as set forth in an incumbency certificate of the Borrower
delivered to the Administrative Agent on the Agreement Date (or any duly
executed incumbency certificate delivered after the Agreement Date) and
certified therein as being duly authorized by the Borrower to execute documents,
agreements, and instruments on behalf of the Borrower.
1.10 Available Revolving Loan Commitment. As of any date of
determination, an amount equal to the lesser of (a) the Revolving Loan
Commitment or (b) (i) the Loan Funding Availability less (ii) the sum of (A) the
principal amount of the Term Loan then outstanding, (B) the principal amount of
the Revolving Loans then outstanding, (C) unreimbursed draws under any Letter of
Credit, and (D) the outstanding principal balances of all unsecured Indebtedness
for Money Borrowed (excluding capitalized lease obligations, notes payable for
insurance premiums, non-recourse promissory notes for seller financing and
promissory notes issued as earnest money for contracts).
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1.11 Banks. NationsBank, N.A. (South); Bank of America National Trust
and Savings Association; Sanwa Bank California; First American Bank, SSB;
Comerica Bank; SouthTrust Bank of Alabama, National Association; Bank One Texas,
NA; and The First National Bank of Chicago. An individual Bank is sometimes
referred to as a "Bank."
1.12 Borrower. D. R. Horton, Inc., a Delaware corporation.
1.13 Business Day. A day on which none of the Banks are authorized or
required to be closed and foreign exchange markets are open for the transaction
of business required for this Agreement in Atlanta, Georgia.
1.14 Change of Control. Either (i) any sale, lease or other transfer
(in one transaction or a series of transactions) of all or substantially all of
the consolidated assets of the Borrower and its Restricted Subsidiaries to any
Person (other than a Restricted Subsidiary of the Borrower), provided that a
transaction where the holders of all classes of Common Equity of the Borrower
immediately prior to such transaction own, directly or indirectly, 50% or more
of all classes of Common Equity of such Person immediately after such
transaction shall not be a Change of Control; (ii) a "person" or "group" within
the meaning of Section 13(d) of the Exchange Act (other than the Borrower or
Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton, or
any trust or other entity formed or controlled by Donald R. Horton, his wife,
children or grandchildren, or Terrill J. Horton)) becomes the "beneficial owner"
(as defined in Rule 13d-8 under the Exchange Act) of Common Equity of the
Borrower representing more than 50% of the voting power of the Common Equity of
the Borrower; (iii) Continuing Directors cease to constitute at least a majority
of the Board of Directors of the Borrower; or (iv) the stockholders of the
Borrower approve any plan or proposal for the liquidation or dissolution of the
Borrower, provided that a liquidation or dissolution of the Borrower which is
part of a transaction that does not constitute a Change of Control under the
proviso contained in clause (i) above shall not constitute a Change of Control.
1.15 Change of Management. Donald R. Horton shall cease to serve either
as Chairman of the Board of Directors of the Borrower or as President of the
Borrower.
1.16 Code. The Internal Revenue Code of 1986, as amended.
1.17 Commitment Ratios. The percentages in which the Banks are
severally bound to satisfy the Revolving Loan Commitment and the Term Loan
Commitment to make Advances to the Borrower as set forth on Exhibit A attached
hereto and incorporated herein.
1.18 Common Equity. With respect to any Person, capital stock of such
Person that is generally entitled to (i) vote in the election of directors of
such Person, or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management or policies of such Person.
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1.19 Construction Costs. All costs accepted by the Administrative Agent
actually incurred by the Borrower or its Restricted Subsidiaries with respect to
the construction of a Dwelling as of the date of determination by the
Administrative Agent, excluding (a) projected costs and costs for materials or
labor not yet delivered to, provided to or incorporated into such Dwelling and
(b) Administrative Costs.
1.20 Continuing Director. A director who either was a member of the
board of directors of the Borrower on the Agreement Date or who became a
director of the Borrower subsequent to such date and whose election, or
nomination for election by the Borrower's stockholders, was duly approved by a
majority of the Continuing Directors on the board of directors of the Borrower
at the time of such approval, either by a specific vote or by approval of the
proxy statement issued by the Borrower on behalf of the entire board of
directors of the Borrower in which such individual is named as nominee for a
director.
1.21 Default. Any of the events specified in Section 6.1 hereof,
provided that any requirement for notice or lapse of time, or both, has been
satisfied.
1.22 Default Rate. A simple per annum interest rate equal to the sum of
(a) the Term Loan Base Rate or the Revolving Loan Base Rate, as the case may be,
plus (b) two hundred basis points (2%).
1.23 Developed Lots. Subdivision lots owned by the Borrower or its
Restricted Subsidiaries, subject to a recorded plat, which the Borrower has
designated and the Administrative Agent has accepted to be included and are
included as "Developed Lots" in the calculation of the Loan Funding Availability
(exclusive of any Dwelling Lot). An individual Developed Lot is sometimes
referred to herein as a "Developed Lot."
1.24 Development Costs. All costs accepted by the Administrative Agent
actually incurred by the Borrower and its Restricted Subsidiaries with respect
to the development of a Land Parcel into a Developed Lot or Developed Lots as of
the date of determination by the Administrative Agent, excluding (a) projected
costs and costs for materials or labor not yet delivered to, provided to or
incorporated into such parcel of land and (b) Administrative Costs.
1.25 Dwelling. A house which the Borrower or any Restricted Subsidiary
has constructed or is constructing on a Developed Lot which has been designated
as a Dwelling Lot.
1.26 Dwelling Lots. Developed Lots with Dwellings which the Borrower or
any Restricted Subsidiary has designated and the Administrative Agent has
accepted to be included and are included as "Dwelling Lots" in the calculation
of the Loan Funding Availability. The term "Dwelling Lot" includes the Dwelling
located thereon. An individual Dwelling Lot is sometimes referred to herein as a
"Dwelling Lot."
1.27 EBITDA. With respect to the Borrower and all Restricted
Subsidiaries, earnings for the preceding twelve (12) months (including without
limitation dividends from Unrestricted Subsidiaries including, without
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limitation, net income (or loss) of any Person that accrued prior to
the date that such Person becomes a Restricted Subsidiary or is merged with or
into or consolidated with the Borrower or any of its Restricted Subsidiaries)
before interest incurred, state and federal income taxes paid, franchise taxes
paid and depreciation and amortization, all in accordance with GAAP.
1.28 ERISA. The Employee Retirement Income Security Act of 1974, as in
effect on the Agreement Date and as such Act may be amended thereafter from time
to time.
1.29 ERISA Affiliate. (a) Any corporation which is a member of the same
controlled group of corporations (within the meaning of Code Section 414(b)) as
is the Borrower, (b) any other trade or business (whether or not incorporated)
under common control (within the meaning of Code Section 414(c)) with the
Borrower, (c) any other corporation, partnership or other organization which is
a member of an affiliated service group (within the meaning of Code Section
414(m)) with the Borrower, or (d) any other entity required to be aggregated
with the Borrower pursuant to regulations under Code Section 414(o).
1.30 Event of Default. Any event specified in Section 6.1 hereof and
any other event which with any passage of time or giving of notice (or both)
would constitute such event a Default.
1.31 Exchange Act. The Securities Exchange Act of 1934, as amended.
1.32 Federal Funds Effective Rate. As of any date, the "Federal Funds
Effective Rate" for each relevant month as published in the Federal Reserve
Statistical Release H.15 (519), as published by the Board of Governors of the
Federal Reserve System, or any successor publication published by the Board of
Governors of the Federal Reserve System.
1.33 Financial Covenant Carve Out. Any acquisition of Inventory, which
the Borrower has elected to exclude from the calculation of the covenants set
forth in Sections 5.7(a), (b), (g), (h) and (i) hereof; provided, however, that
no acquisition may qualify as a "Financial Covenant Carve Out" if (a) the
Borrower has elected to have an acquisition designated as a "Financial Covenant
Carve Out" in the preceding twelve (12) calendar month period; (b) such
acquisition has already been designated as a "Financial Covenant Carve Out" on
the last day of each of the two (2) fiscal quarter ends immediately following
the date of such acquisition; (c) contemporaneously with delivery by the
Borrower of the notice of designation of an acquisition as a "Financial Covenant
Carve Out", the Borrower fails to deliver to the Administrative Agent and the
Co-Agent a plan of action reflecting that the Borrower will be in compliance
(after giving effect to such acquisition) with the covenants in Sections 5.7(a),
(b), (g), (h) and (i) hereof on or prior to the last day of the third fiscal
quarter following the date of such acquisition; and (d) the acquisition in
question would, if it were included in the compliance calculations, cause (1)
the ratio of Notes Payable to Tangible Net Worth to exceed (A) as of the last
day of each fiscal quarter of the Borrower in 1996, 1.9 to 1, (B) as of the last
day of each fiscal quarter of the Borrower in 1997, 2.1 to 1, (C) as of the last
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day of each fiscal quarter ofthe Borrower in 1998, 2.2 to 1, or (2) the ratio of
Total Liabilities to Tangible Net Worth to exceed (A) as of the last day of each
fiscal quarter of the Borrower in 1996, 2.25 to 1, (B) as of the last day of
each fiscal quarter of the Borrower in 1997, 2.5 to 1, or (C) as of the last day
of each fiscal quarter of the Borrower in 1998, 2.6 to 1.
1.34 Fixed Charges. The aggregate consolidated interest incurred of the
Borrower and its Restricted Subsidiaries for the most recently completed four
(4) fiscal quarters for which results have been reported to the Banks.
1.35 Fixed Charges Coverage Ratio. The ratio of the Borrower's EBITDA
to Fixed Charges.
1.36 Force Majeure Delay. A delay to the development of a Lot Under
Development or a delay to the construction of a Dwelling which is caused by
fire, earthquake or other Acts of God, strike, lockout, acts of public enemy,
riot, insurrection, or governmental regulation of the sale or transportation of
materials, supplies or labor, provided that the Borrower furnishes the
Administrative Agent with written notice of any such delay within ten (10) days
from the commencement of any such delay and provided that the period of the
Force Majeure shall not exceed the period of delay caused by such event.
1.37 Funding Period. A period commencing on the day immediately
following the date that the Loan Funding Availability is established pursuant to
Section 3.1(c) hereof by the Administrative Agent and ending on the date that
the Loan Funding Availability next is established pursuant to Section 3.1(c)
hereof by the Administrative Agent.
1.38 GAAP. As in effect as of the Agreement Date, generally accepted
accounting principles consistently applied.
1.39 Governmental Authority. Any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
1.40 Guaranty or Guaranteed. As applied to an obligation (each a
"primary obligation"), shall mean and include (a) any guaranty, direct or
indirect, in any manner, of any part or all of such primary obligation, and (b)
any agreement, direct or indirect, contingent or otherwise, the practical effect
of which is to assure in any way the payment or performance (or payment of
damages in the event of non-performance) of any part or all of such primary
obligation, including, without limiting the foregoing, any reimbursement
obligations as to amounts drawn down by beneficiaries of outstanding letters of
credit, and any obligation of such Person (the "primary obligor"), whether or
not contingent, (i) to purchase any such primary obligation or any property or
asset constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of such primary obligation or (2)
to maintain working capital, equity capital or the net worth, cash flow,
solvency or other balance sheet or income statement condition of any other
Person, (iii) to purchase property, assets, securities or services primarily for
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the purpose of assuring the owner or holder of any primary obligation of the
ability of the primary obligor with respect to such primary obligation to make
payment thereof or (iv) otherwise to assure or hold harmless the owner or holder
of such primary obligation against loss in respect thereof.
1.41 Guarantors.
DRH Construction, Inc., a Delaware corporation
DRH New Mexico Construction, Inc., a Delaware corporation
D.R. Horton, Inc. - Albuquerque, a Delaware corporation
D.R. Horton, Inc. - Minnesota, a Delaware corporation
D.R. Horton Los Angeles Holding Company, Inc., a California corporation
D.R. Horton Los Angeles Management Company, Inc., a California corporation
D.R. Horton Los Angeles No. 9, Inc., a California corporation
D.R. Horton Los Angeles No. 10, Inc., a California corporation
D.R. Horton Los Angeles No. 11, Inc., a California corporation
D.R. Horton, Inc. - Birmingham, a Delaware corporation
D.R. Horton, Inc. - Greensboro, a Delaware corporation
D.R. Horton San Diego Holding Company, Inc., a California corporation
D.R. Horton San Diego Management Company, Inc., a California corporation
D.R. Horton San Diego No. 9, Inc., a California corporation
D.R. Horton San Diego No. 10, Inc., a California corporation
D.R. Horton San Diego No. 11, Inc., a California corporation
D.R. Horton San Diego No. 12, Inc., a California corporation
D.R. Horton San Diego No. 13, Inc., a California corporation
D.R. Horton San Diego No. 14, Inc., a California corporation
D.R. Horton San Diego No. 15, Inc., a California corporation
D.R. Horton San Diego No. 16, Inc., a California corporation
D.R. Horton San Diego No. 17, Inc., a California corporation
D.R. Horton - Texas, Ltd., a Texas limited partnership
Together with each additional Restricted Subsidiary of Borrower as may
from time to time deliver a Guaranty of the Loans and Letters of Credit which
Guaranty is accepted by Administrative Agent.
1.42 Indebtedness. With respect to any specified Person, (a) all items,
except items of (i) shareholders' and partners' equity, (ii) capital stock,
(iii) surplus, (iv) general contingency or deferred tax reserves, (v)
liabilities for deposits and (vi) deferred income, which in accordance with GAAP
would be included in determining total liabilities as shown on the liability
side of a balance sheet of such Person, (b) all direct or indirect obligations
secured by any Lien to which any property or asset owned by such Person is
subject, whether or not the obligation secured thereby shall have been assumed,
and (c) all reimbursement obligations with respect to outstanding letters of
credit.
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1.43 Indebtedness for Money Borrowed. With respect to any specified
Person, all money borrowed by such Person and Indebtedness represented by notes
payable by such Person and drafts accepted representing extensions of credit to
such Person, all obligations of such Person evidenced by bonds, debentures,
notes, or other similar instruments, all Indebtedness of such Person upon which
interest charges are customarily paid, and all Indebtedness of such Person
issued or assumed as full or partial payment for property or services, whether
or not any such notes, drafts, obligations, or Indebtedness represent
Indebtedness for money borrowed. For purposes of this definition, interest which
is accrued but not paid on the original due date or within any applicable cure
or grace period as provided by the underlying contract for such interest shall
be deemed Indebtedness for Money Borrowed.
1.44 Interest Expense. In respect of any period, an amount equal to the
sum of the interest incurred during such period based on a stated interest rate
with respect to Indebtedness for Money Borrowed of the Borrower and its
Restricted Subsidiaries on a consolidated basis.
1.45 Inventory. All real and personal property, improvements and
fixtures owned by the Borrower or the Restricted Subsidiaries, including but not
limited to all Land Parcels, Lots Under Development, Development Lots and
Dwelling Lots.
1.46 Inventory Quarterly Report. The detailed quarterly written report
with respect to the Loan Inventory, in substantially the form of Exhibit B
attached hereto, to be prepared by the Borrower and submitted to the
Administrative Agent in accordance with Section 3.1(c) hereof.
1.47 Inventory Summary Report. The monthly written summary of the Loan
Inventory, in substantially the form of Exhibit C attached hereto, to be
prepared by the Borrower and submitted to the Administrative Agent in accordance
with Section 3.1(c) hereof.
1.48 Issuing Bank. NationsBank, N.A. (South) (or any successor Issuing
Bank appointed in accordance with the provisions of this Agreement), as issuer
of the Letters of Credit.
1.49 Land Parcels. Parcels of land owned by the Borrower or any of its
Restricted Subsidiaries which are, as of the date of determination, not
scheduled for commencement of development into Developed Lots during the twelve
(12) calendar months immediately following such date of determination and which
the Borrower has designated as "Land Parcels". An individual Land Parcel is
sometimes referred to as a "Land Parcel."
1.50 Letter of Credit Banks. NationsBank, N.A. (South) and Bank of
America National Trust and Savings Association.
1.51 Letter of Credit Commitment. As of any date of determination,
$10,000,000 less all then outstanding Letter of Credit Obligations.
1.52 Letter of Credit Bank Commitment Ratio. The percentages in which
the Letter of Credit Banks are severally bound to reimburse the Issuing Bank for
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draws under Letters of Credit pursuant to the terms hereof, as set forth on
Exhibit A attached hereto and incorporated herein.
1.53 Letter of Credit Maturity Date. April 30, 1999, or such earlier
date as payment of the Letter of Credit Obligations shall be due (whether by
acceleration or otherwise).
1.54 Letter of Credit Obligations. At any time, the sum of (a) an
amount equal to the aggregate undrawn and unexpired amount (including the amount
to which any such Letter of Credit can be reinstated pursuant to the terms
hereof) of the then outstanding Letters of Credit and (b) an amount equal to the
aggregate drawn, but unreimbursed, drawings on any Letters of Credit.
1.55 Letter of Credit Reserve Account. An interest bearing account
maintained by the Administrative Agent for the benefit of the Issuing Bank, the
proceeds of which are maintained as cash collateral for the Letter of Credit
Obligations. The amount of funds in the Letter of Credit Reserve Account shall
not exceed the then outstanding Letter of Credit Obligations, and any excess
shall be applied as set forth in Section 2.9 hereof. All funds in the Letter of
Credit Reserve Account shall be invested in such investments as the
Administrative Agent, in its sole and absolute discretion, deems appropriate.
The Borrower hereby acknowledges and agrees that any interest earned on such
funds shall be retained by the Administrative Agent as additional collateral for
the Letter of Credit Obligations. Upon satisfaction in full of all Letter of
Credit Obligations, the Administrative Agent shall pay any amounts then held in
such account to the Borrower.
1.56 Letters of Credit. Letters of credit issued for the account of the
Borrower to support obligations of the Borrower or any of its Affiliates,
including but not limited to earnest money payments under option contracts,
project completion performance or project maintenance (but not credit
enhancement), including, without limitation, those Letters of Credit issued by
the Issuing Bank prior to the Agreement Date and more fully described on
Schedule 1.56 attached hereto. An individual Letter of Credit is sometimes
referred to as a "Letter of Credit."
1.57 Lien. With respect to any property, any mortgage, lien, pledge,
assignment, charge, security interest, title retention agreement, levy,
execution, seizure, attachment, garnishment, or other encumbrance of any kind in
the nature of any of the foregoing in respect of such property, whether or not
choate, vested, or perfected.
1.58 Loan Documents. This Agreement, the Notes and any and all other
documents evidencing the Notes or the Letters of Credit as the same may be
amended, substituted, replaced, extended or renewed from time to time.
1.59 Loan Funding Availability. The amount available for advancement
under the Notes to the Borrower established pursuant to Section 3.1 hereof, at
any applicable time, by the Administrative Agent based on the Loan Inventory.
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1.60 Loan Inventory. Lots Under Development, Developed Lots and
Dwelling Lots which are not encumbered by a Lien or Liens (other than any
Permitted Encumbrance) and which have been designated by the Borrower and
accepted by the Administrative Agent as "Loan Inventory" to be utilized for the
purpose of calculating the Loan Funding Availability.
1.61 Loans. Collectively, amounts advanced by the Banks to the Borrower
under the Revolving Loan Commitment and the Term Loan Commitment and evidenced
by the Notes.
1.62 Lots Under Development. Land Parcels which are, as of the date of
determination, being developed into Developed Lots or which are scheduled for
the commencement of development into Developed Lots within twelve (12) calendar
months after the date of determination, and which the Borrower has designated
and the Administrative Agent has accepted to be included and are included as
"Lots Under Development" in the calculation of the Loan Funding Availability. An
individual Lot Under Development is sometimes referred to as a "Lot Under
Development."
1.63 Majority Banks. At any time, Banks the total of whose Commitment
Ratios exceeds fifty percent (50%) of the aggregate Commitment Ratios of Banks
entitled to vote hereunder.
1.64 Models. A Dwelling Lot containing a dwelling unit which is
designated by the Borrower as a model unit for use in marketing and promoting
the sale of Dwelling Lots.
1.65 New York Federal Funds Rate. For any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/16th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day.
1.66 Notes. The Term Loan Notes and the Revolving Loan Notes.
1.67 Notes Payable. With respect to the Borrower and all Restricted
Subsidiaries, all Indebtedness for Money Borrowed other than promissory notes
issued as earnest money for contracts, non-recourse promissory notes for seller
financing and notes payable for insurance premiums and capitalized lease
obligations.
1.68 Obligations. (a) All payment and performance obligations of the
Borrower and all other obligors to the Banks, the Issuing Bank and the
Administrative Agent under this Agreement and the other Loan Documents, as they
may be amended from time to time, or as a result of making the Loans, and (b)
the obligation to pay an amount equal to the amount of any and all damages which
the Borrower is obligated to pay pursuant to the Loan Documents to, or on behalf
of, the Banks, the Issuing Bank and the Administrative Agent, or any of them,
which they may suffer by reason of a breach by any of the Borrower or any other
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obligor of any obligation, covenant, or undertaking with respect to this
Agreement or any other Loan Document.
1.69 Overnight Federal Funds Rate. The rate on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York.
1.70 Performance Benchmarks. The following financial ratios (exclusive
of any Financial Covenant Carve Out) for the Borrower and its Restricted
Subsidiaries on a consolidated basis as of both June 30, 1996 and September 30,
1996:
(a) Total Liabilities to Tangible Net Worth of less than or equal
to 1.7 to 1;
(b) Notes Payable to Tangible Net Worth of less than or equal to
1.4 to 1; and
(c) Fixed Charges Coverage Ratio of greater than or equal to
3.5 to 1.
1.71 Permitted Encumbrances. Liens, encumbrances, easements and other
matters which (a) are in favor of the Administrative Agent, the Agent, the
Co-Agent, the Banks and the Issuing Bank to secure the Obligations, (b) are on
real estate for real estate taxes not yet delinquent, (c) are for taxes,
assessments, judgments, governmental charges or levies or claims the non-payment
of which is being diligently contested in good faith by appropriate proceedings
and for which adequate reserves have been set aside on the Borrower's books (but
only so long as no foreclosure, distraint sale or similar proceedings have been
commenced with respect thereto and remain unstayed for a period of thirty (30)
days after their commencement), (d) are in favor of carriers, warehousemen,
mechanics, laborers and materialmen incurred in the ordinary course of business
for sums not yet past due or being diligently contested in good faith (if
adequate reserves are being maintained by the Borrower with respect thereto),
(e) are incurred in the ordinary course of business in connection with worker's
compensation and unemployment insurance, or (f) are easements, rights-of-way,
restrictions or similar encumbrances on the use of real property which does not
interfere with the ordinary conduct of business of the Borrower or materially
detract from the value of such real property.
1.72 Person. An individual, corporation, partnership, limited liability
company, trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
1.73 Plan. An employee benefit plan within the meaning of Section 3(3)
of ERISA maintained by or contributed to by the Borrower or any ERISA Affiliate.
1.74 Reconciliation Date. Two (2) Business Days after the Borrower's
receipt of notice from the Administrative Agent pursuant to Section 3.1(d)
hereof that the outstanding principal balance of the Loans exceeds the Available
Loan Commitment.
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1.75 Reportable Event. Shall have the meaning set forth in Section
4043(b) of ERISA.
1.76 Request for Advance. Any certificate signed by an Authorized
Signatory of the Borrower requesting an Advance hereunder which will increase
the aggregate amount of the Loans outstanding, which certificate shall be
denominated a "Request for Advance," and shall be in substantially the form of
Exhibit D attached hereto. Each Request for Advance shall, among other things,
(a) specify the date of the Advance, which shall be a Business Day, (b) specify
the amount of the Advance, (c) state that there shall not exist, on the date of
the requested Advance and after giving effect thereto, a Default or an Event of
Default, and (d) state that all conditions precedent to the making of the
Advance have been satisfied.
1.77 Request for Issuance of Letter of Credit. Any certificate signed
by an Authorized Signatory of the Borrower requesting that the Issuing Bank
issue a Letter of Credit hereunder, which certificate shall be in substantially
the form of Exhibit E attached hereto, and shall, among other things, (a)
specify the stated amount of the Letter of Credit, (b) specify the effective
date for the issuance of the Letter of Credit (which shall be a Business Day),
(c) specify the date on which the Letter of Credit is to expire (which shall be
a Business Day), (d) specify the Person for whose benefit such Letter of Credit
is to be issued, (e) specify other relevant terms of such Letter of Credit, (f)
be accompanied by a completed letter of credit application substantially similar
to Exhibit F attached hereto or otherwise in form and substance satisfactory to
the Issuing Bank, and (g) state that there shall not exist, on the date of
issuance of the requested Letter of Credit and after giving effect thereto, a
Default or an Event of Default.
1.78 Restricted Subsidiary. Any Subsidiary of the Borrower which has
been designated as a Restricted Subsidiary by the Borrower and from which the
Administrative Agent is required to receive a duly executed Subsidiary Guaranty,
including, without limitation, the Guarantors.
1.79 Revolving Loans. Revolving lines of credit to be advanced by the
Banks pursuant to the terms of this Agreement and evidenced by the Revolving
Loan Notes.
1.80 Revolving Loan Base Rate. At any time, the lesser of (a) (i) at
all times (1) prior to October 1, 1996, and (2) if the Performance Benchmarks
have not been attained, thereafter, the New York Federal Funds Rate plus one
hundred sixty basis points (1.60%), and (ii) effective October 1, 1996, so long
as the Performance Benchmarks have been attained, the New York Federal Funds
Rate plus one hundred forty-four basis points (1.44%) or (b) (i) at all times
(1) prior to October 1, 1996, and (2) if the Performance Benchmarks have not
been attained, thereafter, the Three-Month LIBOR plus one hundred fifty basis
points (1.5%), and (ii) effective October 1, 1996, so long as the Performance
Benchmarks have been attained, the Three-Month LIBOR plus one hundred
thirty-five basis points (1.35%).
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1.81 Revolving Loan Commitment. The several obligations of the Banks to
advance funds in the aggregate sum of up to $150,000,000 to the Borrower
pursuant to the terms hereof as such obligations may be reduced from time to
time pursuant to the terms hereof.
1.82 Revolving Loan Maturity Date. April 30, 1999, or such earlier date
as payment of the Revolving Loans shall be due (whether by acceleration or
otherwise).
1.83 Revolving Loan Notes. The promissory notes by the Borrower one
each in favor of each of the Banks evidencing such Bank's pro rata share of the
Revolving Loans, as well as any promissory note or notes issued by the Borrower
in substitution, replacement, extension, amendment or renewal of any such
promissory note or notes. An individual Revolving Loan Note held by a Bank is
sometimes referred to as a "Revolving Loan Note." The combined face amount of
the Revolving Loan Notes may not exceed ONE HUNDRED FIFTY MILLION AND NO/100
DOLLARS ($150,000,000.00).
1.84 Speculative Lot. Any Dwelling Lots having a fully or partially
constructed dwelling unit thereon which Dwelling Lot is not subject to a bona
fide contract for the sale of such Dwelling Lot to a third party, excluding
Developed Lots containing Dwellings used as Models.
1.85 Subsidiary. As applied to any Person, (a) any corporation of which
fifty percent (50%) or more of the outstanding stock (other than directors'
qualifying shares) having ordinary voting power to elect a majority of its board
of directors, regardless of the existence at the time of a right of the holders
of any class or classes of securities of such corporation to exercise such
voting power by reason of the happening of any contingency, or any partnership
of which fifty percent (50%) or more of the outstanding partnership interests,
is at the time owned by such Person, or by one or more Subsidiaries of such
Person, or by such Person and one or more Subsidiaries of such Person, and (b)
any other entity which is controlled or susceptible to being controlled by such
Person, or by one or more Subsidiaries of such Person, or by such Person and one
or more Subsidiaries of such Person; provided, however, that for purposes of
this Agreement and the other Loan Documents the term "Subsidiary" shall not
include DRH Mortgage Company, Ltd., a Texas limited partnership. Unless the
context otherwise requires, "Subsidiaries" as used herein shall mean the
Subsidiaries of the Borrower. The Subsidiaries of the Borrower as of the Closing
Date are set forth on Schedule 1.84 attached hereto.
1.86 Subsidiary Guaranty. A guaranty agreement in form and substance
satisfactory to the Administrative Agent whereunder a Restricted Subsidiary
guarantees the full and faithful payment and performance of all of the
Obligations of the Borrower hereunder and under the other Loan Documents.
1.87 Super-Majority Banks. At any time, Banks the total of whose
Commitment Ratios exceeds sixty-six and two thirds percent (66-2/3%) of the
aggregate Commitment Ratios of Banks entitled to vote hereunder.
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1.88 Tangible Assets. The difference between total assets of the
Borrower and its Restricted Subsidiaries and all intangible assets of the
Borrower and its Restricted Subsidiaries, all as determined in accordance with
GAAP.
1.89 Tangible Net Worth. With respect to the Borrower and its
Restricted Subsidiaries, stockholder's equity on a consolidated basis less all
"intangible assets" as defined under GAAP and amounts invested in Unrestricted
Subsidiaries of such Person.
1.90 Term Loan. Amounts advanced by the Banks on the Agreement Date
under the Term Loan Commitment pursuant to the terms of this Agreement and
evidenced by the Term Loan Notes.
1.91 Term Loan Base Rate. The Three-Month LIBOR plus two hundred basis
points (2%).
1.92 Term Loan Commitment. The several obligations of the Banks to
advance on the Agreement Date funds in the aggregate sum of $100,000,000 to the
Borrower pursuant to the terms hereof.
1.93 Term Loan Maturity Date. April 16, 2001, or such earlier date as
payment of the Term Loan shall be due (whether by acceleration or otherwise).
1.94 Term Loan Notes. The promissory notes by the Borrower one each in
favor of each of the Banks evidencing such Bank's pro rata share of the Term
Loan, as well as any promissory note or notes issued by the Borrower in
substitution, replacement, extension, amendment or renewal of any such
promissory note or notes. An individual Term Loan Note held by a Bank is
sometimes referred to as a "Term Loan Note." The combined face amount of the
Term Loan Notes may not exceed ONE HUNDRED MILLION AND NO/100s DOLLARS
($100,000,000).
1.95 Third Party Notes Payable. With respect to the Borrower and its
Restricted Subsidiaries, all Indebtedness for Money Borrowed other than (a)
publicly issued Indebtedness for Money Borrowed which is pari passu with the
Obligations, (b) non-recourse Indebtedness, (c) Indebtedness owed to the seller
of any Inventory acquired by the Borrower or its Restricted Subsidiaries, (d)
Indebtedness which is structurally subordinate to the Obligations or which is
convertible into equity at the option of the Borrowers, (e) Indebtedness for
earnest money and (f) notes payable for insurance premiums and capitalized lease
obligations.
1.96 Three-Month LIBOR. As of any date of determination, a rate of
interest per annum equal to the three (3) month London Interbank Offered Rate
for deposits in United States dollars (rounded to two decimal places) in amounts
comparable to the outstanding principal amount of the Loans then outstanding,
which interest rate is set forth in the Wall Street Journal (Eastern Edition) on
the next Business Day; provided, however, if more than one such offered rate
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appears in the Wall Street Journal (Eastern Edition), the applicable rate shall
be the highest thereof.
1.97 Total Capital. The sum of the Tangible Net Worth of the Borrower
and its Restricted Subsidiaries plus Notes Payable of the Borrower and its
Restricted Subsidiaries.
1.98 Total Liabilities. All items required by GAAP to be set forth as
"liabilities" on the Borrower's and its Restricted Subsidiaries' consolidated
balance sheet.
1.99 Unrestricted Subsidiaries. Subsidiaries of the Borrower which are
not Restricted Subsidiaries.
1.100 Working Capital. The total of the Borrower's and its Restricted
Subsidiaries' assets minus the sum of the Borrower's and Restricted
Subsidiaries' fixed assets, intangible assets, earnest monies for lot and land
option contracts represented by promissory notes payable by the Borrower and
Restricted Subsidiaries and the total of the Borrower's and Restricted
Subsidiaries' liabilities. [ Total Assets - (Fixed Assets + Intangible Assets +
Earnest Monies Represented by Promissory Notes + Total Liabilities).]
Each definition of an agreement in this Article 1 shall include such
agreement as modified, amended, or supplemented from time to time with the prior
written consent of the Majority Banks, except as provided in Section 8.3 hereof,
and except where the context otherwise requires, definitions imparting the
singular shall include the plural and vice versa. Except where otherwise
specifically restricted, reference to a party to a Loan Document includes that
party and its successors and assigns. All terms used herein which are defined in
Article 9 of the Uniform Commercial Code in effect in the State of Georgia on
the date hereof and which are not otherwise defined herein shall have the same
meanings herein as set forth therein.
All accounting terms used herein without definition shall be used as
defined under GAAP as of the Agreement Date.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 Extension of Credit. Subject to the terms and conditions of, and in
reliance upon the representations and warranties made in this Agreement and the
other Loan Documents, the Banks agree, severally in accordance with their
respective Commitment Ratios, and not jointly, to extend credit to the Borrower
in an aggregate principal amount not to exceed $250,000,000 and the Issuing Bank
agrees to issue Letters of Credit on behalf of the Borrower in an aggregate face
amount not to exceed $10,000,000, all as provided below:
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(a) The Term Loan. Subject to the terms and conditions of this
Agreement and provided that there is no Default or Event of Default, the Banks
agree, severally in accordance with their Commitment Ratios, and not jointly,
upon the terms and subject to the conditions of this Agreement, to lend to the
Borrower, on the Agreement Date, amounts which in the aggregate do not exceed
the Term Loan Commitment. Advances under the Term Loan Commitment which are
repaid may not be reborrowed.
(b) The Revolving Loans. Subject to the terms and conditions
of this Agreement and provided that there is no Default or Event of Default, the
Banks agree, severally in accordance with their Commitment Ratios, and not
jointly, upon the terms and subject to the conditions of this Agreement, to lend
and relend to the Borrower, prior to the Revolving Loan Maturity Date, amounts
which in the aggregate at any one time outstanding do not exceed the Available
Revolving Loan Commitment. Advances under the Revolving Loan Commitment may be
repaid and reborrowed from time to time on a revolving basis as set forth
herein.
(c) The Letters of Credit. Subject to the terms and conditions
of this Agreement and provided that there is no Default or Event of Default, the
Issuing Bank agrees to issue Letters of Credit for the account of the Borrower
pursuant to Section 2.4 hereof in an aggregate amount for the Borrower at any
one time not to exceed the Letter of Credit Commitment.
(d) Use of Loan Proceeds. The Administrative Agent, the Banks
and the Borrower agree that the proceeds of the Loans shall be used for general
corporate purposes, including, without limitation, working capital support, home
construction, lot acquisition, lot development, land acquisition, asset
acquisitions and stock acquisitions.
2.2 Manner of Borrowing and Disbursement Under Loans.
(a) Advances. The Borrower shall give the Administrative Agent
irrevocable written notice for Advances under the Loans not later than 12:00
noon (Eastern time) on the day immediately preceding the date of the requested
Advance in the form of a Request for Advance, or notice by telephone or telecopy
followed immediately by a Request for Advance; provided, however, that the
failure by the Borrower to confirm any notice by telephone or telecopy with a
Request for Advance shall not invalidate any notice so given. Each Advance
hereunder shall be in principal amounts of not less than $100,000 and in
integral multiples of $100,000. Subsequent to the initial Advance(s) of the
Loans made on the Agreement Date, the Borrower may not request, in the
aggregate, more than (i) two (2) Advances in any calendar month plus (ii) four
(4) additional Advances in any twelve (12) calendar month period. In any event,
the Borrower may not request, in the aggregate, more than twenty-eight (28)
Advances in any twelve (12) calendar month period.
(b) Notification of Banks. Upon receipt of a Request for
Advance or notice by telephone or telecopy, the Administrative Agent shall
promptly notify each Bank by telephone or telecopy of the requested Advance, the
date on which the Advance is to be made, the amount of the Advance and the
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amount of such Bank's portion of the applicable Advance based upon such Bank's
Commitment Ratio. Each Bank shall, not later than 12:00 noon (Eastern time) on
the date specified in such notice, make available to the Administrative Agent at
the Administrative Agent's office, or at such account as the Administrative
Agent shall designate, the amount of its portion of the applicable Advance in
immediately available funds.
(c) Disbursement. Prior to 2:00 p.m. (Eastern time) on the
date of an Advance hereunder, the Administrative Agent shall, subject to the
satisfaction of the conditions set forth in this Agreement, disburse the amounts
made available to the Administrative Agent by the Banks in immediately available
funds by (i) transferring the amounts so made available by wire transfer
pursuant to the instructions of the Borrower, or (ii) in the absence of such
instructions, crediting the amounts so made available to the account of the
Borrower maintained with the Administrative Agent or an affiliate of the
Administrative Agent. Unless the Administrative Agent shall have received notice
from a Bank prior to the date of any Advance that such Bank will not make
available to the Administrative Agent such Bank's ratable portion of such
Advance, and so long as notice has been given as provided in Section 2.2(b)
hereof, the Administrative Agent may assume that such Bank has made such portion
available to the Administrative Agent on the date of such Advance and the
Administrative Agent may, in its sole discretion and in reliance upon such
assumption, without any obligation hereunder to do so, make available to the
Borrower on such date a corresponding amount. If and to the extent such Bank
shall not have so made such ratable portion available to the Administrative
Agent, such Bank agrees to repay to the Administrative Agent forthwith on demand
such corresponding amount together with interest thereon, for each day from the
date such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent for the first two (2) days that such amount
is not repaid, at the Overnight Federal Funds Rate, and, thereafter, at the
Overnight Federal Funds Rate plus four percent (4%) per annum. If such Bank
shall repay to the Administrative Agent such corresponding amount, such amount
so repaid shall constitute such Bank's portion of the applicable Advance for
purposes of this Agreement. If such Bank does not repay such corresponding
amount immediately upon the Administrative Agent's demand therefor, the
Administrative Agent may notify the Borrower, and the Borrower shall immediately
pay such corresponding amount to the Administrative Agent, together with all
interest accrued thereon and on the same terms and conditions that would have
applied to such Advance had such Bank funded its portion thereof. Any payments
received by the Administrative Agent following such demand shall be applied in
repayment of amounts owed to the Administrative Agent hereunder prior to any
other application. The failure of any Bank to fund its portion of any Advance
shall not relieve any other Bank of its obligation, if any, hereunder to fund
its respective portion of the Advance on the date of such borrowing, but no Bank
shall be responsible for any such failure of any other Bank. In the event that,
at any time when this Agreement is not in Default, a Bank for any reason fails
or refuses to fund its portion of an Advance, then, until such time as such Bank
has funded its portion of such Advance, or all other Banks have received payment
in full (whether by repayment or prepayment) of the principal and interest due
in respect of such Advance, such non-funding Bank shall (i) be automatically
deemed to have transferred to the Bank serving as Administrative Agent all of
such non-funding Bank's right to vote regarding any issue on which voting is
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required or advisable under this Agreement or any other Loan Document, and (ii)
not be entitled to receive payments of principal, interest or fees from the
Borrower in respect of such Advances which such Bank failed to make.
2.3 Interest on Loans.
(a) Revolving Loans. Interest on Revolving Loans shall be
computed on the basis of a hypothetical year of 360 days for the actual number
of days elapsed during each calendar month and shall be payable at a simple
interest rate equal to the Revolving Loan Base Rate times the principal balance
outstanding from time to time under the Revolving Loan Notes for the number of
days such principal amounts are outstanding during such calendar month. Interest
then outstanding shall be due and payable in arrears as provided in Section 2.7
hereof.
(b) Term Loan. Interest on the Term Loan shall be computed on
the basis of a hypothetical year of 360 days for the actual number of days
elapsed during each calendar month and shall be payable at a simple interest
rate equal to the Term Loan Base Rate times the principal balance outstanding
from time to time under the Term Loan Notes for the number of days such
principal amounts are outstanding during such calendar month. Interest then
outstanding shall be due and payable in arrears as provided in Section 2.7
hereof.
(c) Upon Default. Upon the occurrence and during the
continuance of a Default, the Super-Majority Banks shall have the option (but
shall not be required to give prior notice thereof to the Borrower to accelerate
the maturity of the Loans or to exercise any other rights or remedies hereunder
in connection with the exercise of this right) to charge interest on the
outstanding principal balance of the Loans at the Default Rate from the date of
such Default. Such interest shall be payable on the earliest of demand, the
first (1st) Business Day of the next calendar month or the Revolving Loan
Maturity Date or the Term Loan Maturity Date, as applicable, and shall accrue
until the earlier of (i) waiver or cure (to the satisfaction of the
Super-Majority Banks) of the applicable Default, (ii) agreement by the
Super-Majority Banks to rescind the charging of interest at the Default Rate, or
(iii) payment in full of the Obligations.
2.4 Issuance and Administration of Letters of Credit.
(a) Subject to the terms and conditions hereof, the Issuing
Bank, on behalf of the Letter of Credit Banks, and in reliance on the agreements
of the Letter of Credit Banks set forth in subsection (d) below, hereby agrees
to issue one or more Letters of Credit up to an aggregate face amount equal to
the Letter of Credit Commitment, provided, however, that the Issuing Bank shall
have no obligation to issue any Letter of Credit if a Default or Event of
Default would be caused thereby; and provided further, however, that at no time
shall the total Letter of Credit Obligations outstanding hereunder exceed
$10,000,000. Each Letter of Credit shall (1) be denominated in U.S. dollars, and
(2) expire no later than 365 days after its date of issuance (but in no event
later than the Letter of Credit Maturity Date). A Letter of Credit may contain
provisions for automatic renewal provided that no Default or Event of Default
exists on the renewal date or would be caused by such renewal and provided
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further that the new expiration date does not extend beyond the Letter of Credit
Maturity Date. Each Letter of Credit shall be subject to the Uniform Customs and
Practices for Documentary Credits and, to the extent not inconsistent therewith,
the laws of the State of Georgia and shall be in a form reasonably acceptable to
the Issuing Bank. The Issuing Bank shall not at any time be obligated to issue,
or cause to be issued, any Letter of Credit if such issuance would conflict
with, or cause the Issuing Bank to exceed any limits imposed by, any Applicable
Law. If a Letter of Credit provides that it is automatically renewable unless
notice is given by the Issuing Bank that it will not be renewed, the Issuing
Bank shall not be bound to give a notice of non-renewal unless directed to do so
by the Letter of Credit Banks at least thirty (30) days prior to the date on
which such notice of non-renewal is required to be delivered to the beneficiary
of the applicable Letter of Credit pursuant to the terms thereof. The Borrower
hereby agrees that upon the Letter of Credit Maturity Date (whether by reason of
acceleration or otherwise) at the request of the Administrative Agent, the
Borrower shall deposit in an interest bearing account with the Administrative
Agent, as cash collateral for the Obligations, an amount equal to the maximum
amount currently or at any time thereafter available to be drawn on all
outstanding Letters of Credit, and the Borrower hereby grants to the
Administrative Agent (for itself and on behalf of the Issuing Bank) a security
interest in all such cash. Upon receipt of the cash collateral referred to in
the preceding sentence, the obligations of the Letter of Credit Banks under this
Section 2.4 shall cease; provided that, if for any reason, all or any part of
such cash collateral must be surrendered or disgorged by the Administrative
Agent, then such obligations shall be automatically reinstated. The terms hereof
shall govern the reimbursement obligation of the Borrower with respect to the
Letters of Credit.
(b) The Borrower may from time to time request that the
Issuing Bank issue a Letter of Credit. The Borrower shall execute and deliver to
the Administrative Agent and the Issuing Bank a Request for Issuance of Letter
of Credit for each Letter of Credit to be issued by the Issuing Bank, not later
than 12:00 noon (Eastern time) on the fifth (5th) Business Day preceding the
date on which the requested Letter of Credit is to be issued, or such shorter
notice as may be acceptable to the Issuing Bank and the Administrative Agent.
Upon receipt of any such Request for Issuance of Letter of Credit, subject to
satisfaction of all conditions precedent thereto as set forth in Article 5
hereof, the Issuing Bank shall process such Request for Issuance of Letter of
Credit and the certificates, documents and other papers and information
delivered to it in connection therewith in accordance with its customary
procedures and shall promptly issue the Letter of Credit requested thereby. The
Issuing Bank shall furnish a copy of such Letter of Credit to the Borrower and
the Administrative Agent following the issuance thereof. The Borrower shall pay
or reimburse the Issuing Bank on demand for normal and customary costs and
expenses incurred by the Issuing Bank in effecting payment under, amending or
otherwise administering the Letters of Credit.
(c) At such time as the Administrative Agent shall be notified
by the Issuing Bank that the beneficiary under any Letter of Credit has drawn on
the same, the Administrative Agent shall promptly notify the Borrower and each
Letter of Credit Bank, by telephone or telecopy, of the amount of the draw and,
in the case of each Letter of Credit Bank, such Letter of Credit Bank's portion
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of such draw amount as calculated in accordance with its Letter of Credit Bank
Commitment Ratio.
(d) The Borrower hereby agrees to immediately reimburse the
Issuing Bank for amounts paid by the Issuing Bank in respect of draws under a
Letter of Credit issued at the Borrower's request. In order to facilitate such
repayment, the Borrower hereby irrevocably requests the Letter of Credit Banks,
and the Letter of Credit Banks hereby severally agree, on the terms and
conditions of this Agreement (other than as provided in Article 2 hereof with
respect to the amounts of, the timing of requests for, and the repayment of
Advances hereunder), with respect to any drawing under a Letter of Credit prior
to the occurrence of an event described in clauses (e) or (f) of Section 6.1
hereof, to make an Advance hereunder on each day on which a draw is made under
any Letter of Credit and in the amount of such draw, and to pay the proceeds of
such Advance directly to the Issuing Bank to reimburse the Issuing Bank for the
amount paid by it upon such draw. Each Letter of Credit Bank shall pay its share
of such Advance by paying its portion of such Advance to the Administrative
Agent in accordance with Section 2.2(c) hereof and its Letter of Credit Bank
Commitment Ratio, without reduction for any set-off or counterclaim of any
nature whatsoever and regardless of whether any Default or Event of Default
(other than with respect to an event described in clauses (e) or (f) of Section
6.1 hereof) then exists or would be caused thereby. If at any time that any
Letters of Credit are outstanding, any of the events described in clauses (e) or
(f) of Section 6.1 hereof shall have occurred, then each Letter of Credit Bank
shall, automatically upon the occurrence of any such event and without any
action on the part of the Issuing Bank, the Borrower, the Administrative Agent,
the Banks or the Letter of Credit Banks, be deemed to have purchased an
undivided participation in the face amount of all Letters of Credit then
outstanding in an amount equal to such Letter of Credit Bank's Letter of Credit
Bank Commitment Ratio, and each Letter of Credit Bank shall, notwithstanding
such Default, upon a drawing under any Letter of Credit, immediately pay to the
Administrative Agent for the account of the Issuing Bank, in immediately
available funds, the amount of such Letter of Credit Bank's participation (and
the Issuing Bank shall deliver to such Letter of Credit Bank a loan
participation certificate dated the date of the occurrence of such event and in
the amount of such Letter of Credit Bank's Letter of Credit Bank Commitment
Ratio). The disbursement of funds in connection with a draw under a Letter of
Credit pursuant to this Section shall be subject to the terms and conditions of
Section 2.2(c) hereof. The obligation of each Letter of Credit Bank to make
payments to the Administrative Agent, for the account of the Issuing Bank, in
accordance with this Section 2.4 shall be absolute and unconditional and no
Letter of Credit Bank shall be relieved of its obligations to make such payments
by reason of noncompliance by any other Person with the terms of the Letter of
Credit or for any other reason. The Administrative Agent shall promptly remit to
the Issuing Bank the amounts so received from the Letter of Credit Banks. Any
overdue amounts payable by any of the Letter of Credit Banks to the Issuing Bank
in respect of a draw under any Letter of Credit shall bear interest, payable on
demand, for the first two (2) days of such non-payment, at the Overnight Federal
Funds Rate, and, thereafter, at the Overnight Federal Funds Rate plus four
percent (4%).
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(e) The obligation of the Borrower to reimburse the Letter of
Credit Banks for Advances made to reimburse the Issuing Bank for draws under any
Letters of Credit shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of this Agreement under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(i) Any lack of validity or enforceability of any
Loan Document;
(ii) Any amendment or waiver of or consent to any
departure from any or all of the Loan Documents;
(iii) Any improper use which may be made of any Letter
of Credit or any improper acts or omissions of any
beneficiary or transferee of any Letter of Credit
in connection therewith;
(iv) The existence of any claim, set-off, defense or any
right which the Borrower may have at any time against any beneficiary
or any transferee of any Letter of Credit (or Persons for whom any such
beneficiary or any such transferee may be acting) or any Bank or Letter
of Credit Bank (other than the defense of payment to such Bank or
Letter of Credit Bank in accordance with the terms of this Agreement)
or any other Person (other than the Issuing Bank), whether in
connection with any Letter of Credit, any transaction contemplated by
any Letter of Credit, this Agreement, any other Loan Document, or any
unrelated transaction;
(v) Any statement or any other documents presented
under any Letter of Credit proving to be insufficient, forged,
fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever, provided that such
payment shall not have constituted gross negligence or willful
misconduct of the Issuing Bank;
(vi) The insolvency of any Person issuing any documents
in connection with any Letter of Credit;
(vii) Any breach of any agreement between the Borrower
and any beneficiary or transferee of any Letter of Credit;
(viii) Any irregularity in the underlying transaction with
respect to which any Letter of Credit is issued, including any fraud by
the beneficiary or any transferee of such Letter of Credit; or
(ix) Any other circumstances arising from causes beyond
the control of the Issuing Bank.
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(f) Each Letter of Credit Bank shall be responsible for its
pro rata share (based on such Letter of Credit Bank's Letter of Credit Bank
Commitment Ratio) of any and all reasonable out-of-pocket costs, expenses
(including reasonable legal fees) and disbursements which may be incurred or
made by the Issuing Bank in connection with the collection of any amounts due
under, the administration of, or the presentation or enforcement of any rights
conferred by any Letter of Credit, the Borrower's or any guarantor's obligations
to reimburse or otherwise, excluding, however, any such expenses incurred by the
Issuing Bank as a result of the willful misconduct or gross negligence of the
Issuing Bank in determining whether a request presented under a Letter of Credit
complies with the terms of the Letter of Credit. In the event the Borrower shall
fail to pay such expenses of the Issuing Bank within ten (10) days after demand
for payment by the Issuing Bank, each Letter of Credit Bank shall thereupon pay
to the Issuing Bank its pro rata share (based on such Letter of Credit Bank's
Letter of Credit Bank Commitment Ratio) of such expenses within five (5) days
from the date of the Issuing Bank's notice to the Letter of Credit Banks of the
Borrower's failure to pay; provided, however, that if the Borrower or any
guarantor shall thereafter pay such expense, the Issuing Bank will repay to each
Letter of Credit Bank the amounts received from such Letter of Credit Bank
hereunder. The Borrower hereby irrevocably requests the Letter of Credit Banks
and the Letter of Credit Banks hereby severally agree subject to compliance with
the terms and conditions hereof (other than as provided in Article 2 hereof with
respect to the amounts of and the timing of requests for Advances hereunder), to
make an Advance to the Issuing Bank, on behalf of the Borrower for reimbursement
of expenses under this Section 2.4(f).
(g) The Borrower agrees that each Advance by the Letter of
Credit Banks to reimburse the Issuing Bank for draws under any Letter of Credit
or for expenses as provided in Section 2.4(f) hereof, shall be payable
immediately on the date of such Advance and shall bear interest at the Base Rate
until paid in full or at the Default Rate following the occurrence of a Default.
(h) The Borrower agrees that it will indemnify and hold
harmless the Administrative Agent, the Issuing Bank, each Letter of Credit Bank
and each other Bank and each of their respective employees, representatives,
officers and directors from and against any and all claims, liabilities,
obligations, losses (other than loss of profits), damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including reasonable attorneys' fees, but excluding taxes) which may
be imposed on, incurred by or asserted against the Administrative Agent, the
Issuing Bank, any such Letter of Credit Bank or any such Bank in any way
relating to or arising out of the issuance of a Letter of Credit, except that
the Borrower shall not be liable to the Administrative Agent, the Issuing Bank,
any such Letter of Credit Bank or any such Bank for any portion of such claims,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from the gross negligence or willful
misconduct of the Administrative Agent, the Issuing Bank, any such Letter of
Credit Bank or such Bank, as the case may be, or any such claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements arising solely out of a controversy among the
Administrative Agent, the Issuing Bank, the Letter of Credit Banks and the
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Banks, or any of them. This Section 2.4(h) shall survive termination of this
Agreement.
2.5 Fees and Commissions on Loans and Letters of Credit.
(a) Administration Fee. The Borrower agrees to pay to the
Administrative Agent, for its administrative services as administrative agent
for the Banks and the Issuing Bank hereunder, a fee of $50,000.00 per annum.
Such fee shall be due and payable on the Agreement Date and on each anniversary
of the Agreement Date, and shall be fully earned when due and non-refundable
when paid. In the event that following the payment of an annual administration
fee, all obligations of the Borrower hereunder shall be fully and finally
performed and this Agreement shall be terminated prior to the next anniversary
of the Agreement Date, a pro rata portion of such fee shall be refunded to the
Borrower, based upon the time remaining to the next anniversary of the Agreement
Date.
(b) Renewal Fee. In the event that the Revolving Loan Maturity
Date shall be extended, the Borrower agrees to pay to the Administrative Agent
for distribution to each of the Banks which elects to renew this Agreement in
accordance with Section 8.5 hereof, on a pro rata basis in accordance with their
respective Commitment Ratios, an annual renewal fee in consideration of the
agreement of such Banks to extend the Revolving Loan Maturity Date of this
Agreement in the amount of five one hundredths of one percent (.05%) of the
amount of the Revolving Loan Commitment (as of the effective date of such
renewal). Such fee shall be due and payable on the effective date of the
renewal, and shall be fully earned when due and non-refundable when paid. In the
event that following the payment of an annual renewal fee, all Obligations of
the Borrower hereunder shall be fully and finally performed and this Agreement
shall be terminated prior to the extended Revolving Loan Maturity Date, a pro
rata portion of such annual renewal fee most recently paid shall be refunded to
the Borrower, based upon the time remaining to the extended Revolving Loan
Maturity Date.
(c) Unused Fee on Revolving Loans. The Borrower agrees to pay
to the Administrative Agent for the benefit of the Banks, in accordance with
their respective Commitment Ratios, an unused fee for each calendar year on the
difference between (i) the Revolving Loan Commitment and (ii) the daily sum of
the outstanding Revolving Loans for each day during the applicable period, in
each case at the rate of (A) if the average difference between clauses (i) and
(ii) for the period is less than $50,000,000, 15 basis points (.15%), (B) if the
average difference between clauses (i) and (ii) for the period is less than
$100,000,000, but greater than or equal to $50,000,000, 22.5 basis points
(.225%), and (C) if the average difference between clauses (i) and (ii) is
greater than or equal to $100,000,000, 30 basis points (.30%). Such unused fee
shall be computed on the basis of a hypothetical year of 360 days for the actual
number of days elapsed, shall be due and payable quarterly in arrears on the
eighteenth (18th) day of each January, April, July, and October for the
immediately preceding calendar quarter, commencing on July 18, 1996 (for the
period from the Agreement Date through June 30, 1996), and on the Revolving Loan
Maturity Date, and shall be fully earned when due and non-refundable when paid.
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(d) Letter of Credit Fees. The Borrower agrees to pay to the
Administrative Agent for the benefit of the Issuing Bank and the Letter of
Credit Banks, a fee on the stated amount of any outstanding Letters of Credit
from the date of issuance through the expiration date of each such Letter of
Credit in an amount equal to the greater of (i) $100 and (ii) a rate (A) for any
Letter of Credit issued on a date when the aggregate stated amount of all then
outstanding Letters of Credit, together with the stated amount of the Letter of
Credit being issued, is less than or equal to $6,000,000, of three-quarters of
one percent (3/4%) per annum, and (B) for any Letter of Credit issued on a date
when the aggregate stated amount of all then outstanding Letters of Credit,
together with the stated amount of the Letter of Credit being issued, is in
excess of $6,000,000, of one percent (1%) per annum (the "Letter of Credit
Fees"). The Letter of Credit Fees shall be calculated on the basis of a
hypothetical year of 360 days for the actual number of days elapsed, shall be
due and payable on the date of issuance and renewal of each Letter of Credit,
and shall be fully earned when due and non-refundable when paid. The
Administrative Agent shall, promptly after receipt of the Letter of Credit Fees,
distribute, (x) in the case of clause (A) above, one-third (1/3rd) of such
Letter of Credit Fees to the Issuing Bank, with the remainder to the Letter of
Credit Banks in accordance with their respective Letter of Credit Bank
Commitment Ratios, and (y) in the case of clause (B) above, ten percent (10%) of
such Letter of Credit Fees to the Issuing Bank, with the remainder to the Letter
of Credit Banks in accordance with their respective Letter of Credit Bank
Commitment Ratios.
2.6 Notes, Loan and Letters of Credit Accounts.
(a) The Loans shall be repayable in accordance with the terms
and provisions set forth herein, and shall be evidenced by the Notes. One of the
Term Loan Notes and one of the Revolving Loan Notes shall be payable to the
order of each Bank in accordance with the respective Commitment Ratio of such
Bank. The Notes shall be issued by the Borrower to each of the Banks and shall
be duly executed and delivered by Authorized Signatories.
(b) Each Bank and each Letter of Credit Bank, as the case may
be, may open and maintain on its books in the name of the Borrower a loan
account with respect to the Loans and interest thereon and a letter of credit
account with respect to its obligations pursuant to Letters of Credit. Each Bank
which opens such accounts in respect of the Loans shall debit the applicable
loan account for the principal amount of each Advance made by it and accrued
interest thereon, and shall credit such loan account for each payment on account
of principal of or interest on the Loans. Each Letter of Credit Bank which opens
such accounts in respect of the Letters of Credit shall debit the applicable
account for the amount of each Advance made by it and accrued interest thereon,
and shall credit such account for each payment on account of principal and
interest of Letter of Credit Advances. The records of each Bank and each Letter
of Credit Bank, as the case may be, with respect to the accounts maintained by
it shall be prima facie evidence of the Loans and Letter of Credit Obligations
and accrued interest thereon, but the failure to maintain such records shall not
impair the obligation of the Borrower to repay Indebtedness hereunder.
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(c) The Administrative Agent and Issuing Bank may maintain in
accordance with their usual practice records of account evidencing the
Indebtedness of the Borrower resulting from Advances under the Loans and each
drawing under a Letter of Credit. In any legal action or proceeding in respect
of this Agreement, the entries made in such record shall be prima facie
evidence, absent manifest error, of the existence and amounts of the obligations
of the Borrower therein recorded. Failure of the Issuing Bank to maintain any
such record shall not excuse the Borrower from the obligation to pay such
Indebtedness. To the extent that the records of the Administrative Agent or
Issuing Bank conflict with the records of the Banks maintained pursuant to
Section 2.6(b) above, absent manifest error, the records of the Administrative
Agent or Issuing Bank, as the case may be, shall control.
(d) Each Advance from the Banks under this Agreement shall be
made pro rata on the basis of their respective Commitment Ratios.
(e) Each Advance made on account of drawing under Letters of
Credit shall be made pro rata by the Letter of Credit Banks on the basis of
their respective Letter of Credit Bank Commitment Ratios.
2.7 Repayment of Loans and Letters of Credit.
(a) Interest. The Borrower shall pay, on the eighteenth (18th)
calendar day of each month, all interest on the Term Loan and the Revolving
Loans which has accrued as of the first (1st) calendar day of such month,
commencing on the eighteenth (18th) calendar day of the first (1st) full
calendar month following the Agreement Date.
(b) Letters of Credit. The Borrower shall repay all draws upon
the Letters of Credit immediately upon the Issuing Bank's demand therefor. The
Borrower shall make certain other payments in respect of the Letter of Credit
Obligations as provided in Sections 2.4(a), 2.4(g) and 3.1 hereof.
(c) Reconciliation of Loan Inventory. The Borrower shall repay
certain portions of the outstanding principal of the Loans and accrued and
unpaid interest thereon upon the reconciliation of the Loan Funding Availability
against the outstanding principal balance under the Notes as provided in Section
3.1 hereof.
(d) Maturity. In addition to the foregoing, a final payment of
all Obligations then outstanding shall be due and payable by the Borrower on the
Revolving Loan Maturity Date, the Term Loan Maturity Date or the Letter of
Credit Maturity Date, as applicable.
2.8 Manner of Payment.
(a) Each payment (including any prepayment) by the Borrower on
account of the principal of or interest on the Loans, fees, and any other amount
owed to the Banks or the Administrative Agent under this Agreement, the Notes,
or the other Loan Documents shall be made not later than 1:00 p.m.(Eastern time)
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on the date specified for payment under this Agreement or such other Loan
Document to the Administrative Agent to an account designated by the
Administrative Agent, for the account of the Banks, the Issuing Bank or the
Administrative Agent, as the case may be, in lawful money of the United States
of America in immediately available funds. Any payment received by the
Administrative Agent after 12:00 noon (Eastern time) shall be deemed received on
the next Business Day for purposes of interest accrual. In the case of a payment
for the account of a Bank or the Issuing Bank, then, subject to the provisions
of Section 2.9 of this Agreement, the Administrative Agent will promptly
thereafter distribute the amount so received in like funds to such Bank or the
Issuing Bank. If the Administrative Agent shall not have received any payment
from the Borrower as and when due, the Administrative Agent will promptly notify
the Banks and, if appropriate, the Issuing Bank, accordingly, and the
Administrative Agent shall not be obligated to make any distributions under this
Section 2.8.
(b) If any payment under this Agreement or any of the Notes
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next succeeding day which is a Business Day, and such extension
of time shall in such case be included in computing interest and fees, if any,
in connection with such payment.
(c) The Borrower may not make payments, in the aggregate,
under this Agreement (excluding any payments specifically required pursuant to
the terms of this Agreement) more than (i) two (2) times in any calendar month
plus (ii) four (4) additional times in any twelve (12) calendar month period. In
any event, the Borrower may not make, in the aggregate, more than twenty-eight
(28) payments (excluding any payments specifically required pursuant to the
terms of this Agreement) under this Agreement in any twelve (12) calendar month
period.
(d) The Borrower agrees to pay principal, interest, fees, and
all other amounts due hereunder or under the Notes and Letter of Credit
Obligations without set-off or counterclaim or any deduction whatsoever.
2.9 Application of Payments. Unless otherwise specifically provided in
this Agreement or the other Loan Documents, payments made to the Administrative
Agent, the Letter of Credit Banks or the Banks, or any of them, or otherwise
received by the Administrative Agent, the Letter of Credit Banks or the Banks,
or any of them (from realization on collateral for the Obligations or
otherwise), shall be applied (subject to Section 2.2(c) hereof) in the following
order to the extent such Obligations are then due and payable hereunder: First,
to the costs and expenses, if any, incurred by the Administrative Agent or the
Banks, or any of them, in the collection of such amounts under this Agreement or
any of the other Loan Documents, including, without limitation, any reasonable
costs incurred in connection with the sale or disposition of any collateral for
the Obligations; Second, pro rata among the Administrative Agent, the Issuing
Bank and the Banks based on the total amount of fees then due and payable
hereunder or under any other Loan Document and to any other fees and commissions
then due and payable by the Borrower to the Banks, the Issuing Bank and the
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Administrative Agent under this Agreement or any Loan Document; Third, to any
due and unpaid interest which may have accrued on the Term Loan and the
Revolving Loans, pro rata among the Banks based on the outstanding principal
amount of the Term Loan and the Revolving Loans as the case may be, outstanding
immediately prior to such payment; Fourth, to any amounts outstanding with
respect to draws under Letters of Credit; Fifth, to any unpaid principal of the
Revolving Loans, pro rata among the Banks based on the principal amount of the
Revolving Loans outstanding immediately prior to such payment; Sixth, to any
unpaid principal of the Term Loan, pro rata among the Banks based on the
outstanding principal amount of the Term Loan outstanding immediately prior to
such payment, to any unpaid principal of the Term Loan; Seventh, to the extent
any Letters of Credit are then outstanding, for deposit into the Letter of
Credit Reserve Account; Eighth, to any other Obligations not otherwise referred
to in this Section 2.9 until all such Obligations are paid in full; Ninth, to
actual damages incurred by the Administrative Agent, the Issuing Bank or the
Banks, or any of them, by reason of any breach hereof or of any other Loan
Documents by the Borrower or a Restricted Subsidiary; and Tenth, upon
satisfaction in full of all Obligations, to the Borrower or as otherwise
required by law. Notwithstanding the foregoing, (a) in the case of any voluntary
prepayment hereunder at a time when there does not exist an Event of Default or
Default, the Borrower may designate the order of application of such payments
with respect to items Fifth and Sixth in the immediately preceding sentence, and
(b) after the occurrence and during the continuance of a Default or an Event of
Default, payments with respect to items Fourth, Fifth and Sixth in the
immediately preceding sentence shall be applied to such items based upon the
ratio of the Obligations under each of such items to the aggregate Obligations
under all of such items. If any Bank shall obtain any payment (whether
involuntary or otherwise) on account of the Loans made by it in excess of its
ratable share of the Loans then outstanding and such Bank's share of any
expenses, fees and other items due and payable to it hereunder, such Bank shall
forthwith purchase a participation in the Loans from the other Banks as shall be
necessary to cause such purchasing Bank to share the excess payment ratably
based on the applicable Commitment Ratios with each of them; provided, however,
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Bank, such purchase from each Bank shall be rescinded and such
Bank shall repay to the purchasing Bank the purchase price to the extent of such
recovery. The Borrower agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section may, to the fullest extent permitted by
law, exercise all its rights of payment with respect to such participation as
fully as if such Bank were the direct creditor of the Borrower in the amount of
such participation so long as the Obligations are not increased.
ARTICLE 3
INVENTORY AND FUNDING AVAILABILITY
3.1 Loan Funding Availability. At the designated times set forth
herein, the Administrative Agent shall establish a Loan Funding Availability for
the Loan Inventory.
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(a) Calculation of Loan Funding Availability. The Loan
Funding Availability shall be equal to the sum of "A" plus "B" plus "C";
provided, that at no time may the sum of "A" and "B" exceed thirty percent (30%)
of Loan Funding Availability.
A = seventy-five percent (75%) of the sum of all
Acquisition Costs for all Lots Under Development which are included in the Loan
Inventory. If, after a parcel of land is designated a Lot Under Development,
development of such parcel ceases for thirty (30) calendar days or more (other
than by reason of a Force Majeure Delay), at the discretion of the
Administrative Agent, the Loan Funding Availability for such parcel may be
reduced to an amount determined by the Administrative Agent (which amount can be
zero) until development of such Lot Under Development is resumed to the
satisfaction of the Administration Agent.
B = seventy-five percent (75%) of the sum of all
Acquisition Costs for all Developed Lots included in the Loan Inventory.
C = one hundred percent (100%) of the sum of all
Acquisition Costs and Construction Costs for all Dwelling Lots included in the
Loan Inventory.
(b) Designation of Land Parcels, Lots Under Development,
Developed Lots and Dwelling Lots. On or before the fifteenth (15th) calendar day
of each calendar month (other than a month following the end of a calendar
quarter), the Borrower shall deliver to the Administrative Agent an Inventory
Summary Report in the form attached hereto as Exhibit C and incorporated herein.
On or before the fifteenth (15th) calendar day of each month following the end
of a calendar quarter, the Borrower shall deliver to the Administrative Agent an
Inventory Quarterly Report in the form attached hereto as Exhibit B and
incorporated herein which form shall have been completed and signed by the
Borrower. The Inventory Summary Report and Inventory Quarterly Report shall
reflect Inventory that the Borrower desires to have designated as Loan
Inventory. Upon the Administrative Agent's receipt of the Inventory Summary
Report or Inventory Quarterly Report, as the case may be, the Administrative
Agent may conduct inspections or reviews of the subject Inventory that the
Administrative Agent deems appropriate, at the expense of the Administrative
Agent except as hereinafter expressly provided. Based upon the information in
the Inventory Summary Report or Inventory Quarterly Report, as the case may be,
and the other information compiled by the Administrative Agent, the
Administrative Agent shall determine, in its discretion, whether a Lot Under
Development, Developed Lot or Dwelling Lot not previously designated as part of
the Loan Inventory shall be designated part of the Loan Inventory and, if so,
whether such Lot Under Development, Developed Lot or Dwelling Lot shall be
designated a Lot Under Development, Developed Lot or Dwelling Lot.
(c) Periodic Establishment of Loan Funding Availability.
Within two (2) business days of the Administrative Agent's receipt of an
Inventory Summary Report or Inventory Quarterly Report, as the case may be, the
Administrative Agent shall establish the Loan Funding Availability based on the
Report delivered to the Administrative Agent and information compiled by the
Administrative Agent. In the event the Borrower does not submit the Inventory
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Summary Report or Inventory Quarterly Report in the time and manner set forth
above or furnish sufficient information to the Administrative Agent to enable
the Administrative Agent to establish a new Loan Funding Availability, the
Administrative Agent will establish a Loan Funding Availability based on some or
all of the previous information submitted to the Administrative Agent by the
Borrower in the immediately preceding Inventory Summary Report or Inventory
Quarterly Report and the information compiled by the Administrative Agent, as
required hereunder, in connection therewith, as the case may be, or other
information available to the Administrative Agent.
(d) Reconciliation. In the event that the Loan Funding
Availability for a particular Funding Period is less than the then outstanding
principal amount under the Loans, Third Party Notes Payable and unpaid draws
under Letters of Credit, the Administrative Agent shall notify the Borrower
thereof. On or before the Reconciliation Date, the Borrower shall (i) (A) pay to
the Administrative Agent a principal payment to be applied to the Loans and
unpaid draws under Letters of Credit and/or (B) provide to the Administrative
Agent evidence that the principal amount of Third Party Notes Payable has been
reduced in an aggregate amount sufficient to eliminate the excess of the
outstanding principal amount of the Loans, Third Party Notes Payable and unpaid
draws under Letters of Credit over the Loan Funding Availability, together with
any accrued and unpaid interest on such excess or (ii) provide a revised
Inventory Summary Report or Inventory Quarterly Report designating sufficient
additional Inventory (which shall be acceptable to the Administrative Agent, in
its discretion) as Loan Inventory to cause the Loan Funding Availability to
equal or exceed the outstanding principal of the Loans, Third Party Notes
Payable and unpaid draws under Letters of Credit.
(e) Removal/Disapproval of Inventory for Loan Funding
Availability. If, at any time, the Administrative Agent determines, in its
reasonable discretion, that any part of the Loan Inventory is not acceptable for
inclusion in the calculation of the Loan Funding Availability as a result of an
unforeseen material adverse change in the condition of such portion of the Loan
Inventory or as a result of the existence of hazardous wastes or materials in or
on any Inventory which are in violation of any warranty, representation or
covenant of the Loan Documents regarding such hazardous wastes or materials, the
Administrative Agent may exclude such portion of the Loan Inventory from the
calculation of the Loan Funding Availability. If, after such exclusion, the then
outstanding principal amount under the Notes would exceed the Loan Funding
Availability, the Borrower shall pay to the Administrative Agent on the
Reconciliation Date immediately following the exclusion of such Loan Inventory,
a principal payment on the Loans in an amount sufficient to eliminate such
excess of the aggregate outstanding principal balance of the Loans over the Loan
Funding Availability, together with accrued and unpaid interest on such excess.
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ARTICLE 4
LOAN DISBURSEMENTS AND LETTERS OF CREDIT
4.1 Prior to the First Disbursement or Letter of Credit. Prior to
requesting the first disbursement under the Loans or Letter of Credit hereunder,
the Borrower shall deliver all of the following items to the Administrative
Agent, in form and substance satisfactory to the Administrative Agent. The
Administrative Agent and the Banks shall have no obligation to make the first
disbursement hereunder and the Issuing Bank shall have no obligation to issue
the first Letter of Credit hereunder until all of these items have been so
executed and/or delivered to the Administrative Agent.
(a) Notes and Guaranties. A Revolving Loan Note and a Term
Loan Note by the Borrower payable to the order of each Bank. A Guaranty
from each Guarantor in favor of the Banks and Administrative Agent.
(b) Taxpayer Identification Number. The Borrower's
federal taxpayer identification number.
(c) Authority Documents of Borrower. Articles of Incorporation
of the Borrower certified by the office of the Secretary of State in
which the Borrower is incorporated; Bylaws of the Borrower certified by
an officer of the Borrower; Certificate of Existence of the Borrower
issued by the state in which the Borrower is incorporated; Incumbency
Certificate of the Borrower reflecting the Authorized Signatories;
Corporate resolutions of the Borrower certified by an officer of the
Borrower and authorizing the Borrower to enter into this Agreement and
execute all related documents and Loan Documents applicable to the
Revolving Loans and the Term Loan; and documentation evidencing the
Borrower's qualification to do business for each state in which any
part of the Loan Inventory owned by Borrower is located certified by
the office of the Secretary of State of such state.
(d) Attorney's Opinion. The written opinion of the Borrower's
counsel (or special counsel to the Administrative Agent) in form and
content acceptable to the Administrative Agent and which addresses the
following matters:
(i) Existence, Due Authorization and Execution.
Borrower is duly organized and existing as a corporation and
is in good standing and qualified to do business under the
laws of Borrower's state of incorporation and the states in
which the Loan Inventory is located and that the Loan
Documents evidencing the Loans have been properly executed
by the persons authorized to do so;
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(ii) Enforceability. The Loan Documents are
enforceable against the Borrower in accordance with their
terms; and
(iii) Miscellaneous. As to such other matters as
the Administrative Agent or the Banks may reasonably request.
Such opinions may be qualified to the extent of the knowledge
of such counsel based upon reasonable investigation.
(e) Inventory Quarterly Report. The Inventory Quarterly
Report that the Borrower is required to deliver pursuant to Section
3.1(b) hereof, for the most recent calendar quarter.
(f) Request for Advance or Letter of Credit. The Request for
Advance that the Borrower is required to deliver pursuant to Section
2.2 hereof or the Request for Issuance of Letter of Credit that the
Borrower is required to deliver in connection with any issuance of a
Letter of Credit hereunder, as the case may be.
(g) Other Documents. Other documents that the Admini-
strative Agent may reasonably require.
(h) Fees. Payment of all fees and expenses payable on
the Agreement Date to the Banks, the Letter of Credit Banks, the
Issuing Bank and the Administrative Agent.
(i) Insurance. Certificate(s) of insurance required
pursuant to Section 5.15 hereof.
(j) Environmental Indemnity Agreement. An environmental
indemnity agreement by the Borrower in favor of the Administrative
Agent, the Issuing Bank and the Banks whereby the Borrower indemnifies
such Persons against any and all environmental matters with respect to
the Loan Inventory.
4.2 Subsequent Disbursements and Letters of Credit. Prior to requesting
subsequent disbursements under the Revolving Loans (subsequent to the first
disbursement) or Letters of Credit hereunder (subsequent to the first Letter of
Credit), the Borrower shall execute and deliver to the Administrative Agent all
of the following items, in form and substance satisfactory to the Administrative
Agent. The Administrative Agent and the Banks shall have no obligation to make
further disbursements or issue additional Letters of Credit until all of these
items have been properly executed and delivered to the Administrative Agent.
There shall be no disbursement of the Term Loan after the first disbursement.
(a) Inventory Summary Report. The Inventory Summary
Report that the Borrower is required to deliver pursuant to Section
3.1(b) hereof.
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(b) Inventory Quarterly Report. The Inventory Quarterly
Report that the Borrower is required to deliver pursuant to Section
3.1(b) hereof.
(c) Request for Advance. The Request for Advance that the
Borrower is required to deliver pursuant to Section 2.2 hereof or the
Request for Issuance of Letter of Credit that the Borrower is required
to deliver in connection with any issuance of a Letter of Credit
hereunder, as the case may be.
(d) Other Documents. Such other documents that the
Administrative Agent may reasonably require.
ARTICLE 5
BORROWER'S COVENANTS, AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
The Borrower makes the following covenants, agreements, representations
and warranties with respect to the Loan Documents and the obligations thereunder
to the Banks:
5.1 Payment. The Borrower shall pay when due all sums owing under this
Agreement, the Notes and the other Loan Documents executed by the Borrower.
5.2 Performance. The Borrower shall perform all Obligations under this
Agreement, the Notes and the other Loan Documents executed by the Borrower.
5.3 Additional Information. On request of the Administrative Agent, the
Borrower shall deliver to the Administrative Agent and/or the Issuing Bank any
documents or information with respect to the Inventory that the Administrative
Agent and/or the Issuing Bank may reasonably require including, without
limitation, surveys and acquisition closing documentation.
5.4 Quarterly Financial Statements and Other Information. Within
forty-five (45) days after the last day of each quarter in each fiscal year of
the Borrower, except the last quarter in each such fiscal year of the Borrower,
the Borrower shall deliver to the Administrative Agent the Form 10-Q of the
Borrower as filed with the Securities and Exchange Commission. Within ten (10)
days from the date of filing, the Borrower shall provide to the Administrative
Agent a copy of every other report filed by the Borrower with the Securities and
Exchange Commission under the Exchange Act and a copy of each registration
statement filed by the Borrower with the Securities and Exchange Commission
pursuant to the Securities Act of 1933.
5.5 Compliance Certificates. Within forty-five (45) days from the end
of each fiscal quarter of the Borrower, the Borrower shall provide to the
Administrative Agent a certificate signed by an Authorized Signatory of the
Borrower in the form attached hereto as Exhibit G setting forth such
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calculations required to establish whether the Borrower was in compliance with
Section 5.7 hereof.
5.6 Annual Financial Statements and Information; Certificate of No
Default. Within one hundred (100) days after the end of each fiscal year of the
Borrower, the Borrower shall deliver to the Administrative Agent the Form 10-K
of the Borrower as filed with the Securities and Exchange Commission, together
with the audited consolidated financial statements of the Borrower (which shall
be prepared by an independent accounting firm of recognized standing).
5.7 Financial and Inventory Covenants. Until the obligations are repaid
in full, the Borrower shall adhere to the following financial covenants (after
giving effect to any Financial Covenant Carve Out), all on a consolidated basis
with the Restricted Subsidiaries and determined as of the last day of each
fiscal quarter of the Borrower:
(a) The Borrower shall maintain at all times a ratio of Notes
Payable to Tangible Net Worth of not greater than 1.75 to 1.0 on a
consolidated basis.
(b) The Borrower shall maintain at all times a ratio of Total
Liabilities to Tangible Net Worth of not more than 2.25 to 1.
(c) The Borrower shall maintain at all times a ratio of (i)
EBITDA to (ii) Fixed Charges of not less than 3.0 to 1.0.
(d) The Borrower shall maintain at all times Working
Capital of $100,000,000 on a consolidated basis.
(e) The Borrower shall maintain at all times a minimum
Tangible Net Worth of one hundred ten million and no/100 dollars
($110,000,000.00), plus fifty percent (50%) of annual net profits for
such fiscal year, plus fifty percent (50%) of any capital paid into the
Borrower (other than stock issued in connection with an employee stock
ownership plan, an employee stock option plan, an employee stock
purchase plan or for an acquisition), plus one hundred percent (100%)
of net losses with absolute minimum Tangible Net Worth of not less than
one hundred ten million and no/100 dollars ($110,000,000.00), on a
consolidated basis.
(f) The Borrower shall not at any time permit Third Party
Notes Payable to be greater than thirteen percent (13%) of Tangible
Assets on a consolidated basis.
(g) The total number of Speculative Lots owned by the Borrower
and its Restricted Subsidiaries at any given time shall not exceed
sixty percent (60%) of all Dwelling Lots (completely or partially
constructed) then owned by the Borrower and its Restricted
Subsidiaries. Models shall not be considered "Speculative Lots" for
purposes of this Section 5.7(g).
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(h) The Borrower shall not permit the total number of
Developed Lots and Lots Under Development, in each case, then owned by
the Borrower and all Restricted Subsidiaries, at any given time to
exceed two and one-half (2 1/2) times the number of Developed Lots
containing Dwellings closed by the Borrower and all Restricted
Subsidiaries during the immediately preceding twelve (12) calendar
months. The Borrower shall not permit the aggregate cost of all
Developed Lots and Lots Under Development, in each case, then owned by
the Borrower and all Restricted Subsidiaries, at any given time to
exceed forty percent (40%) of all Tangible Assets of the Borrower on a
consolidated basis.
(i) The cost of the land owned by Borrower and all Restricted
Subsidiaries at any given time which has not been developed into
Developed Lots and is not scheduled for commencement of development
into Developed Lots within twelve (12) calendar months from the date of
determination shall not exceed ten percent (10%) of all Tangible Assets
of the Borrower and its Restricted Subsidiaries on a consolidated
basis. In the event that the Borrower or any Restricted Subsidiary
classifies certain undeveloped land as being scheduled for development
within twelve (12) calendar months for the purpose of this provision
and, as of the last day of such twelve (12) calendar month period,
development of such land has not commenced, such land shall not be
classified as scheduled for development within twelve (12) calendar
months until such development is commenced.
5.8 Other Financial Documentation. The Borrower shall provide to the
Administrative Agent such other financial information as the Administrative
Agent may reasonably request from time to time to clarify or amplify the
information required to be furnished to the Administrative Agent under this
Agreement.
5.9 Security Interest in Loan Inventory. After the occurrence and
during the continuance of a Default under Sections 5.7(a), (b), (c), (e) or (f)
hereof or an Event of Default under Section 6.2(b) hereof, the Borrower shall
execute and deliver to the Administrative Agent (a) security instruments and
other documentation related thereto, in form and content reasonably acceptable
to the Administrative Agent, granting the Administrative Agent a
first-in-priority security interest in the Loan Inventory in an amount equal to
the then outstanding principal under the Loans and all outstanding Letters of
Credit, and (b) other documentation related to the granting of such security
interest that the Administrative Agent, in its reasonable discretion, deems
appropriate. The Borrower shall cause such documentation to be executed and
returned to the Administrative Agent within three (3) calendar days of the
Borrower's receipt thereof.
5.10 Payment of Contractors. The Borrower shall pay in a timely manner,
and shall cause its Subsidiaries to pay in a timely manner, any and all
contractors and subcontractors who conduct work in or on the Inventory, subject
to the right of the Borrower to contest any amount in dispute, so long as the
contesting of such amount is pursued diligently and in good faith. The Borrower
will advise the Administrative Agent in writing immediately if the Borrower or
any of its Subsidiaries receives any written notice from any contractor(s),
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subcontractor(s) or material furnisher(s) to the effect that said contractor(s)
or material furnisher(s) have not been paid for any labor or materials furnished
to or in the Inventory and such outstanding payment or payments are individually
or collectively equal to or greater than two hundred thousand and no/100 dollars
($200,000.00) per subdivision or seven million and no/100 dollars
($7,000,000.00) in the aggregate. The Borrower will further make available to
the Administrative Agent, for inspection and copying, on demand, any contracts,
bills of sale, statements, receipted vouchers or agreements, under which the
Borrower claims title to any materials, fixtures or articles used in the
development of the Loan Inventory or construction of improvements on the Loan
Inventory including, without limitation, the Dwellings.
5.11 Inspection and Appraisal. The Borrower shall permit the
Administrative Agent and the Banks and their authorized agents to enter upon the
Inventory during normal working hours and as often as they desire, for the
purpose of inspecting or appraising the Loan Inventory or the construction of
the Dwellings.
5.12 Fees and Expenses. The Borrower shall pay when due all commitment
and renewal fees and external legal fees incurred by the Administrative Agent in
connection with the making of the Loans.
5.13 Hazardous Substances. The Borrower warrants and represents to the
Administrative Agent, Issuing Bank and the Banks that to the best of their
knowledge and belief and based on environmental assessments of the Inventory
commissioned by the Borrower, except to the extent disclosed to the
Administrative Agent in environmental assessments or other writings or to the
extent that it would not materially and adversely affect the use and
marketability of any Inventory, the Inventory has not been and is not now being
used in violation of any federal, state or local environmental law, ordinance or
regulation, that no proceedings have been commenced, or notice(s) received,
concerning any alleged violation of any such environmental law, ordinance or
regulation, and that the Inventory is free of hazardous or toxic substances and
wastes, contaminants, oil, radioactive or other materials the removal of which
is required or the maintenance of which is restricted, prohibited or penalized
by any federal, state or local agency, authority or governmental unit except as
set forth in the Site Assessments. The Borrower covenants that it shall neither
permit any such materials to be brought on to the Inventory, nor shall it
acquire real property to be added to the Loan Inventory upon which any such
materials exist, except to the extent disclosed to the Administrative Agent in
environmental assessments or other writings or to the extent that it would not
materially and adversely affect the use and marketability of any Inventory; and
if such materials are so brought or found located thereon, such materials shall
be immediately removed, with proper disposal, to the extent required by
applicable environmental laws, ordinances and regulations, and all required
environmental cleanup procedures shall be diligently undertaken pursuant to all
such laws, ordinances and regulations. The Borrower further represents and
warrants that the Borrower will promptly transmit to the Administrative Agent
and the Banks copies of any citations, orders, notices or other material
governmental or other communications received with respect to any hazardous
materials, substances, wastes or other environmentally regulated substances
affecting the Inventory. Notwithstanding the foregoing, there shall not be a
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default of this provision should the Borrower store or use minimal quantities of
the aforesaid materials, provided that: such substances are of a type and are
held only in a quantity normally used in connection with the construction,
occupancy or operation of comparable buildings or residential developments (such
as cleaning fluids and supplies normally used in the day to day operation of
residential developments), such substances are being held, stored and used in
complete and strict compliance with all applicable laws, regulations, ordinances
and requirements, and the indemnity set forth below shall always apply to such
substances, and it shall continue to be the responsibility of the Borrower to
take all remedial actions required under and in accordance with this Agreement
in the event of any unlawful release of any such substance.
5.14 Insurance. The Borrower shall keep the Inventory comprising the
Loan Inventory insured by responsible insurance companies in such amounts and
against such risks as is customary for owners of similar businesses and
properties in the same general areas in which the Borrower and its Restricted
Subsidiaries operate or, to the customary extent (and in a manner approved by
the Administrative Agent) the Borrower may be self insured. All insurance herein
provided for shall be in form and with companies reasonably approved by the
Administrative Agent. The Borrower shall also maintain general liability
insurance, workman's compensation insurance, automobile insurance for all
vehicles owned by them and any other insurance reasonably required by the
Administrative Agent, to the extent commercially available at a reasonable cost.
On the Agreement Date, the Borrower shall deliver to the Administrative Agent a
copy of a certificate of insurance evidencing the insurance required hereunder.
In addition, on the date of delivery of each report required by Section 3.1(b)
hereof, the Borrower shall certify to the Administrative Agent that all
insurance policies required to be maintained hereunder remain in full force and
effect.
5.15 Litigation. The Borrower warrants and represents to the
Administrative Agent, the Issuing Bank and the Banks that as of the Agreement
Date, none of the Borrower nor any Restricted Subsidiary is a party to any
litigation having a reasonable probability of being adversely determined to the
Borrower or any Restricted Subsidiary which, if adversely determined, would
impair the ability of the Borrower to carry on its business substantially as now
conducted or contemplated or would materially adversely affect the financial
condition, business or operations of the Borrower.
5.16 Reportable Event. Promptly after Borrower receives notice or
otherwise becomes aware thereof, the Borrower shall notify the Administrative
Agent of the occurrence of any Reportable Event with respect to any Plan as to
which the Pension Benefit Guaranty Corporation has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within thirty (30)
days of the occurrence of such event (provided that the Borrower shall give the
Administrative Agent notice of any failure to meet the minimum funding standards
of Section 412 of the Code or Section 302 of ERISA, regardless of the issuance
of any waivers in accordance with Section 412(d) of the Code.
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5.17 Secured Indebtedness. The Borrower shall not, and shall not permit
any of its Restricted Subsidiaries to, incur or permit to exist any Indebtedness
which is secured in whole or in part by any of the Inventory (other than
Permitted Encumbrances); except that the Borrower and its Restricted
Subsidiaries may incur Indebtedness in favor of a seller of Inventory to the
Borrower which is secured solely by the Inventory contemporaneously acquired
from such seller and Indebtedness secured solely by the Borrower's headquarters
building located in Arlington, Texas.
5.18 Interest Rate Hedging. Until the third anniversary of the
Agreement Date, the Borrower shall enter into and maintain one or more interest
hedge agreements having a notional amount equal to the Term Loan then
outstanding such that the weighted average term of all such interest hedge
agreements is not less than three (3) years from the Agreement Date. Any such
interest hedge agreement shall provide such interest rate protection in
conformity with International Swap Dealers Association standards on terms
reasonably acceptable to the Administrative Agent, such terms to include
consideration of the creditworthiness of the other party to such interest rate
hedge agreements. It is hereby acknowledged and agreed that the interest rate
hedge agreement entered into by the Borrower with the Administrative Agent (or
its affiliate) to be effective on April 1, 1996 (and more completely described
on Exhibit H attached hereto), satisfies the requirements of this Section.
ARTICLE 6
DEFAULT AND REMEDIES
6.1 Defaults. Each of the following shall constitute a Default,
whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule, or regulation of any governmental or
non-governmental body:
(a) Any representation or warranty made under this Agreement
shall prove incorrect or misleading in any material respect when made or deemed
to have been made;
(b) The Borrower shall default in the payment of any
principal, interest or other monetary amounts payable hereunder or under the
Notes, or any of them, or under the other Loan Documents (other than payments
due on the Revolving Loan Maturity Date or the Term Loan Maturity Date, as the
case may be) which payment default is not cured within thirty (30) calendar days
of Borrower's receipt of notice from the Administrative Agent;
(c) The Borrower shall default in the performance or
observance of any other agreement or covenant contained in this Agreement not
specifically referred to elsewhere in this Section 6.1, and such Event of
Default shall not be cured to the Majority Banks' satisfaction within a period
of ninety (90) days from the date the Borrower receives notice from the
Administrative Agent with respect thereto;
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(d) There shall occur any Event of Default in the performance
or observance of any agreement or covenant or breach of any representation or
warranty contained in any of the Loan Documents (other than this Agreement or as
otherwise provided in this Section 6.1 of this Agreement) or any Subsidiary
Guaranty, which shall not be cured to the Majority Banks' satisfaction within
the applicable cure period, if any, provided for in such Loan Document or ninety
(90) days from the date the Borrower receives notice from the Administrative
Agent with respect thereto if no cure period is provided in such Loan Document;
(e) There shall be entered a decree or order for relief in
respect of the Borrower or any of its Restricted Subsidiaries under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar
official of the Borrower or any of its Restricted Subsidiaries, or of any
substantial part of their respective properties, or ordering the winding-up or
liquidation of the affairs of the Borrower or any of its Restricted
Subsidiaries, or an involuntary petition shall be filed against the Borrower or
any of its Restricted Subsidiaries, and a temporary stay entered, and (i) such
petition and stay shall not be diligently contested, or (ii) any such petition
and stay shall continue undismissed for a period of thirty (30) consecutive
days;
(f) The Borrower or any of its Restricted Subsidiaries shall
file a petition, answer, or consent seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other applicable
federal or state bankruptcy law or other similar law, or the Borrower or any of
its Restricted Subsidiaries shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment or taking
of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator, or other similar official of the Borrower or any of its Restricted
Subsidiaries, or of any substantial part of their respective properties, or the
Borrower or any of its Restricted Subsidiaries shall fail generally to pay their
respective debts as they become due, or the Borrower or any of its Restricted
Subsidiaries shall take any corporate or partnership action to authorize any
such action;
(g) A final judgment shall be entered by any court against the
Borrower or any of its Restricted Subsidiaries for the payment of money which
exceeds $500,000.00, which judgment is not covered by insurance or a warrant of
attachment or execution or similar process shall be issued or levied against
property of the Borrower or any of its Restricted Subsidiaries which, together
with all other such property of the Borrower or any of its Restricted
Subsidiaries subject to other such process, exceeds in value $500,000.00 in the
aggregate, and if, within thirty (30) days after the entry, issue, or levy
thereof, such judgment, warrant, or process shall not have been paid or
discharged or bonded or stayed pending appeal, or if, after the expiration of
any such stay, such judgment, warrant, or process shall not have been paid or
discharged;
(h) (1) There shall be at any time any "accumulated funding
deficiency," as defined in ERISA or in Section 412 of the Code, with respect to
any Plan; or (2) a trustee shall be appointed by a United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall
institute proceedings to terminate any Plan; or (3) any of the Borrower and its
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ERISA Affiliates shall incur any liability to the Pension Benefit Guaranty
Corporation in connection with the termination of any Plan; or (4) any Plan or
trust created under any Plan of any of the Borrower and its ERISA Affiliates
shall engage in a non-exempt "prohibited transaction" (as such term is defined
in Section 406 of ERISA or Section 4975 of the Code) which would subject the
Borrower or any ERISA Affiliate to the tax or penalty on "prohibited
transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and
by reason of any or all of the events described in clauses (1) through (4), as
applicable, the Borrower shall have waived (and/or is likely to incur) and/or
incurred liability in excess of $1,000,000.00 in the aggregate;
(i) All or any portion of any Loan Document shall at any time
and for any reason be declared by a court of competent jurisdiction in a suit
with respect to such Loan Document to be null and void, or a proceeding shall be
commenced by any governmental authority involving a legitimate dispute or by the
Borrower or any of its Restricted Subsidiaries, having jurisdiction over the
Borrower or any of its Restricted Subsidiaries, seeking to establish the
invalidity or unenforceability thereof (exclusive of questions of interpretation
of any provision thereof), or the Borrower or any of its Restricted Subsidiaries
shall deny that it has any liability or obligation for the payment of principal
or interest purported to be created under any Loan Document;
(j) There shall occur any Change of Control;
(k) Except for conveyances of all or any part of the Loan
Inventory between the Borrower and the Guarantors there occurs any sale, lease,
conveyance, assignment, pledge, encumbrance, or transfer of all or any part of
the Loan Inventory or any interest therein, voluntarily or involuntarily,
whether by operation of law or otherwise, except (i) in accordance with the
terms of this Agreement, (ii) for execution of contracts with prospective
purchasers, (iii) for Permitted Encumbrances, and (iv) in the ordinary course of
business;
(l) Except in the normal course of Borrower's development of
inventory into Developed Lots and construction of Dwellings thereon, without the
prior written consent of Administrative Agent, Borrower grants any easement or
dedication, files any plat, condominium declaration, or restriction or otherwise
encumbers all or any portion of the Loan Inventory, or seeks or permits any
zoning reclassification or variance, unless such action is expressly permitted
by the Loan Documents or does not affect any Inventory which is part of the Loan
Inventory; or
Notwithstanding anything contained herein to the contrary, the occurrence of any
of the foregoing shall not be a Default or an Event of Default hereunder if: (i)
the occurrence pertains only to specific parcel(s) within the Loan Inventory;
and (ii) the affected parcel(s) is (are) removed from the Loan Inventory on or
before ten (10) days in the case of a monetary occurrence and thirty (30) days
in the case of a non-monetary occurrence after the occurrence or, if the
Borrower is entitled to notice and cure, within the applicable notice and cure
period. In the event that any such parcel is a Lot Under Development, Developed
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Lot or Dwelling Lot, then the Loan Funding Availability shall be immediately
calculated excluding such parcel. If, as the result of such removal, the
outstanding principal balance under the Loans together with any unreimbursed
draws under Letters of Credit would exceed the Loan Funding Availability, the
Borrower shall pay (X) to the Administrative Agent on the Reconciliation Date
immediately following the removal of such Inventory from the Loan Inventory, a
principal payment on the Loans in an amount sufficient to eliminate such excess
of the aggregate outstanding principal balance of the Loans and unreimbursed
draws under Letters of Credit over the Loan Funding Availability, together with
any due and unpaid interest on such excess or (Y) add additional Inventory to
the Loan Inventory (which is acceptable to the Administrative Agent) in an
amount sufficient to cause the Loan Funding Availability to equal or exceed the
Loans and unreimbursed draws under Letters of Credit.
6.2 Remedies. If a Default shall have occurred and shall be
continuing:
(a) With the exception of a Default specified in Sections
6.1(e), (f) or (g) hereof, the Administrative Agent shall at the request, or may
with the consent, of the Super- Majority Banks, by notice to the Borrower (i)
declare the Notes, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower,
(ii) terminate the Revolving Loan Commitment and the Letter of Credit
Commitment, and (iii) require the Borrower to, and the Borrower shall thereupon,
deposit in the Letter of Credit Reserve Account, an amount equal to the maximum
amount currently or at any time thereafter to be drawn on all outstanding
Letters of Credit, and the Borrower hereby pledges to the Administrative Agent,
the Letter of Credit Banks and the Issuing Bank and grants to them a security
interest in, all such cash as security for the Obligations.
(b) Upon the occurrence of a Default under Sections 6.1(e),
(f) or (g) hereof, the Revolving Loan Commitment and the Letter of Credit
Commitment shall automatically terminate and such principal, interest (including
without limitation, interest which would have accrued but for the commencement
of a case or proceeding under the federal bankruptcy laws), Letter of Credit
Obligations and other amounts payable under this Agreement or the Notes shall
thereupon and concurrently therewith become due and payable, all without any
action by the Administrative Agent, the Issuing Bank or the Banks or the holders
of the Notes, and the Borrower shall thereupon forthwith deposit in the Letter
of Credit Reserve Account an amount equal to all outstanding Letter of Credit
Obligations, all without presentment, demand, protest or other notice of any
kind, all of which are expressly waived, anything in this Agreement or in the
Notes to the contrary notwithstanding, and the Borrower hereby pledges to the
Administrative Agent, the Letter of Credit Banks and the Issuing Bank, and
grants to the Administrative Agent, the Letter of Credit Banks and the Issuing
Bank a security interest in, all such cash as security for the Obligations.
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(c) In accordance with Section 5.9 hereof, the Administrative
Agent may deliver to the Borrower security instruments and other documentation
related thereto for execution by the Borrower which, if executed, would grant
the Administrative Agent a first-in- priority security interest in all or part
of the Loan Inventory. Upon the Administrative Agent's delivery of the
foregoing, the Borrower shall execute and deliver such documentation to the
Administrative Agent within three (3) calendar days of the Administrative
Agent's delivery thereof. The Administrative Agent may also obtain such
appraisals of all or any part of the Loan Inventory as the Administrative Agent
may elect, at the cost and expense of the Borrower.
(d) The Administrative Agent, with the concurrence of the
Super-Majority Banks, shall exercise all of the post-default rights granted to
it and to them under the Loan Documents or under Applicable Law.
(e)The rights and remedies of the Administrative Agent,
the Issuing Bank and the Banks hereunder shall be cumulative, and not exclusive.
6.3 Waivers. Neither a waiver of any Default or Event of Default by the
Borrower hereunder nor any representation by a Bank or Banks as to the
nonoccurrence or nonexistence thereof shall be implied from any delay or
omission by any one or all of the Banks to notify the Borrower thereof or to
take action on account of such Default or Event of Default, and no express
waiver shall affect any Default or Event of Default other than the matter
specified in the waiver and it shall be operative only for the time and to the
extent therein stated. Waivers of any covenants, terms or conditions contained
herein must be in writing and shall not be construed as a waiver of any
subsequent breach of the same covenant, term or condition. Any one or all of the
Banks' consent or approval to or of any act by the Borrower requiring further
consent or approval shall not be deemed to waive or render unnecessary the
consent or approval to or of any subsequent or similar act. Any one or all of
the Banks' exercise of any right or remedy or hereunder shall not in any way
constitute a cure or waiver of a Default or an Event of Default, or invalidate
any act done pursuant to any notice of the occurrence of a Default or an Event
of Default, or prejudice the Banks in the exercise of any of their rights
hereunder or under the Notes or any other Loan Documents, unless, in the
exercise of said rights, the Banks realize all amounts owed to them under the
Notes and other Loan Documents.
6.4 Cross-Default. All of the Notes and other Loan Documents are "cross
defaulted" such that (a) the occurrence of an Event of Default under any one of
the Loan Documents shall constitute an Event of Default under this Agreement and
all of the Loan Documents and (b) the occurrence of a Default under any one of
the Loan Documents shall constitute a Default under this Agreement and all of
the other Loan Documents.
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6.5 No Liability of the Banks.
(a) Construction and/or Development. None of the Banks, the
Administrative Agent or the Issuing Bank shall be liable to any party for (i)
the development of or construction upon any of the Inventory, (ii) the failure
to develop or construct or protect improvements on the Inventory, (iii) the
payment of any expense incurred in connection with the development of or
construction upon the Inventory, (iv) the performance or nonperformance of any
other obligation of the Borrower, or (v) the Banks' or the Administrative
Agent's exercise of any remedy available to them. In addition, the Banks shall
not be liable to the Borrower or any third party for the failure of the Banks or
their authorized agents to discover or to reject materials or workmanship during
the course of the Banks' inspections of the Inventory.
(b) Dwelling Lots. In addition to 6.5(a) above, none of the
Banks, the Administrative Agent or the Issuing Bank shall be liable to any party
for (i) the construction or completion of the Dwellings, (ii) the failure to
construct, complete or protect the Dwellings, (iii) the payment of any expense
incurred in connection with the construction of the Dwellings, (iv) the
performance or nonperformance of any other obligation of the Borrower, or (v)
the Banks' or the Administrative Agent's exercise of any remedy available to
them. In addition, the Banks shall not be liable to the Borrower or any third
party for the failure of the Banks or their authorized agents to discover or to
reject materials or workmanship during the course of the Banks' inspections of
the Dwelling Lots.
(c) Other Banks. The obligations of each Bank under this
Agreement are separate and independent such that no action, inaction or
responsibility of one Bank shall be imputed to the remaining Banks. The Borrower
hereby waives any claim or demand against each Bank as to the action, inaction
or responsibility of another.
ARTICLE 7
THE ADMINISTRATIVE AGENT.
7.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes, and hereby agrees that it will require any transferee
of any of its interest in its Loans and in its Notes irrevocably to appoint and
authorize, the Administrative Agent to take such actions as its agent on its
behalf and to exercise such powers hereunder as are delegated by the terms
hereof, together with such powers as are reasonably incidental thereto. Neither
the Administrative Agent nor any of its directors, officers, employees, or
agents shall be liable to any Bank (or any transferee thereof) for any action
taken or omitted to be taken by it or them hereunder or in connection herewith
(including, without limitation, the granting or withholding of approval of any
matter), except for its or their own gross negligence or willful misconduct. The
Banks hereby each acknowledge and agree that the Administrative Agent may,
absent actual knowledge to the contrary, rely upon certifications of the
Borrower with respect to Inventory, financial covenant compliance, covenant
compliance and all matters related thereto. The Administrative Agent shall
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endeavor to exercise its rights and responsibilities under this Agreement in
accordance with its usual practices for borrowers similar to the Borrower, but
the Administrative Agent shall not be liable to the Banks with respect to errors
or omissions with respect to the foregoing unless they are the result of the
gross negligence or willful misconduct of the Administrative Agent.
7.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under the Loan Documents by or through agents or attorneys selected
by it using reasonable care and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible to any Bank for the negligence or misconduct of any agents or
attorneys selected by it with reasonable care.
7.3 Interest Holders. The Administrative Agent may treat each Bank, or
the Person designated in the last notice filed with the Administrative Agent
under this Section 7.3, as the holder of all of the interests of such Bank in
its Loans and in its Notes until written notice of transfer, signed by such Bank
(or the Person designated in the last notice filed with the Administrative
Agent) and by the Person designated in such written notice of transfer, in form
and substance satisfactory to the Administrative Agent, shall have been filed
with the Administrative Agent.
7.4 Consultation with Counsel. The Administrative Agent may consult
with legal counsel selected by it and shall not be liable to any Bank (or
transferee thereof) for any action taken or suffered by it in good faith in
reliance thereon.
7.5 Documents. The Administrative Agent shall be under no duty to
examine, inquire into, or pass upon the validity, effectiveness, or genuineness
of this Agreement, any Note, or any instrument, document, or communication
furnished pursuant hereto or in connection herewith, and the Administrative
Agent shall be entitled to assume that they are valid, effective, and genuine,
have been signed or sent by the proper parties, and are what they purport to be.
7.6 Administrative Agent and Affiliates. The Administrative Agent and
its affiliates may accept deposits from, administer depository accounts for and
generally engage in any kind of business with the Borrower or any Affiliates of,
or Persons doing business with, the Borrower, without any obligation to account
to any Bank (or any transferee thereof) therefor.
7.7 Responsibility of the Administrative Agent. The duties and
obligations of the Administrative Agent under this Agreement are only those
expressly set forth in this Agreement. The Administrative Agent shall be
entitled to assume that no Default or Event of Default has occurred and is
continuing unless it has actual knowledge, or has been notified by the Borrower,
of such fact and has either determined that a Default or an Event of Default has
occurred or has been notified by a Bank that such Bank considers that a Default
or an Event of Default has occurred and is continuing, and such Bank shall
specify in detail the nature thereof in writing. The Administrative Agent shall
not be liable hereunder to any Bank (or any transferee thereof) for any action
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taken or omitted to be taken except for its own gross negligence or willful
misconduct. The Administrative Agent shall provide each Bank with copies of such
documents received from the Borrower as such Bank may reasonably request.
7.8 Action by Administrative Agent.
(a) Except for action requiring the approval of the Majority
Banks, the Super- Majority Banks or all Banks, the Administrative Agent shall be
entitled to use its discretion with respect to exercising or refraining from
exercising any rights which may be vested in it by, and with respect to taking
or refraining from taking any action or actions which it may be able to take
under or in respect of, this Agreement, unless the Administrative Agent shall
have been instructed by the Majority Banks or the Super-Majority Banks, as the
case may be, to exercise or refrain from exercising such rights or to take or
refrain from taking such action, provided that the Administrative Agent shall
not exercise any rights under Section 6.2(a) of this Agreement without the
request of the Majority Banks or the Super-Majority Banks, as the case may be.
The Administrative Agent shall incur no liability to any Bank (or any transferee
thereof) under or in respect of this Agreement with respect to anything which it
may do or refrain from doing in the reasonable exercise of its judgment or which
may seem to it to be necessary or desirable in the circumstances, except for its
gross negligence or willful misconduct.
(b) The Administrative Agent shall not be liable to the Banks
or to any Bank in acting or refraining from acting under this Agreement in
accordance with the instructions of the Majority Banks or the Super-Majority
Banks, as the case may be, and any action taken or failure to act pursuant to
such instructions shall be binding on all Banks.
(c) The Borrower shall have the right to rely upon actions and
representations of the Administrative Agent in the performance of its duties
hereunder (including, without limitation, representations with respect to
amendments or waivers pursuant to Section 8.3 hereof), without regard to whether
such actions or representations are actually authorized by the Banks or any of
them and without seeking confirmation or ratification of such actions or
representations.
7.9 Notice of Default or Event of Default. In the event that the
Administrative Agent or any Bank shall acquire actual knowledge, or shall have
been notified in writing, of any Default or Event of Default, the Administrative
Agent or such Bank shall promptly notify the Banks and the Administrative Agent,
and the Administrative Agent shall take such action and assert such rights under
this Agreement as the Majority Banks or Super-Majority Banks (as applicable)
shall request in writing, and the Administrative Agent shall not be subject to
any liability by reason of its acting pursuant to any such request. If the
Majority Banks or Super- Majority Banks (as applicable) shall fail to request
the Administrative Agent to take action or to assert rights under this Agreement
in respect of any Default or Event of Default within ten (10) days (or shorter
period as set forth in such notice) after their receipt of the notice of any
Default or Event of Default from the Administrative Agent, or shall request
inconsistent action with respect to such Default or Event of Default, the
Administrative Agent may, but shall not be required to, take such action and
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assert such rights (other than rights under Article 6 hereof) as it deems in its
discretion to be advisable for the protection of the Banks, except that, if the
Majority Banks or Super-Majority Banks (as applicable) have instructed the
Administrative Agent not to take such action or assert such right, in no event
shall the Administrative Agent act contrary to such instructions.
7.10 Responsibility Disclaimed. The Administrative Agent, in its
capacity as Administrative Agent, shall be under no liability or responsibility
whatsoever as Administrative Agent:
(a) To the Borrower or any other Person or entity as a
consequence of any failure or delay in performance by or any breach by, any Bank
or Banks of any of its or their obligations under this Agreement;
(b) To any Bank or Banks, as a consequence of any failure or
delay in performance by, or any breach by, the Borrower or any other obligor of
any of its obligations under this Agreement or the Notes or any other Loan
Document; or
(c) To any Bank or Banks for any statements, representations,
or warranties in this Agreement, or any other document contemplated by this
Agreement or any information provided pursuant to this Agreement, any other Loan
Document, or any other document contemplated by this Agreement, or for the
validity, effectiveness, enforceability, or sufficiency of this Agreement, the
Notes, any other Loan Document, or any other document contemplated by this
Agreement.
7.11 Indemnification. The Banks agree to indemnify the Administrative
Agent (to the extent not reimbursed by the Borrower) pro rata according to their
respective Commitment Ratios, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including fees and expenses of experts, agents, consultants, and
counsel), or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement, any other Loan Document, or any
other document contemplated by this Agreement or any action taken or omitted by
the Administrative Agent under this Agreement, any other Loan Document, or any
other document contemplated by this Agreement, except that no Bank shall be
liable to the Administrative Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements resulting from the gross negligence or willful
misconduct of the Administrative Agent. The provisions of this Section 7.11
shall survive the termination of this Agreement.
7.12 Credit Decision. Each Bank represents and warrants to each
other and to the Administrative Agent that:
(a) In making its decision to enter into this Agreement and to
make Advances it has independently taken whatever steps it considers necessary
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to evaluate the financial condition and affairs of the Borrower and that it has
made an independent credit judgment, and that it has not relied upon information
provided by the Administrative Agent; and
(b) So long as any portion of the Loans or Letter of Credit
Obligations remains outstanding, it will continue to make its own independent
evaluation of the financial condition and affairs of the Borrower.
7.13 Successor Administrative Agent. Subject to the appointment and
acceptance of a successor Administrative Agent (which shall be any Bank or a
commercial Issuing Bank organized under the laws of the United States of America
or any political subdivision thereof which has combined capital and reserves in
excess of $250,000,000) as provided below, the Administrative Agent may resign
at any time by giving written notice thereof to the Banks and the Borrower and
may be removed at any time for cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Banks, and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent's
giving of notice of resignation or the Majority Banks' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent which shall be any Issuing
Bank or a commercial bank organized under the laws of the United States of
America or any political subdivision thereof which has combined capital and
reserves in excess of $250,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges, duties, and obligations of the retiring
Administrative Agent, and, after fully performing its obligations pursuant to
Section 2.8 hereof as to all payments received by it, the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Section 7.13 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent.
7.14 Co-Agent. The Co-Agent shall have no duties or obligations
under this Agreement or the other Loan Documents in its capacity as Co-Agent.
ARTICLE 8
GENERAL CONDITIONS
8.1 Benefit. This Agreement is made and entered into for the sole
protection and benefit of the Administrative Agent, the Issuing Bank and the
Banks and the Borrower, their successors and assigns, and no other person or
persons other than the Borrower shall have any right of action hereon or rights
to the Loan proceeds at any time. None of the Administrative Agent, the Issuing
Bank or the Banks shall (a) owe any duty whatsoever to any claimant for labor
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performed or material furnished in connection with the construction of any
Dwelling or improvement on any Inventory, or (b) owe any duty to apply any
undisbursed portion of the Loan to the payment of any claim, or (c) owe any duty
to exercise any right or power of the Banks hereunder or arising from any
Default by the Borrower.
8.2 Assignment. The terms hereof shall be binding upon and inure to the
benefit of the heirs, successors, assigns, and personal representatives of the
parties hereto; provided, however, that the Borrower shall not assign this
Agreement or any of its rights, interests, duties or obligations hereunder or
any Loan proceeds or other monies to be advanced hereunder in whole or in part
without the prior written consent of the Banks and any such assignment (whether
voluntary or by operation law) without said consent shall be void and render
automatically terminated any obligation of any Bank hereunder to advance any
further monies pursuant to this Agreement or any other Loan Document. Any Bank
may assign its rights and obligations under this Agreement, the Notes and any
other Loan Documents, in whole or in part, to any other Person, provided that
all of the provisions hereof shall continue in full force and effect and, in the
event of such assignment, such Bank shall thereafter be relieved of all
liability hereunder with respect to actions or omissions of such Bank occurring
thereafter, but only to the extent of the interest so assigned and any Loan
disbursements made by any assignee(s) shall be deemed made in pursuance and not
in modification hereof and shall be evidenced by the applicable Note and any
other Loan Documents. Notwithstanding the foregoing, without the prior written
consent of all of the other Banks, no Bank shall have the right to assign any
portion of its interest, rights or obligations hereunder to any other Person
unless (a) the assignee shall assume all of the obligations of the assigning
Bank under this Agreement, to the extent of the interest so assigned, and (b)
following such assignment, each of the assigning Bank and the assignee shall
maintain a Commitment Ratio of not less than six percent (6%). Notwithstanding
anything in this Section 8.2 to the contrary, any Bank may enter into
participation agreements with any other Person, so long as such agreement does
not confer any rights under this Agreement, any other Loan Document or the
Subsidiary Guaranty to any purchaser thereof, or relieve such Bank from any of
its Obligations under this Agreement (it being understood that all actions
hereunder shall be conducted as if no such participation had been granted).
8.3 Amendment and Waiver. Neither this Agreement nor any term hereof
may be amended orally, nor may any provision hereof be waived orally but only by
an instrument in writing signed by the Majority Banks and, in the case of an
amendment, also by the Borrower, except that in the event of (a) any (i)
amendment or waiver having a duration of more than ninety (90) days or (ii)
direction to the Administrative Agent regarding termination of the Commitments,
acceleration, or exercise of remedies, any action may be made only by an
instrument in writing signed by the Super-Majority Banks, or (b) (i) any change
in the amount of the Revolving Loan Commitment, (ii) any change in the timing
of, or the amount of, payments of principal, interest, and fees due hereunder or
any change in the applicable rate of interest or in the method of calculating
funding availability, (iii) any waiver of any Event of Default due to the
failure by the Borrower to pay any sum due hereunder, (iv) any reduction in the
amount of the Term Loan without a corresponding payment, (v) any amendment of
this Section 8.3 or of the definitions of Majority Banks or Super-Majority
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Banks, or (vi) the release of any Guarantor other than in connection with the
conversion of such Guarantor to an Unrestricted Subsidiary, any amendment or
waiver may be made only by an instrument in writing signed by each of the Banks
and, in the case of an amendment, also by the Borrower. Each Bank hereby
acknowledges and agrees that a response to any request for action by the
Administrative Agent shall be made within ten (10) days from the receipt of such
request and that the failure to respond within such period shall be deemed to be
an acceptance by such Bank of the course of action recommended by the
Administrative Agent.
8.4 Additional Obligations and Amendments. The Banks shall be under no
obligation to extend any loans to the Borrower other than as specifically set
forth in this Agreement. This Agreement shall not be amended except by a written
instrument signed by all parties hereto which instrument contains a specific
reference to this Agreement. Each Bank agrees that it will not enter into any
financing agreement with the Borrower or any of its Subsidiaries without the
consent of all of the Banks.
8.5 Consideration of Renewal. The Banks agree that within thirty (30)
calendar days prior to each anniversary of the Agreement Date, representatives
of the Banks will consult with each other to determine whether the Banks are
willing, in their sole and absolute discretion, to extend the Revolving Loan
Maturity Date and/or the Letter of Credit Maturity Date for a period of not more
than one (1) calendar year from the then current Revolving Loan Maturity Date or
Letter of Credit Maturity Date, as the case may be. Notwithstanding the
foregoing, if there has occurred a Change of Management, the Banks shall not
have any obligation to consult, as to any proposed extension of either the
Revolving Loan Maturity Date or the Letter of Credit Maturity Date, with any
Bank which has not approved, in writing, such Change of Management. The
Administrative Agent shall, within a reasonable period of time thereafter,
advise the Borrower whether the Banks are willing to so extend the Revolving
Loan Maturity Date or the Letter of Credit Maturity Date. If the Banks and the
Borrower agree to so extend the Revolving Loan Maturity Date or the Letter of
Credit Maturity Date, such agreement shall be evidenced by appropriate
amendments to the Loan Documents, executed by all applicable parties. In the
event that any Bank does not agree to extend the Revolving Loan Maturity Date
and/or the Letter of Credit Maturity Date, the Revolving Loan Maturity Date then
in effect with respect to such Bank's Revolving Loans shall remain unchanged,
and the Borrower in its sole discretion may (a) repay in full (together with all
accrued interest and fees with respect thereto) such Bank's Term Loan, without
respect to any other provisions herein, or (b) may require such Bank to assign
without recourse or warranty one-hundred percent (100%) of its Term Loan (and
such Bank hereby agrees to so assign) to a replacement bank designated by the
Borrower (and acceptable to the Administrative Agent) which assignment shall be
effective upon receipt by such Bank of payment in full of all Obligations then
outstanding to such Bank.
8.6 Terms. Whenever the context and construction require, all words
used in the singular number herein shall be deemed to have been used in the
plural, and vice versa, and the masculine gender shall include the feminine and
neuter and the neuter shall include the masculine and feminine.
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8.7 Governing Law and Jurisdiction. This Agreement shall be construed
in accordance with the laws of the State of Georgia, and such laws shall govern
the interpretation, construction and enforcement hereof. For the purposes of any
legal action or proceeding brought by the Administrative Agent or the Banks with
respect to this Agreement or the Loan Documents, the Borrower hereby irrevocably
submits to the jurisdiction and venue of the Superior Court of Fulton County,
Georgia, and hereby irrevocably designates and appoints CT Corporate System,
1201 Peachtree Street, N.E., Atlanta, Georgia 30361, as its authorized agent for
service of process in the State of Georgia. The Borrower also hereby submits to
the non-exclusive jurisdiction and venue of the United States District Court for
the Northern District of Georgia for any action, suit or proceeding arising out
of or relating to this Agreement or the Loan Documents. The Administrative Agent
and the Banks shall for all purposes be entitled to treat such designee of
Borrower as the authorized agent to receive for or on its behalf service of
writs or summons or other legal process in Georgia; delivery of such service to
such authorized agent shall be deemed to be made when delivered or mailed by
certified mail addressed to such authorized agent, with a copy to the Borrower
at the address of the Borrower last known to the Administrative Agent, sent by
overnight delivery service. In the event that, for any reason, such agent or its
successor shall no longer serve as agent of the Borrower to receive service of
process in the State of Georgia, the Borrower shall establish a successor so to
serve, and shall advise the Administrative Agent thereof, so that at all times
Borrower will maintain an agent to receive service of process in the State of
Georgia on its behalf with respect to this Agreement and the Loan Documents. In
the event that, for any reason, service of legal process cannot be made in the
manner described above, such service may be made in such other manner permitted
by law. The Borrower hereby irrevocably waives any objection it might now or
hereafter be entitled to make with respect to the venue of any suit, action or
proceeding arising out of or relating to this Agreement and the Loan Documents
which is brought in the Superior Court of Fulton County, Georgia or, at the
election of the Administrative Agent, in the United States District Court for
the Northern District of Georgia, and the Borrower hereby irrevocably waives any
right to claim that any such suit, action or proceeding brought in any such
court has been brought in an incorrect forum.
8.8 Publicity. Subject to the Borrower's approval, the Administrative
Agent shall have the right to incorporate the names of the Banks into signage
placed upon the Loan Inventory. Each Bank shall have the right to secure printed
publicity through newspaper and other media concerning the Inventory and source
of financing.
8.9 Attorneys' Fees. The Borrower shall pay on demand all attorneys'
fees and other costs and expenses actually incurred by the Administrative Agent,
the Co-Agent, the Issuing Bank and the Banks, or any of them, in the enforcement
of or preservation of the Banks', the Administrative Agent's or the Issuing
Bank's rights under this Agreement and the other Loan Documents. To the full
extent permitted by applicable law, the Borrower agrees to pay interest on any
fees, costs or expenses due to the Administrative Agent, the Issuing Bank and
the Banks, or any of them, under this Section 8.9 which are not paid when due at
the Default Rate. In the event that any Loan Document contains a provision
regarding enforcement or preservation of rights which is different from this
Section 8.9, this Section 8.9 shall control.
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8.10 Mandatory Arbitration. Any controversy or claim between or among
the parties hereto arising out of or relating to this Agreement, the Loan
Documents or any related instruments including any claim based on or arising
from an alleged tort, shall be determined by binding arbitration in accordance
with the Federal Arbitration Act (or, if not applicable, the applicable state
law), the Rules of Practice and Procedure for the Arbitration of Commercial
Disputes of Endispute, Inc., doing business as J.A.M.S./Endispute ("J.A.M.S."),
as amended from time to time, and the "Special Rules" set forth below. In the
event of any inconsistency, the Special Rules shall control. Judgment upon any
arbitration award may be entered in any court having jurisdiction. Any party to
this Agreement may bring an action, including a summary judgment or expedited
proceeding, to compel arbitration of any controversy or claim to which this
provision applies in any court having jurisdiction over such action.
(a) Special Rules. The arbitration shall be conducted in the
City of Atlanta, Georgia and administered by J.A.M.S. who will appoint
an arbitrator; if J.A.M.S. is unable or legally precluded from
administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced
within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend
the commencement of such hearing for up to an additional sixty (60)
days.
(b) Reservation of Rights. Nothing in this Loan Agreement
shall be deemed to (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained
in this Loan Agreement; or (ii) be a waiver by a Bank or Banks of the
protection afforded to it or them by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the right of a Bank
or Banks (A) to exercise self help remedies such as (but not limited
to) setoff, or (B) to obtain from a court provisional or ancillary
remedies such as injunctive relief or the appointment of a receiver.
The Administrative Agent may (or at the direction of the Majority
Banks) exercise such self help remedies (including, without limitation,
remedies under Section 6.2 hereof), or obtain such provisional or
ancillary remedies before, during or after the pendency of any
arbitration proceeding brought pursuant to this Loan Agreement. Neither
the exercise of self help remedies nor the institution or maintenance
of provisional or ancillary remedies shall constitute a waiver of the
right of any party, including the claimant in any such action to
arbitrate the merits of the controversy or claim occasioning resort to
such remedies.
No provision in this Agreement or any Loan Documents regarding
submission to jurisdiction and/or venue in any court is intended or shall be
construed to be in derogation of the provisions in this Agreement.
8.11 Invalidation of Provisions. In the event that any one or more of
the provisions of this Agreement is deemed invalid by a court having
jurisdiction over this Agreement or other similar authority, the Administrative
Agent, the Issuing Bank and the Banks may, in their sole discretion, terminate
this Agreement in whole or in part.
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8.12 Execution in Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same instrument.
8.13 Captions. The captions herein are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Agreement or the intent of any provision hereof.
8.14 Notices. All notices, requests, consents, demands and other
communications required or which any party desires to give hereunder or under
any other Loan Document shall, unless other specifically provided in such other
Loan Document, be deemed sufficiently given or furnished if (a) in writing and
delivered by personal delivery, by courier, or by registered or certified United
States mail, postage prepaid, addressed to the party to whom directed at the
addresses specified below (unless changed by similar notice in writing given by
the particular party whose address is to be changed), (b) by telex with
confirmation thereof in writing by sender pursuant to subsection (a) above, (c)
facsimile to the facsimile number specified below with confirmation thereof in
writing by sender pursuant to subsection (a) above, or (d) by oral communication
with confirmation thereof in writing by the notifying party pursuant to
subsection (a) above within three (3) business days after such oral
communication. Any such notice or communication shall be deemed to have been
given and to be effective either at the time of personal delivery or, in the
case of courier or mail, as of the date of first attempted delivery at the
address and in the manner provided herein, or, in the case of telex, when
transmitted (answerback confirmed), or, in the case of facsimile, upon receipt
or, in the case of oral communication, upon the effectiveness of written
confirmation as hereinabove provided. Notwithstanding the foregoing, no notice
of change of address shall be effective except upon receipt. This Section shall
not be construed in any way to affect or impair any waiver of notice or demand
provided in any Loan Document or to require giving of notice or demand to or
upon any person in any situation or for any reason.
BORROWER:
D. R. Horton, Inc.
1901 Ascension Boulevard
Suite 100
Arlington, Texas 76006
Attn: David J. Keller
and
Ted I. Harbour
Facsimile No.: (817) 856-8249
Telephone No.: (817) 856-8200
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<PAGE>
ADMINISTRATIVE AGENT:
NationsBank, N.A. (South)
70 Mansell Court
Roswell, Georgia 30076
Attn: Henry A. Dyer
Facsimile No.: (770) 642-1261
Telephone No.: (770) 993-1000
With copy to:
Powell, Goldstein, Frazer & Murphy
16th Floor
191 Peachtree St. N.E.
Atlanta, Georgia 30303
Attn: James H. Keaten
Facsimile No.: (404) 572-6999
Telephone No.: (404) 572-6600
BANKS:
NationsBank, N.A. (South)
70 Mansell Court
Roswell, Georgia 30076
Attn: Henry A. Dyer
Facsimile No.: (770) 642-1261
Telephone No.: (770) 993-1000
-52-
<PAGE>
Bank of America National Trust and Savings Association
5 Park Plaza
Suite 500
Irvine, California 92714-8525
Attn: William D. Balfour, III
Vice President
Facsimile No.: (714) 260-5639
Telephone No.: (714) 260-5698
Sanwa Bank California
Real Estate Industries
4041 MacArthur Boulevard, Suite 100
Newport Beach, California 92660
Attn: Russ Wakeham
Vice President
Facsimile No.: (714) 852-1510
Telephone No.: (714) 622-6007
First American Bank, SSB
The Princeton Tower
14651 Dallas Parkway
6th Floor
Dallas, Texas 75240
Attn: Jeff Schultz
Facsimile No.: (214) 419-3394
Telephone No.: (214) 419-3414
Comerica Bank
500 Woodward Avenue
7th Floor, M/C 3256
Detroit, Michigan 48226
Attn: Kurt Strehlke
Facsimile No.: (313) 222-9295
Telephone No.: (313) 222-9291
SouthTrust Bank of Alabama, National Association
420 N. 20th Street, 11th Floor
Birmingham, Alabama 35203
Attn: Jordy Henson
Facsimile No.: (205) 254-4879
Telephone No.: (205) 254-5004
-53-
<PAGE>
Bank One Texas, NA
241 N. Central, 20th Floor
Phoenix, Arizona 85004
Attn: Jennifer Pescatore
Assistant Vice President
Facsimile No.: (602) 221-1661
Telephone No.: (602) 221-1372
The First National Bank of Chicago
Real Estate Finance
One First National Plaza, Suite 0315
Chicago, Illinois 60670-0315
Attn: Kevin Gillen
Vice President
Facsimile No.: (312) 732-1117
Telephone No.: (312) 732-1486
8.15 Final Agreement. THE WRITTEN LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-54-
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Banks have caused this
Agreement to be executed by their duly authorized officers and their seals
affixed hereto as of the day and year set forth above.
BORROWER: D. R. HORTON, INC., a Delaware corporation
Date of Execution:
By: /s/ David J. Keller
_____________________ Title: Treasurer
[CORPORATE SEAL]
ADMINISTRATIVE AGENT, AGENT, NATIONSBANK, N.A. (SOUTH), a national
CO-AGENT, ISSUING BANK banking association, as Administrative Agent,
AND BANKS: Agent, Issuing Bank and as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Senior Vice-President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, a national
banking association, as
Co-Agent and as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Vice-President
SANWA BANK CALIFORNIA, a California
corporation, as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Vice-President
Master Loan and Inter-Creditor
Agreement
Signature Page 1
<PAGE>
FIRST AMERICAN BANK, SSB, a national
banking association, as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Senior Vice-President
[BANK SEAL]
COMERICA BANK, a Michigan banking
corporation, as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Vice-President
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, a national banking
association, as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Vice President
[BANK SEAL]
BANK ONE TEXAS, NA, a national banking
association, as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Senior Vice-President
Master Loan and Inter-Creditor
Agreement
Signature Page 2
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO, a national banking association,
as a Bank
Date of Execution:
By: /s/
- ------------------
Title: Vice President
<PAGE>
WORKING CAPITAL LINE OF CREDIT AGREEMENT
among
D.R. HORTON, INC., as Borrower
and
BARNETT BANK, N.A., as Lender
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
ARTICLE II AMOUNT AND TERMS OF LOAN 15
Section 2.1 Line of Credit 15
Section 2.2 Promissory Note 15
Section 2.3 Application of Funds 16
Section 2.4 Taxes and Assessments on Note 16
Section 2.5 Extension of Credit 16
Section 2.6 Manner of Borrowing and Disbursement Under L 16
Section 2.7 Interest on Loan 17
Section 2.8 Fees on Loan 17
Section 2.9 Repayment of Loan 17
Section 2.10 Manner of Payment 18
ARTICLE III BORROWER'S REPRESENTATIONS AND WARRANTIES 18
Section 3.1 Organization and Standing 19
Section 3.2 Power and Authority 19
Section 3.3 Valid and Binding Obligations 19
Section 3.4 Title of Collateral 19
Section 3.5 Financial Statements and Other Information 19
Section 3.6 Litigation 20
Section 3.7 Consent or Filing 20
ARTICLE IV CONDITIONS PRECEDENT 20
Section 4.1 Opinion of Counsel 20
Section 4.2 Documents and Instruments 20
Section 4.3 Correctness of Warranties 21
Section 4.4 Certificate of Resolution 21
Section 4.5 Borrowing Base Report 21
Section 4.6 Insurance Certificate 21
Section 4.7 Guarantors 21
Section 4.8 Other Documents 22
Section 4.9 Subsequent Disbursements 22
(i)
<PAGE>
ARTICLE V DISBURSEMENT AMOUNT AND PROCEDURE 22
Section 5.1 Loan Funding Availability 22
Section 5.2 Inspections/Valuations 24
Section 5.3 Lender Counsel Approval 25
Section 5.4 Liability of Lender 25
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS 25
Section 6.1 Corporate Existence and Qualification 26
Section 6.2 Financial Statments/Status Reports 26
Section 6.3 Taxes and Claims 26
Section 6.4 Pay Indebtedness to Lender and Perform Other 27
Section 6.5 Litigation 27
Section 6.6 Defaults 27
Section 6.7 Further Assurances 27
Section 6.8 Funds Not Assignable 28
Section 6.9 Financial Covenants 28
Section 6.10 Inventory Covenants 29
Section 6.11 Additional Information 30
Section 6.12 Compliance Certificates 30
Section 6.13 Payment of Contractors 30
Section 6.14 Bank Group Line 30
Section 6.15 Hazardous Substances 31
Section 6.16 Insurance 32
Section 6.17 Reportable Event 33
Section 6.18 Secured Indebtedness 33
ARTICLE VII DEFAULT AND REMEDIES 33
Section 7.1 Defaults 33
Section 7.2 Remedies 37
Section 7.3 Cross Default 38
Section 7.4 Waiver of Default 38
Section 7.5 Rights and Remedies Not Waived 38
ARTICLE VIII MISCELLANEOUS 38
Section 8.1 Lien: Setoff By Lender 38
Section 8.2 Waivers 39
Section 8.3 Benefit 39
Section 8.4 Assignment 39
Section 8.5 Amendment and Waiver 40
(ii)
<PAGE>
Section 8.6 Terms 40
Section 8.7 Governing law and Jurisdiction 40
Section 8.8 Publicity 40
Section 8.9 Expenses of Lender 40
Section 8.10 Invalidation of Provisions 41
Section 8.11 Notices 41
Section 8.12 Termination by the Borrower 42
Section 8.13 Controlling Agreement 42
Section 8.14 Titles 42
Section 8.15 Counterparts 43
Section 8.16 Time is of the Essence 43
Section 8.17 Waiver of Trail by Jury 43
EXHIBITS
Exhibit A Request for Advance
Exhibit B Summary Borrowing Base Report
Exhibit C Detailed Borrowing Base Report
Exhibit D Quarterly Compliance Certificate
(iii)
<PAGE>
WORKING CAPITAL LINE OF CREDIT AGREEMENT
THIS WORKING CAPITAL LINE OF CREDIT AGREEMENT dated the 31st day of
July, 1996, by and between D. R. HORTON, INC., a Delaware corporation, whose
address is 1901 Ascension Boulevard, Suite 100, Arlington, Texas 76006, and
BARNETT BANK, N.A., a national banking association, whose address is P.O. Box
678267, Orlando, Florida 32867-8267, Attention: Closing Department Manager.
R E C I T A L S
A. The Borrower has requested the Lender to lend to the Borrower up to
the sum of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00)
under a revolving line of credit; and
B. The Lender is willing to make such loan upon the terms and
conditions set forth in the Loan Documents (as that term is hereinafter
defined).
NOW, THEREFORE, in consideration of the mutual promises, conditions,
represen tations and warranties hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency whereof is hereby
acknowledged, the parties covenant and agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms as may be defined throughout this Agreement,
or in any Loan Document, the following terms shall be defined for use throughout
this Agreement as follows:
Section 1.1. Acquisition Cost.
1.1(1) Developed Lots. If the subject is a Developed Lot(s), costs
shall include the purchase price plus the amount paid for any impact fees paid
by the Borrower and its Restricted Subsidiaries with respect to such Developed
Lot(s). If the Developed Lot(s) was developed by the Borrower or its Restricted
Subsidiaries, costs shall also include land costs, site development and soft
costs (engineering, interest, etc.) paid by Borrower and its Restricted
Subsidiaries, associated with the development of such lots.
1.1(2) Lots Under Development. Costs in connection with Lots Under
Development shall include land costs, site development and soft costs
(engineering, interest, etc.) paid by Borrower and its Restricted Subsidiaries,
associated with the development of such lots.
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<PAGE>
Administrative Costs shall be excluded from Acquisition Costs of both
Developed Lots or Lots Under Development.
Section 1.2. Administrative Agent.
NationsBank, N.A. (South)
Section 1.3. Administrative Costs.
Costs and expenses incurred by the Borrower or its Restricted
Subsidiaries in connection with (a) the marketing and selling of Inventory which
is part of the Loan Inventory and (b) the administration, management and
operation of the Borrower's and its Restricted Subsidiaries' businesses
(excluding, without limitation, Interest Expense and fees payable hereunder).
Section 1.4. Advance or Advances.
Amounts advanced by the Lender to the Borrower pursuant to this
Agreement.
Section 1.5. Agreement.
This Working Capital Line of Credit Agreement.
Section 1.6. Agreement Date.
The date as of which the Borrower and the Lender execute this
Agreement.
Section 1.7. Applicable Law.
In respect of any Person, all provisions of constitutions, statutes,
rules, regulations, and orders of governmental bodies or regulatory agencies
applicable to such Persons including, without limitation, all orders and decrees
of all courts and arbitrators in proceedings or actions to which the Person in
question is a party or by which it is bound.
Section 1.8. Authorized Signatory.
With respect to the Borrower, such personnel of the Borrower as set
forth in an incumbency certificate of the Borrower delivered to the Lender on
the Agreement Date (or any duly executed incumbency certificate delivered after
the Agreement Date) and certified therein as being duly authorized by the
Borrower to execute documents, agreements, and instruments on behalf of the
Borrower.
- 2 -
<PAGE>
Section 1.9. Bank Group Line.
The credit accommodations described in and evidenced by that certain
Master Loan and Inter-Creditor Agreement among D. R. Horton, Inc., as
"Borrower", NationsBank, N.A. (South), Bank of America National Trust and
Savings Association, Sanwa Bank California, First American Bank, SSB, Comerica
Bank, SouthTrust Bank of Alabama, National Association, Bank One Texas, NA and
First National Bank of Chicago, as "Banks", Bank of America National Trust and
Savings Association, as "Co-Agent for the Banks", and NationsBank, N.A. (South)
as Administrative Agent for the Banks, and as Issuing Bank dated April 16, 1996.
Section 1.10. Borrower.
D.R. HORTON, INC., a Delaware corporation
Section 1.11. Borrowing Base Report.
Consists of the Summary Borrowing Base Report and Detailed Borrowing
Base Report which reflect inventory that the Borrower desires to have designated
as Loan Inventory.
Section 1.12. Change of Control.
Either (i) any sale, lease or other transfer (in one transaction or a
series of transactions) of all or substantially all of the consolidated assets
of the Borrower and its Restricted Subsidiaries to any Person (other than a
Restricted Subsidiary of the Borrower), provided that a transaction where the
holders of all classes of Common Equity of the Borrower immediately prior to
such transaction own, directly or indirectly, 50% or more of all classes of
Common Equity of such Person immediately after such transaction shall not be a
Change of Control; (ii) a "person" or "group" within the meaning of Section
13(d) of the Exchange Act (other than the Borrower or Donald R. Horton, his
wife, children or grandchildren, or Terrill J. Horton, or any trust or other
entity formed or controlled by Donald R. Horton, his wife, children or
grandchildren, or Terrill J. Horton)) becomes the "beneficial owner" (as defined
in Rule 13d-8 under the Exchange Act) of Common Equity of the Borrower
representing more than 50% of the voting power of the Common Equity of the
Borrower; (iii) Continuing Directors cease to constitute at least a majority of
the Board of Directors of the Borrower; or (iv) the stockholders of the Borrower
approve any plan or proposal for the liquidation or dissolution of the Borrower,
provided that a liquidation or dissolution of the Borrower which is part of a
transaction that does not constitute a Change of Control under the proviso
contained in clause (i) above shall not constitute a Change of Control.
Section 1.13. Closing Date.
The date contained in the first paragraph of this Agreement.
- 3 -
<PAGE>
Section 1.14. Code.
The Internal Revenue Code of 1986, as amended.
Section 1.15. Common Equity.
With respect to any Person, capital stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person, or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management or policies of such Person.
Section 1.16. Construction Costs.
All costs accepted by the Lender actually incurred by the Borrower or
its Restricted Subsidiaries with respect to the construction of a Dwelling as of
the date of determination by the Lender, which shall include direct costs
associated with a given Dwelling's construction (including Lot) plus indirect
costs such as real estate taxes and interest costs allocated to the Dwelling
during the construction phase. Direct cost is defined as costs for which a
"hard" charge has been allocated (to the Dwelling being constructed) without
consideration for any allocable soft costs (promotional materials, sales effort
costs, overhead, supervision, etc.). Excluded from Construction Costs are (a)
projected costs and costs for materials or labor not yet delivered to, provided
to or incorporated into such Dwelling and (b) Administrative Costs.
Section 1.17. Continuing Director.
A director who either was a member of the board of directors of the
Borrower on the Agreement Date or who became a director of the Borrower
subsequent to such date and whose election, or nomination for election by the
Borrower's stockholders, was duly approved by a majority of the Continuing
Directors on the board of directors of the Borrower at the time of such
approval, either by a specific vote or by approval of the proxy statement issued
by the Borrower on behalf of the entire board of directors of the Borrower in
which such individual is named as nominee for a director.
Section 1.18. Default.
Any of the events specified in Article VI hereof, provided that any
requirement for notice or lapse of time, or both, has been satisfied.
Section 1.19. Default Rate.
The Default Rate as defined in the Note.
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<PAGE>
Section 1.20. Detailed Borrowing Base Report.
A unit-by-unit inventory summary of the Loan Inventory in form
acceptable to Lender and certified as true and correct by an Executive Officer
of the Borrower containing, at a minimum, the cost funded to date for each
Dwelling Lot, each Development Lot and each Lot Under Development including, but
not limited to those elements of cost set forth in Sections 1.1, 1.3 and 1.16
hereof.
Section 1.21. Developed Lots.
Subdivision lots owned by the Borrower or its Restricted Subsidiaries
located in the State of Florida, subject to a recorded plat, which the Borrower
has designated and Lender has accepted to be included and are included as
"Developed Lots" in the calculation of the Loan Funding Availability (exclusive
of any Dwelling Lot). An individual Developed Lot is sometimes referred to
herein as a "Developed Lot."
Section 1.22. Dwelling.
A house which the Borrower or any Restricted Subsidiary has constructed
or is constructing on a Developed Lot which has been designated as a Dwelling
Lot.
Section 1.23. Dwelling Lots.
Lots with Dwellings which the Borrower or any Restricted Subsidiary
located in the State of Florida has designated and Lender has accepted to be
included and are included as "Dwelling Lots" in the calculation of the Loan
Funding Availability. The term "Dwelling Lot" includes the Dwelling located
thereon. An individual Dwelling Lot is sometimes referred to herein as a
"Dwelling Lot."
Section 1.24. EBITDA.
With respect to the Borrower and all Restricted Subsidiaries, earnings
for the preceding twelve (12) months (including, without limitation, dividends
from Unrestricted Subsidiaries including, without limitation, net income (or
loss) of any Person that accrued prior to the date that such Person becomes a
Restricted Subsidiary or is merged with or into or consolidated with the
Borrower or any of its Restricted Subsidiaries) before interest incurred, state
and federal income taxes paid, franchise taxes paid and depreciation and
amortization, all in accordance with GAAP.
- 5 -
<PAGE>
Section 1.25. ERISA.
The Employee Retirement Income Security Act of 1974, as in effect on
the Agreement Date and as such Act may be amended thereafter from time to time.
Section 1.26. ERISA Affiliate.
(a) Any corporation which is a member of the same controlled group of
corporations (within the meaning of Code Section 414(b)) as is the Borrower, (b)
any other trade or business (whether or not incorporated) under common control
(within the meaning of Code Section 414(c)) with the Borrower, (c) any other
corporation, partnership or other organization which is a member of an
affiliated service group (within the meaning of Code Section 414(m)) with the
Borrower, or (d) any other entity required to be aggregated with the Borrower
pursuant to regulations under Code Section 414(o).
Section 1.27. Event of Default.
Any event specified in Article VI hereof and any other event which with
any passage of time or giving of notice (or both) would constitute such event a
Default.
Section 1.28. Exchange Act.
The Securities Exchange Act of 1934, as amended.
Section 1.29. Executive Officer.
The President, any Executive Vice President, Vice President, Assistant
Vice President, Secretary, Assistant Secretary or Treasurer of the Borrower.
Section 1.30. Financial Covenant Carve Out.
Any acquisition of Inventory, which the Borrower has elected to exclude
from the calculation of the covenants set forth in Sections 6.9(1), 6.9(2),
6.10(1), 6.10(2) and 6.10(3) hereof; provided, however, that no acquisition may
qualify as a "Financial Covenant Carve Out" if (a) the Borrower has elected to
have an acquisition designated as a "Financial Covenant Carve Out" in the
preceding twelve (12) calendar month period; (b) such acquisition has already
been designated as a "Financial Covenant Carve Out" on the last day of each of
the two (2) fiscal quarter ends immediately following the date of such
acquisition; (c) contemporaneously with delivery by the Borrower of the notice
of designation of an acquisition as a "Financial Covenant Carve Out", the
Borrower fails to deliver to the Lender a plan of action reflecting that the
Borrower will be in compliance (after giving effect to such acquisition) with
the covenants in Sections 6.9(1), 6.9(2), 6.10(1), 6.10(2) and 6.10(3) hereof on
or prior to the last day of the third fiscal quarter following the date of such
- 6 -
<PAGE>
acquisition; and (d) the acquisition in question would, if it were included in
the compliance calculations, cause (1) the ratio of Notes Payable to Tangible
Net Worth to exceed (A) as of the last day of each fiscal quarter of the
Borrower in 1996, 1.9 to 1, (B) as of the last day of each fiscal quarter of the
Borrower in 1997, 2.1 to 1, (C) as of the last day of each fiscal quarter of the
Borrower in 1998, 2.2 to 1, or (2) the ratio of Total Liabilities to Tangible
Net Worth to exceed (A) as of the last day of each fiscal quarter of the
Borrower in 1996, 2.25 to 1, (B) as of the last day of each fiscal quarter of
the Borrower in 1997, 2.5 to 1, or (C) as of the last day of each fiscal quarter
of the Borrower in 1998, 2.6 to 1.
Section 1.31. Fixed Charges.
The aggregate consolidated interest incurred of the Borrower and its
Restricted Subsidiaries for the most recently completed four (4) fiscal quarters
for which results have been reported to Lender.
Section 1.32. Force Majeure.
An occurrence outside the control of the Borrower which cannot be
avoided by the exercise of due care by the Borrower which delays performance by
the Borrower in the nature of and including but not limited to strikes,
lockouts, unavailability of materials, power failure, riots, war or destructive
natural causes. The phrase "subject to Force Majeure" as used herein shall mean
that the time period for the Borrower's performance shall be extended by a
length of time equivalent to the period during which the occurrence constituting
Force Majeure shall exist. Notwithstanding the foregoing, in no event shall the
Borrower's obligations to make payments under the Note be delayed or extended.
Section 1.33. Funding Period.
A period commencing on the day immediately following the date that the
Loan Funding Availability is established pursuant to Section 5.1(c) hereof by
the Lender and ending on the date that the Loan Funding Availability next is
established pursuant to Section 5.1(c) hereof by the Lender.
Section 1.34. GAAP.
As in effect as of the Agreement Date, generally accepted accounting
principles consistently applied.
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<PAGE>
Section 1.35. Guaranty or Guaranteed.
As applied to an obligation (each a "primary obligation"), shall mean
and include (a) any guaranty, direct or indirect, in any manner, of any part or
all of such primary obligation, and (b) any agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of any part or all of such primary obligation, including,
without limiting the foregoing, and any obligation of such Person (the Primary
obligor"), whether or not contingent, (i) to purchase any such primary
obligation or any property or asset constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or-payment of
such primary obligation or (2) to maintain working capital, equity capital or
the net worth, cash flow, solvency or other balance sheet or income statement
condition of any other Person, (iii) to purchase property, assets, securities or
services primarily for the purpose of assuring the owner or holder of any
primary obligation of the ability of the primary obligor with respect to such
primary obligation to make payment thereof or (iv) otherwise to assure or hold
harmless the owner or holder of such primary obligation against loss in respect
thereof.
Section 1.36. Guarantors.
DRH CONSTRUCTION, INC., a Delaware corporation
DRH NEW MEXICO CONSTRUCTION, INC., a Delaware corporation
D.R. HORTON, INC. - ALBUQUERQUE, a Delaware corporation
D.R. HORTON, INC. - MINNESOTA, a Delaware corporation
D.R. HORTON LOS ANGELES HOLDING COMPANY, INC., a California corporation
D.R. HORTON LOS ANGELES MANAGEMENT COMPANY, INC., a California
corporation
D.R. HORTON LOS ANGELES NO. 9, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 10, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 11, INC., a California corporation
D.R. HORTON, INC. - BIRMINGHAM, a Delaware corporation
D.R. HORTON, INC. - GREENSBORO, a Delaware corporation
D.R. HORTON SAN DIEGO HOLDING COMPANY, INC., a California corporation
D.R. HORTON SAN DIEGO MANAGEMENT COMPANY, INC., a California
corporation
D.R. HORTON SAN DIEGO NO. 9, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 10, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 11, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 12, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 13, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 14, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 15, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 16, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 17, INC., a California corporation
D.R. HORTON - TEXAS, LTD., a Texas limited partnership
- 8 -
<PAGE>
Together with each additional Restricted Subsidiary of Borrower as may
from time to time deliver a Guaranty of the Loan which Guaranty is accepted by
Lender.
Section 1.37. Indebtedness.
With respect to any specified Person, (a) all items, except items of
(i) shareholders' and partners' equity, (ii) capital stock, (iii) surplus, (iv)
general contingency or deferred tax reserves, (v) liabilities for deposits and
(vi) deferred income, which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person, (b) all direct or indirect obligations secured by any Lien to
which any property or asset owned by such Person is subject, whether or not the
obligation secured thereby shall have been assumed, and (c) all reimbursement
obligations with respect to outstanding letters of credit.
Section 1.38. Indebtedness for Money Borrowed.
With respect to any specified Person, all money borrowed by such Person
and Indebtedness represented by notes payable by such Person and drafts accepted
representing extensions of credit to such Person, all obligations of such Person
evidenced by bonds, debentures, notes, or other similar instruments, all
Indebtedness of such Person upon which interest charges are customarily paid,
and all Indebtedness of such Person issued or assumed as full or partial payment
for property or services, whether or not any such notes, drafts, obligations, or
Indebtedness represent Indebtedness for money borrowed. For purposes of this
definition, interest which is accrued but not paid on the original due date or
within any applicable cure or grace period as provided by the underlying
contract for such interest shall be deemed Indebtedness for Money Borrowed.
Section 1.39. Interest Expense.
In respect of any period, an amount equal to the sum of the interest
incurred during such period based on a stated interest rate with respect to
Indebtedness for Money Borrowed of the Borrower and its Restricted Subsidiaries
on a consolidated basis.
Section 1.40. Inventory.
All real and personal property, improvements and fixtures owned by the
Borrower or the Restricted Subsidiaries, including but not limited to all Land
Parcels, Lots Under Development, Developed Lots and Dwelling Lots.
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<PAGE>
Section 1.41. Land Parcels.
Parcels of land owned by the Borrower or any of its Restricted
Subsidiaries which are, as of the date of determination, not scheduled for
commencement of development into Developed Lots during the twelve (12) calendar
months immediately following such date of determination and which the Borrower
has designated as "Land Parcels." An individual Land Parcel is sometimes
referred to as a "Land Parcel."
Section 1.42. Lender.
Barnett Bank, N.A.
Section 1.43. Lien.
With respect to any property, any mortgage, lien, pledge, assignment,
charge, security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment, or other encumbrance of any kind in the nature of any
of the foregoing in respect of such property, whether or not choate, vested, or
perfected.
Section 1.44. Loan Amount.
SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00).
Section 1.45. Loan Documents.
This Agreement, the Note and any and all other documents evidencing the
Note as the same may be amended, substituted, replaced, extended or renewed from
time to time.
Section 1.46. Loan Funding Availability.
The amount available for advancement under the Note to the Borrower
established pursuant to Section 5.1 hereof, at any applicable time, by the
Lender based on the Loan Inventory.
Section 1.47. Loan Inventory.
Shall consist of Lots Under Development, Developed Lots, and Dwelling
Lots which are not encumbered by a lien or liens (other than any Permitted
Encumbrance) and which have been designated as Loan Inventory to be utilized for
the purpose of calculating Funding Availability under this Agreement.
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Section 1.48. Loan.
Collectively, amounts advanced by the Lender to the Borrower under the
Loan Documents evidenced by the Note.
Section 1.49. Lots Under Development.
Land Parcels located in the State of Florida which are, as of the date
of determination, being developed into Developed Lots or which are scheduled for
the commencement of development into Developed Lots within twelve (12) calendar
months after the date of determination, and which the Borrower has designated
and the Lender has accepted to be included and are included as "Lots Under
Development" in the calculation of the Funding Availability. An individual Lot
Under Development is sometimes referred to as a "Lot Under Development."
Section 1.50. Maturity Date.
The date when the Loan is due and payable as defined in the Note.
Section 1.51. Models.
A Dwelling Lot containing a dwelling unit which is designated by the
Borrower as a model unit for use in marketing and promoting the sale of Dwelling
Lots.
Section 1.52. Note.
Promissory Note in the principal amount of SEVENTEEN MILLION FIVE
HUNDRED THOUSAND DOLLARS ($17,500,000.00) of even date herewith.
Section 1.53. Notes Payable.
With respect to the Borrower and all Restricted Subsidiaries, all
Indebtedness for money borrowed other than promissory notes issued as earnest
money for contracts, non-recourse promissory notes for seller financing and
notes payable for insurance premiums and capitalized lease obligations.
Section 1.54. Note Rate.
The interest rate established in the Note.
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Section 1.55. Obligations.
(a) All payment and performance obligations of the Borrower and all
other obligors to the Lender under the Loan Documents, as they may be amended
from time to time, or as a result of making the Loan, and (b) the obligation to
pay an amount equal to the amount of any and all damages which the Borrower is
obligated to pay pursuant to the Loan Documents to, or on behalf of, the Lender,
which they may suffer by reason of a breach by any of the Borrower or any other
obligor of any obligation, covenant, or undertaking with respect to this
Agreement or any other Loan Document.
Section 1.56. Permitted Encumbrances.
Liens, encumbrances, easements and other matters which (a) are in favor
of Lender to secure the subject facility, (b) are on real estate for real estate
taxes not yet delinquent, (c) are for taxes, assessments, judgments,
governmental charges or levies or claims the non-payment of which is being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves have been set aside on the Borrower's books (but only so long
as no foreclosure, distraint sale or similar proceedings have been commenced
with respect thereto and remain unstayed for a period for thirty (30) days after
their commencement), (d) are in favor of carriers, warehousemen, mechanics,
laborers and materialmen incurred in the ordinary course of business for sums
not yet past due or being diligently contested in good faith (if adequate
reserves are being maintained by the Borrower with respect thereto), (e) are
incurred in the ordinary course of business in connection with worker's
compensation and unemployment insurance, or (f) are easements, rights-of-way,
restrictions or similar encumbrances on the use of real property which does not
interfere with the ordinary conduct of business of the Borrower or materially
detract from the value of such real property.
Section 1.57. Person.
An individual, corporation, partnership, limited liability company,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
Section 1.58. Plan.
An employee benefit plan within the meaning of Section 3(3) of ERISA
maintained by or contributed to by the Borrower or any ERISA Affiliate.
Section 1.59. Reconciliation Date.
Two (2) Business Days after the Borrower's receipt of notice from the
Lender pursuant to Section 5.1(4) hereof that the outstanding principal balance
of the Loan exceeds the Loan Funding Availability.
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Section 1.60. Reportable Event.
Shall have the meaning set forth in Section 4043(b) of ERISA.
Section 1.61. Request for Advance.
Any certificate signed by an Authorized Signatory of the Borrower
requesting an Advance hereunder which will increase the aggregate amount of the
Loan outstanding, which certificate shall be denominated a "Request for
Advance," and shall be in substantially the form of Exhibit A attached hereto.
Each Request for Advance shall, among other things, (a) specify the date of the
Advance, which shall be a Business Day, (b) specify the amount of the Advance,
(c) state that there shall not exist, on the date of the requested Advance and
after giving effect thereto, a Default or an Event of Default, and (d) state
that all conditions precedent to the making of the Advance have been satisfied.
Section 1.62. Restricted Subsidiaries.
Affiliated or wholly owned companies of D.R. Horton, Inc. which provide
guarantees.
Section 1.63. Speculative Lot.
Any Dwelling Lots having a fully or partially constructed dwelling unit
thereon which Dwelling Lot is not subject to a bona fide contract for the sale
of such Dwelling Lot to a third party, excluding Developed Lots containing
Dwellings used as Models.
Section 1.64. Subsidiary.
As applied to any Person, (a) any corporation of which fifty percent
(50%) or more of the outstanding stock (other than directors' qualifying shares)
having ordinary voting power to elect a majority of its board of directors,
regardless of the existence at the time of a right of the holders of any class
or classes of securities of such corporation to exercise such voting power by
reason of the happening of any contingency, or any partnership of which fifty
percent (50%) or more of the outstanding partnership interests, is at the time
owned by such Persons or by one or more Subsidiaries of such Person, or by such
Person and one or more Subsidiaries of such Person, and (b) any other entity
which is controlled or susceptible to being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person; provided, however, that for purposes of this
Agreement and the other Loan Documents the term "Subsidiary" shall not include
DRH Mortgage Company, Ltd., a Texas limited partnership. Unless the context
otherwise requires, "Subsidiaries as used herein shall mean the Subsidiaries of
the Borrower.
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Section 1.65. Subsidiary Guaranty.
A guaranty agreement in form and substance satisfactory to the Lender
whereunder a Restricted Subsidiary guarantees the full and faithful payment and
performance of all of the Obligations of the Borrower hereunder and under the
other Loan Documents.
Section 1.66. Summary Borrowing Base Report.
An aggregate inventory summary of the Loan Inventory in form acceptable
to Lender and certified as true and correct by an Executive Officer of the
Borrower containing, at a minimum, the cost funded to date for all Dwelling
Lots, Developed Lots and Lots Under Development including those elements of cost
set forth in Sections 1.1, 1.3 and 1.16 hereof.
Section 1.67. Tangible Assets.
The difference between total assets of the Borrower and its Restricted
Subsidiaries and all intangible assets of the Borrower and its Restricted
Subsidiaries, all as determined in accordance with GAAP.
Section 1.68. Tangible Net Worth:
With respect to the Borrower and its Restricted Subsidiaries,
stockholder's equity on a consolidated basis less all "intangible assets" as
defined under GAAP and amounts invested in Unrestricted Subsidiaries of such
Person.
Section 1.69. Total Liabilities.
All items required by GAAP to be set forth as "liabilities" on the
Borrower's and its Restricted Subsidiaries' consolidated balance sheet.
Section 1.70. Unrestricted Subsidiaries.
Affiliated or wholly owned companies of D.R. Horton, Inc. not providing
guarantees.
Section 1.71. Working Capital.
The total of the Borrower's and its Restricted Subsidiaries' assets
minus the sum of the Borrower's and Restricted Subsidiaries' fixed assets,
intangible assets, earnest monies for lot and land option contracts represented
by promissory notes payable by the Borrower and Restricted Subsidiaries and the
total of the Borrower's and Restricted Subsidiaries' liabilities. [Total Assets
- - (Fixed Assets + Intangible Assets + Earnest Monies Represented by Promissory
Note + Total Liabilities).]
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Each definition of an agreement in this Article I shall include such
agreement as modified, amended, or supplemented from time to time with the prior
written consent of the Lender, and except where the context otherwise requires,
definitions imparting the singular shall include the plural and vice versa.
Except where otherwise specifically restricted, reference to a party to a Loan
Document includes that party and its successors and assigns. All terms used
herein which are defined in Article 9 of the Uniform Commercial Code in effect
in the State of Florida on the date hereof and which are not otherwise defined
herein shall have the same meanings herein as set forth therein.
All accounting terms used herein without definition shall be used as
defined under GAAP as of the Agreement Date.
ARTICLE II
AMOUNT AND TERMS OF LOAN
Section 2.1. Line of Credit.
The Lender hereby grants to the Borrower a revolving line of credit not
to exceed the sum of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($17,500,000.00) to be funded and disbursed only in accordance with the terms
and conditions contained herein. Subject to the terms, conditions and collateral
requirements hereinafter set forth in this Agreement, at any time and from time
to time, the Borrower may borrow from and repay to and reborrow from the Lender
at such time and in such amounts not exceeding the maximum amount of SEVENTEEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00) in effect under this
Agreement.
Section 2.2. Promissory Note.
2.2(1) Execution of Note.
Under the terms of this Agreement, the Borrower shall execute and
deliver to the Lender Note.
2.2(2) Due Date of Note. The Note is due on demand.
2.2(3) Grace Period for Payment.
Notwithstanding the foregoing, in the event Lender shall demand
repayment of the amounts disbursed pursuant to the Note, for reasons other than
the monetary and/or non-monetary default by the Borrower, Borrower shall have
six (6) months from the date demand is made by the Lender in which to repay such
amounts and any amounts thereafter disbursed. During the first ninety (90) days
of such six (6) month period, the Lender shall continue to disburse funds
pursuant to this Agreement.
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Section 2.3. Application of Funds.
The Lender and the Borrower agree that all funds received from the
Lender under this Agreement are to be used as working capital. Nothing herein
shall impose upon the Lender any obligation to see to the proper application of
any Advance.
Section 2.4. Taxes and Assessments on Note.
The Borrower shall promptly pay all taxes and assessments assessed or
levied, under and by virtue of any State, Federal or Municipal law or regulation
now in existence or hereinafter passed, to Lender as a result of its ownership
of the Note.
Section 2.5. Extension of Credit.
Subject to the terms and conditions of this Agreement, and in reliance
upon the representations and warranties made in this Agreement and the other
Loan Documents, and provided that there is no Default or Event of Default, the
Lender agrees to lend and relend to the Borrower amounts which in the aggregate
at any one time outstanding do not exceed the Loan Amount.
Section 2.6. Manner of Borrowing and Disbursement Under Loan.
2.6(1) Request for Advance. The Borrower shall give the Lender
irrevocable written notice for Advances under the Loan not later than 12:00 noon
(Eastern time) on the day immediately preceding the date of the requested
Advance in the form of a Request for Advance, or notice by telephone or telecopy
followed immediately by a Request for Advance; provided, however, that the
failure by the Borrower to confirm any notice by telephone or telecopy with a
Request for Advance shall not invalidate any notice so given. Subsequent to the
initial Advance(s) of the Loan made on the Agreement Date, the Borrower may not
request, in the aggregate, more than two (2) Advances in any calendar month. No
disbursements shall be made more than thirty (30) days after the submission of a
Summary Borrowing Base Report or Detailed Borrowing Base Report, whichever is
applicable.
2.6(2) Disbursement. Prior to 2:00 p.m. (Eastern time) on the date of
an Advance hereunder, the Lender shall, subject to the satisfaction of the
conditions set forth in this Agreement, disburse the amount requested by (i)
transferring the amounts by wire transfer pursuant to the instructions of the
Borrower, or (ii) in the absence of such instructions, crediting the amounts so
made available to the account of the Borrower maintained with the Lender.
2.6(3) No Default. Prior to making any advance under the Loan
Documents, the Lender, in its sole discretion, may verify that the Borrower is
not in default under the Loan Documents and the Lender shall not be obligated to
make any advance unless and until it is reasonably satisfied as to the accuracy
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of such information. The Lender shall not be obligated to make any Advances
hereunder: (a) upon this Agreement being deemed to expire as a result of any
law, regulation or regulatory action now or hereafter enacted or adopted; or (b)
upon the making of any such Advance becoming prohibited by any law, regulation
or regulatory action now or hereafter enacted or adopted.
Section 2.7. Interest on Loan.
2.7(1) Loan. Interest shall be computed on the basis of a hypothetical
year of 360 days for the actual number of days elapsed during each calendar
month and shall be payable at a simple interest rate equal to the Note Rate
times the principal balance outstanding from time to time under the Note for the
number of days such principal amounts are outstanding during such calendar
month.
2.7(2) Upon Default. Upon the occurrence and during the continuance of
a Default, the Lender shall have the option (but shall not be required to give
prior notice thereof to the Borrower to accelerate the maturity of the Loan or
to exercise any other rights or remedies hereunder in connection with the
exercise of this right) to charge interest on the outstanding principal balance
of the Loan at the Default Rate from the date of such Default. Such interest
shall be payable on the earliest of demand or the next interest payment date
established in the Note, as applicable, and shall accrue until the earlier of
(i) waiver or cure (to the satisfaction of the Lender) of the applicable
Default, (ii) agreement by the Lender to rescind the charging of interest at the
Default Rate, or (iii) payment in full of the Obligations.
Section 2.8. Fees on Loan.
The Borrower agrees to pay to the Lender an unused fee for each
calendar year on the difference between (i) the Loan Amount and (ii) the average
daily outstanding balance of the Loan during the applicable period, at the rate
of 15 basis points (.15 %). Such unused fee shall be computed on the basis of a
hypothetical year of 360 days for the actual number of days elapsed, shall be
due and payable quarterly in arrears on the twenty-fifth (25th) day of each
January, April, July, and October for the immediately preceding calendar
quarter, commencing on October 25, 1996 (for the period from the Agreement Date
through September 30, 1996), and on the Maturity Date, and shall be fully earned
when due and non-refundable when paid.
Section 2.9. Repayment of Loan.
2.9(1) Interest. The Borrower shall pay interest on the Loan as set
forth in the Note.
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2.9(2) Reconciliation of Loan Inventory. The Borrower shall repay
certain portions of the outstanding principal of the Loan and accrued and unpaid
interest thereon upon the reconciliation of the Loan Funding Availability
against the outstanding principal balance under the Note as provided in Section
5.1 hereof.
2.9(3) Maturity. In addition to the foregoing, a final payment of all
Obligations then outstanding shall be due and payable by the Borrower on
Maturity Date.
Section 2.10. Manner of Payment.
2.10(1) Time. Each payment (including any prepayment) by the Borrower
on account of the principal of or interest on the Loan, fees, and any other
amount owed to the Lender under this Agreement, the Note, or the other Loan
Documents shall be made not later than 1:00 p.m. (Eastern time) on the date
specified for payment under this Agreement or such other Loan Document in lawful
money of the United States of America in immediately available funds. Any
payment received by the Lender after 1:00 p.m. (Eastern time) shall be deemed
received on the next Business Day for purposes of interest accrual.
2.10(2) Date. If any payment under this Agreement or any of the Note
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next succeeding day which is a Business Day, and such extension
of time shall in such case be included in computing interest and fees, if any,
in connection with such payment.
2.10(3) Amount. The Borrower may not make payments, in the aggregate,
under this Agreement (excluding any payments specifically required pursuant to
the terms of this Agreement) more than two (2) times in any calendar month.
2.10(4) No Set Off. The Borrower agrees to pay principal, interest,
fees, and all other amounts due hereunder or under the Note without set-off or
counterclaim or any deduction whatsoever.
ARTICLE III
BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower makes
the following representations and warranties which shall be deemed to be
continuous representations and warranties so long as any credit hereunder
remains available or any indebtedness of the Borrower to the Lender remains
unpaid:
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Section 3.1. Organization and Standing.
The Borrower is a corporation duly organized and existing under the
laws of the State of Delaware and is duly qualified to do business in each
jurisdiction in which the conduct of its business requires such qualification,
including the State of Florida. To the best of the Borrower's knowledge and
belief, the Borrower is in compliance with all applicable laws and regulations
governing the conduct of its business and governing consummation of the
transactions.
Section 3.2. Power and Authority.
The execution, delivery and performance hereof by the Borrower are
within its corporate powers and have been duly authorized by all necessary
corporate and shareholder action, are not in contravention of law or the terms
of its Articles of Incorporation or By-Laws or any amend ment thereto, or any
indenture, agreement or undertaking to which it is a party or by which it is
bound.
Section 3.3. Valid and Binding Obligations.
The Loan Documents constitute the legal, valid and binding respective
obligations of the Borrower subject to applicable bankruptcy and insolvency laws
and laws affecting creditors' rights and the enforcement thereof generally.
Section 3.4. Title to Collateral.
The Borrower has, or will have, good and marketable title to all
property from time to time listed in the Summary Borrowing Base Report free and
clear of all mortgages, pledges, liens, security interests or other
encumbrances. The Borrower will warrant and defend the Collateral against the
claims and demands of all persons except for claims and demands arising from the
title exceptions referenced in the preceding sentence.
Section 3.5. Financial Statements and Other Information.
Subject to any limitation stated therein or in connection therewith by
the Borrower in writing, all balance sheets, earnings statements and other
financial data which have been or shall hereafter be furnished to the Lender to
induce it to enter into this Agreement or otherwise in connection herewith do or
will fairly represent the financial condition of the Borrower as of the dates
and the results of its operations for the period for which the same are
furnished to the Lender and have been or will be prepared in accordance with
GAAP and all other information, reports and other papers and data furnished to
the Lender are and or will be, at the time the same are so furnished, accurate
and correct in all material respects and complete insofar as complete ness may
be necessary to give the Lender a true and accurate knowledge of the subject
matter. There are no material liabilities of any kind of the Borrower as of the
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date of the most recent financial statements which are not reflected therein.
There have been no materially adverse changes in the financial condition or
operation of the Borrower since the date of such financial statements.
Section 3.6. Litigation.
The Borrower warrants and represents to the Lender that as of the
Agreement Date, none of the Borrower nor any Restricted Subsidiary is a party to
any litigation having a reasonable probability of being adversely determined to
the Borrower or any Restricted Subsidiary which, if adversely determined, would
impair the ability of the Borrower to carry on its business substantially as now
conducted or contemplated or would materially adversely affect the financial
condition, business or operations of the Borrower.
Section 3.7. Consent or Filing.
No consent, approval or authorization of, or registration, declaration
or filing with any court, any governmental body or authority or other person or
entity is required in connection with the valid execution, delivery or
performance of this Agreement or any document required by this Agreement or in
connection with any of the transactions contemplated thereby, except the filing
of any financing statements contemplated hereunder.
ARTICLE IV
CONDITIONS PRECEDENT
The effectiveness of this Agreement and the obligations of the Lender
to consummate any of the transactions contemplated hereby shall be subject to
the satisfaction of the following conditions precedent, at or prior to the
Closing Date:
Section 4.1. Opinion of Counsel.
Borrower shall cause to be delivered to Lender an opinion from counsel
to the Borrower addressed to and in form satisfactory to the Lender regarding
the legal matters set forth in Sections 3.1, 3.2, 3.3, 3.6 and 3.7 hereof.
Section 4.2. Documents and Instruments.
The Lender shall have received all the instruments and documents
contemplated to be delivered by the Borrower hereunder, and the same shall be in
full force and effect. This Agreement and all of the instruments and documents
executed in connection therewith are herein after referred to as the "Loan
Documents".
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Section 4.3. Correctness of Warranties.
All representations and warranties contained herein or otherwise made
to the Lender in connection herewith shall be true and correct.
Section 4.4. Certificate of Resolution.
The Board of Directors, or the Executive Committee thereof, and, if
stockholder approval is necessary, the stockholders of Borrower shall have
passed specific resolutions authorizing the execution and delivery of all
documents and the taking of all actions called for by this Agree ment, and the
Borrower shall have furnished to the Lender copies of such resolutions,
certified by the Secretary.
Section 4.5. Borrowing Base Report.
The Borrower shall have delivered to the Lender the appropriate
Borrowing Base Report as required by Section 5.1(2) of this Agreement. Both the
Summary Borrowing Base Report and the Detailed Borrowing Base Report shall
contain a sworn certificate attesting to the accuracy of the representations
contained in said reports.
Section 4.6. Insurance Certificate.
Certificate(s) of insurance required pursuant to Section 6.16 hereof.
Section 4.7. Guarantors.
4.7(1) Authorization. The Board of Directors and, if stockholder
approval is necessary, the stockholders of each of the Guarantors shall have
passed specific resolutions authorizing execution and delivery of the Guarantys
and the Borrower shall have furnished to the Lender copies of such resolutions,
certified by the Secretary of the respective corporations. With respect to the
Guaranty by the limited partnership, the Borrower shall provide the Lender with
a certificate of limited partnership evidencing the approval of the execution of
the Guaranty by the general partner.
4.7(2) Withdrawal/Adding of Guarantors. Provided there is no Default
under any Loan Document, the Guaranty of any Restricted Subsidiary may be
released by the Lender upon the written request of the Borrower. The withdrawal
of any Restricted Subsidiary shall be effective upon the written consent of the
Lender. A Guaranty of any Restricted Subsidiary may be added at any time by the
Borrower delivering to the Lender a continuing and unconditional guaranty in the
form and content of the Guaranty executed by Restricted Subsidiaries
simultaneous with the execution of this Agreement.
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Section 4.8. Other Documents.
Such other documents as the Lender may reasonably from time to time
require in order to verify compliance with the Loan Documents.
Section 4.9. Subsequent Disbursements.
Prior to requesting subsequent disbursements under the Loan,
(subsequent to the first disbursement) the Borrower shall execute and deliver to
the Lender all of the following items, in form and substance satisfactory to the
Lender. The Lender shall have no further obligation to make further
disbursements until all such items have been properly executed and delivered to
the Lender.
(a) The Summary Borrowing Base Report or the Detailed Borrowing Base
Report as required pursuant to this Agreement for all previous periods of time.
(b) The Request for Advance that the Borrower is required to deliver in
connection with the request of an Advance.
(c) Such other documents as the Lender may reasonably require to insure
compliance with the Loan Documents.
ARTICLE V
DISBURSEMENT AMOUNT AND PROCEDURE
5.1 Loan Funding Availability. At the designated times set forth
herein, the Lender shall establish a Loan Funding Availability for the Loan
Inventory.
5.1(1) Calculation of Loan Funding Availability. The Loan Funding
Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that
at no time may the sum of "A" and "B" exceed thirty percent (30%) of Loan
Funding Availability.
A = seventy-five percent (75%) of the sum of all Acquisition Costs for
all Lots Under Development which are included in the Loan Inventory. If, after a
parcel of land is designated a Lot Under Development, development of such parcel
ceases for thirty (30) calendar days or more (other than by reason of a Force
Majeure), at the discretion of the Lender, the Loan Funding Availability for
such parcel may be reduced to an amount determined by the Lender (which amount
can be zero) until development of such Lot Under Development is resumed to the
satisfaction of the Lender.
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B = seventy-five percent (75%) of the sum of all Acquisition Costs for
all Developed Lots included in the Loan Inventory.
C = one hundred percent (100%) of the sum of all Acquisition Costs and
Construction Costs for all Dwelling Lots included in the Loan Inventory.
5.1(2) Designation of Land Parcels. Lots Under Development. Developed
Lots and Dwelling Lots. On or before the fifteenth (15th) calendar day of each
calendar month (other than a month following the end of a calendar quarter), the
Borrower shall deliver to the Lender a Summary Borrowing Base Report in the form
attached hereto as Exhibit B and incorporated herein. On or before the fifteenth
(15th) calendar day of each month following the end of a calendar quarter, the
Borrower shall deliver to the Lender a Detailed Borrowing Base Report in the
form attached hereto as Exhibit C and incorporated herein which form shall have
been completed and signed by the Borrower. The Summary Borrowing Base Report and
Detailed Borrowing Base Report shall reflect Inventory that the Borrower desires
to have designated as Loan Inventory. Upon the Lender's receipt of the Summary
Borrowing Base Report or Detailed Borrowing Base Report, as the case may be, the
Lender may conduct inspections or reviews of the subject Inventory that the
Lender deems appropriate, at the expense of the Lender except as hereinafter
expressly provided. Based upon the information in the Summary Borrowing Base
Report or Detailed Borrowing Base Report, as the case may be, and the other
information compiled by the Lender, the Lender shall determine, in its
discretion, whether a Lot Under Development, Developed Lot or Dwelling Lot not
previously designated as part of the Loan Inventory shall be designated part of
the Loan Inventory and, if so, whether such Lot Under Development, Developed Lot
or Dwelling Lot shall be designated a Lot Under Development, Developed Lot or
Dwelling Lot.
5.1(3) Periodic Establishment of Loan Funding Availability. Within two
(2) business days of the Lender's receipt of an Summary Borrowing Base Report or
Detailed Borrowing Base Report, as the case may be, the Lender shall establish
the Loan Funding Availability based on the Report delivered to the Lender and
information compiled by the Lender. In the event the Borrower does not submit
the Summary Borrowing Base Report or Detailed Borrowing Base Report in the time
and manner set forth above or furnish sufficient information to the Lender to
enable the Lender to establish a new Loan Funding Availability, the Lender will
establish a Loan Funding Availability based on some or all of the previous
information submitted to the Lender by the Borrower in the immediately preceding
Summary Borrowing Base Report or Detailed Borrowing Base Report and the
information compiled by the Lender, as required hereunder, in connection
therewith, as the case may be, or other information available to the Lender.
5.1(4) Reconciliation. In the event that the Loan Funding Availability
for a particular Funding Period is less than the then outstanding principal
amount under the Loan, the Lender shall notify the Borrower thereof. On or
before the Reconciliation Date, the Borrower shall (i) pay to the Lender a
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principal payment to be applied to the Loan; or (ii) provide a revised Summary
Borrowing Base Report or Detailed Borrowing Base Report designating sufficient
additional Inventory (which shall be acceptable to the Lender, in its
discretion) as Loan Inventory to cause the Loan Funding Availability to equal or
exceed the outstanding principal of the Loan.
5.1(5) Removal/Disapproval of Inventory for Loan Funding Availability.
If, at any time, the Lender determines, in its reasonable discretion, that any
part of the Loan Inventory is not acceptable for inclusion in the calculation of
the Loan Funding Availability as a result of an unforeseen material adverse
change in the condition of such portion of the Loan Inventory or as a result of
the existence of hazardous wastes or materials in or on any Inventory which are
in violation of any warranty, representation or covenant of the Loan Documents
regarding such hazardous wastes or materials, the Lender may exclude such
portion of the Loan Inventory from the calculation of the Loan Funding
Availability. If, after such exclusion, the then outstanding principal amount
under the Note would exceed the Loan Funding Availability, the Borrower shall
pay to the Lender on the Reconciliation Date immediately following the exclusion
of such Loan Inventory, a principal payment on the Loan in an amount sufficient
to eliminate such excess of the aggregate outstanding principal balance of the
Loan over the Loan Funding Availability, together with accrued and unpaid
interest on such excess.
Section 5.2. Inspections/Valuations.
The Lender and/or any inspection agent employed by the Lender shall
have the right, during the term of this Agreement to inspect the Property at any
reasonable time to confirm the accuracy of the Borrowing Base Report and to
independently evaluate the units, lots and projects comprising the Loan
Inventory. In the event that the Borrowing Base Report is deemed inaccurate or
in the event that the value of the Loan Inventory in the reasonable
determination of the Lender exceeds the outstanding principal balance of the
Loan, the Loan Funding Availability may be adjusted by the Lender or the
affected portions of the Loan Inventory may be excluded from the Loan Inventory.
In addition, the Lender shall have the right, with reasonable notice to
Borrower, to examine the books of account and other records and files of the
Borrower, and to discuss the affairs, business, finances and accounts of the
Borrower with their respective officers and employees, all at such reasonable
time and as often as the Lender may request provided that Lender shall not
unreasonably interfere or disrupt the conduct of the Borrower's business. It is
agreed that all inspection and valuation services rendered by or for Lender's
officers or agents shall be rendered solely for the protection and benefit of
the Lender and at the Lender's expense.
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Section 5.3. Lender Counsel Approval.
At the option and request of the Lender, the Lender may require that
counsel for the Lender review any of the documents or instruments required,
executed or provided in connection with this Agreement to confirm compliance
with the terms and conditions of this Agreement; or to otherwise advise the
Lender in its duties and responsibilities hereunder. The Borrower hereby agrees
to reimburse the Lender for the reasonable fees (based on time spent) and costs
associated therewith.
Section 5.4. Liability of Lender.
5.4(1) To Third Parties. The Lender shall in no event be responsible or
liable to any person other than the Borrower for its disbursement of or failure
to disburse the funds or any part thereof, and neither the contractor nor any
subcontractor nor materialmen or craftsmen nor laborers nor others shall have
any claim or right against the Lender under this Agreement or the Lender's
administration thereof. The Lender shall not be liable to any materialmen,
contractors, craftsmen, laborers or others for goods or services delivered by
them in or upon the Property, nor for debts or claims accruing to any such
parties against the Borrower. Nor shall the Lender be liable for the manner in
which any disbursements under this Agreement may be applied by the Borrower and
the contractor or either of them or for any compliance with the Florida
Construction Lien Law. The Borrower is not and shall not be an agent for Lender
for any purpose.
5.4(2) To the Borrower. The Borrower has accepted and does accept, the
full responsibility for the selection of its own contractor and subcontractors
and all materials, supplies and equipment to be used in the construction of the
improvements contemplated by this Agree ment, and the Lender assumes no
responsibility for the completion of the improvements contemplated herein.
Further, the Borrower has accepted and does accept full responsibility for
compliance with the Florida Construction Lien Law and relieves the Lender of any
and all liability with respect to that law and agrees to indemnify and hold the
Lender harmless from any and all liability under it of any nature whatsoever.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that until the Note, together with
interest and all other indebtedness to the Lender under the terms of this
Agreement, are paid in full, unless specifically waived by the Lender in
writing:
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Section 6.1. Corporate Existence and Qualification.
The Borrower will do, or cause to be done, all things necessary to
preserve, renew and keep in full force and effect its corporate existence,
rights, licenses and permits and comply with all laws applicable to it, operate
its business in a proper and efficient manner and substantially as presently
operated or proposed to be operated; and at all times maintain, preserve and
protect all franchises and trade names and preserve all property used or useful
in the conduct of its business, and keep the same in good repair, working order
and condition, and from time to time make, or cause to be made, all needful and
proper repairs, renewals, replacements, betterments and improvements thereto, so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 6.2. Financial Statements/Status Reports.
The Borrower will keep its books of accounts in accordance with GAAP
and will furnish to the Lender:
6.2(1) 10-K. Within one hundred twenty (120) days after the close of
Borrower's fiscal year the Form 10-K of the Borrower filed with the Securities
and Exchange Commission, together with the audited, consolidated financial
statements of the Borrower prepared by an independent accounting firm of
recognized standing.
6.2(2) 10-Q. Within sixty (60) days after the last day of each quarter
in each fiscal year of the Borrower, except the last quarter of such fiscal year
of the Borrower, the Form 10-Q of the Borrower filed with the Securities and
Exchange Commission containing financial statements of the Borrower and all
entities related to and divisions of the Borrower, on a consolidated basis.
6.2(3) Sales Report. Within sixty (60) days of the end of the previous
fiscal quarter, quarterly sales and inventory status reports showing units
closed, units in backlog and income summary for all operations in the State of
Florida of the Borrower and its Restricted Subsidiaries.
6.2(4) Other Financial Documentation. The Borrower shall provide to the
Lender such other financial information as the Lender may reasonably request
from time to time to clarify or amplify the information required to be furnished
to the Lender under this Agreement.
Section 6.3. Taxes and Claims.
The Borrower shall properly pay and discharge: (a) all taxes,
assessments and govern mental charges upon or against the Borrower or its assets
prior to the date on which penalties attach thereto, unless and to the extent
that such taxes are being diligently contested in good faith and by appropriate
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proceedings and appropriate reserves therefor have been established; and (b) all
lawful claims, whether for labor, materials, supplies, services or anything else
which might or could, if unpaid, become a lien or charge upon the properties or
assets of the Borrower, unless and to the extent only that the same are being
diligently contested in good faith and by appro priate proceedings and
appropriate reserves therefor have been established.
Section 6.4. Pay Indebtedness to Lender and Perform Other Covenants.
The Borrower shall: (a) make full and timely payments of the principal
of and interest, and premium, if any, on the Note and all other indebtedness of
the Borrower to the Lender, whether now existing or hereafter arising and (b)
duly comply with all the terms and covenants contained in each of the
instruments and documents given to the Lender pursuant to this Agree ment at the
times and places and in the manner set forth herein.
Section 6.5. Litigation.
The Borrower will promptly notify the Lender upon the commencement of
any action, suit, claim, counterclaim or proceeding against or investigation of
the Borrower (except when the alleged liability is fully covered by insurance):
(a) which has the reasonable possibility of being concluded adversely to the
Borrower the result of which, in the reasonable opinion of the Borrower, could
materially adversely affect the business of the Borrower; or (b) which questions
the validity of this Agreement or any other document executed in connection
herewith or any action taken or to be taken pursuant to any of the foregoing.
Section 6.6. Defaults.
The Borrower will promptly notify the Lender in writing of: (a) any
material assessment by any taxing authority for unpaid taxes as soon as the
Borrower has knowledge thereof; (b) the existence of any declared default in the
payment or performance of any indebtedness (excluding non recourse indebtedness
and excluding indebtedness incurred in lieu of contract deposits pursuant to
contracts for the acquisition of buildable lots or land) owed by the Borrower to
any other lender within ten (10) days of the declaration of such default which
would materially and adversely affect the Borrower's assets or business.
Section 6.7. Further Assurances.
The Borrower shall, at its sole cost and expense, upon the request of
the Lender, duly execute and deliver or cause to be duly executed and delivered
to the Lender such further instruments and do and cause to be done such further
acts that may be necessary or proper in the opinion of the Lender to carry out
more effectively the intent and purpose of this Agreement.
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Section 6.8. Funds Not Assignable.
The proceeds of the Loan shall not be assigned by the Borrower nor
subject to the process of any court upon legal action by or against the Borrower
or by or against anyone claiming under or through Borrower, and for the purpose
of this Agreement, the funds shall remain and be considered the money and
property of the Lender until the Borrower is entitled to have them disbursed as
provided herein. Nothing herein contained shall be considered as in anywise
modifying, or subordinating the obligations previously given or to be given by
the Borrower as security for the loan and such obligations shall be and remain
in full force and effect, this Agreement being intended only as additional
security for the loan and to insure its use for the purposes intended by the
Lender and Borrower.
Section 6.9. Financial Covenants.
Until the obligations are repaid in full, the Borrower shall adhere to
and certify quarterly as correct, the following financial covenants (after
giving effect to any Financial Covenant Carve Out), all on a consolidated basis
with the Restricted Subsidiaries and determined as of the last day of each
fiscal quarter of the Borrower:
6.9(1) Ratio of Notes Payable. The Borrower shall maintain at all times
a ratio of Notes Payable to Tangible Net Worth of not greater than 1.75 to 1.0 .
6.9(2) Ratio of Total Liabilities. The Borrower shall maintain at all
times a ratio of Total Liabilities to Tangible Net Worth of not more than 2.25
to 1.
6.9(3) Ratio of EBITDA. The Borrower shall maintain at all times a
ratio of (i) EBITDA to (ii) Fixed Charges of not less than 3.0 to 1.0.
6.9(4) Working Capital. The Borrower shall maintain at all times
Working Capital of $100,000,000
6.9(5) Minimum Tangible Net Worth. The Borrower shall maintain at all
times a minimum Tangible Net Worth of one hundred ten million and no/100 dollars
($110,000,000.00), plus fifty percent (50%) of annual net profits for such
fiscal year, plus fifty percent (50%) of any capital paid into the Borrower
(other than stock issued in connection with an employee stock ownership plan, an
employee stock option plan, an employee stock purchase plan or for an
acquisition), plus one hundred percent (100%) of net losses with absolute
minimum Tangible Net Worth of not less than one hundred ten million and no/100
dollars ($110,000,000.00).
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6.9(6) Compliance. Compliance with the financial covenants set forth in
this Section 6.10. shall be tested quarterly based on either the Borrower's Form
10-Q or Form 10-K, as appropriate.
Section 6.10. Inventory Covenants.
During the term of this Agreement, the Borrower shall adhere to the
following Inventory covenants which will be tested by the Lender as of the last
day of each fiscal quarter of the Borrower:
6.10(1) Speculative Lots. The total number of Speculative Lots owned by
the Borrower and its Restricted Subsidiaries at any given time shall not exceed
sixty percent (60%) of all Dwelling Lots (completely or partially constructed)
then owned by the Borrower and its Restricted Subsidiaries. Models shall not be
considered "Speculative Lots" for purposes of this Section 6.10(1).
6.10(2) Developed Lots/Lots Under Development. The Borrower shall not
permit the total number of Developed Lots and Lots Under Development, in each
case, then owned by the Borrower and all Restricted Subsidiaries, at any given
time to exceed two and one-half (2 1/2) times the number of Developed Lots
containing Dwellings closed by the Borrower and all Restricted Subsidiaries
during the immediately preceding twelve (12) calendar months. The Borrower shall
not permit the aggregate cost of all Developed Lots and Lots Under Development,
in each case, then owned by the Borrower and all Restricted Subsidiaries, at any
given time to exceed forty percent (40%) of all Tangible Assets of the Borrower
on a consolidated basis.
6.10(3) Land Cost. The cost of the land owned by Borrower and all
Restricted Subsidiaries at any given time which has not been developed into
Developed Lots and is not scheduled for commencement of development into
Developed Lots within twelve (12) calendar months from the date of determination
shall not exceed ten percent (10%) of all Tangible Assets of the Borrower and
its Restricted Subsidiaries on a consolidated basis. In the event that the
Borrower or any Restricted Subsidiary classifies certain undeveloped land as
being scheduled for development within twelve (12) calendar months for the
purpose of this provision and, as of the last day of such twelve (12) calendar
month period, development of such land has not commenced, such land shall not be
classified as scheduled for development within twelve (12) calendar months until
such development is commenced.
For purposes of Section 6.10(1), 6.10(2) and 6.10(3) only, the terms
"Speculative Lots", "Dwelling Lot", "Models", "Developed Lots", "Lots Under
Development" and "Dwellings" will include all properties of Borrower and
Restricted Subsidiaries that are situated either within or without the State of
Florida.
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Section 6.11. Additional Information.
Upon the request of the Lender, the Borrower shall deliver to Lender
any documents or information with respect to the Inventory that the Lender may
reasonably require including, without limitation, and acquisition closing
documentation.
Section 6.12. Compliance Certificates.
Within forty-five (45) days from the end of each fiscal quarter of the
Borrower, the Borrower shall provide to the Lender a certificate signed by an
Authorized Signatory of the Borrower in the form attached hereto as Exhibit D
setting forth such calculations required to establish whether the Borrower was
in compliance with Section 6.10 hereof.
Section 6.13. Payment of Contractors.
The Borrower shall pay in a timely manner, and shall cause its
Subsidiaries to pay in a timely manner, any and all contractors and
subcontractors who conduct work in or on the Inventory, subject to the right of
the Borrower to contest any amount in dispute, so long as the contesting of such
amount is pursued diligently and in good faith. The Borrower will advise the
Lender in writing immediately if the Borrower or any of its Subsidiaries
receives any written notice from any contractor(s), subcontractor(s) or material
furnisher(s) to the effect that said contractor(s) or material furnisher(s) have
not been paid for any labor or materials furnished to or in the Inventory and
such outstanding payment or payments are individually or collectively equal to
or greater than two hundred thousand and no/ 100 dollars ($200,000.00) per
subdivision or seven million and no/100 dollars ($7,000,000.00) in the
aggregate. The Borrower will further make available to the Lender, for
inspection and copying, on demand, any contracts, bills of sale, statements,
receipted vouchers or agreements, under which the Borrower claims title to any
materials, fixtures or articles used in the development of the Loan Inventory or
construction of improvements on the Loan Inventory including, without
limitation, the Dwellings.
Section 6.14. Bank Group Line.
6.14(1) Default. Borrower shall provide immediate notice to Lender of
any declared default under the Bank Group Line or under any other loan agreement
or creditor agreement with any financial institution.
6.14(2) Notice of Change. Should the Borrower agree to any change or
amendment to the Bank Group Line, it shall give notice to the Lender of such
change prior to making the change, if time permits, and if not within two (2)
business days after the making of such change.
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Section 6.15. Hazardous Substances.
The Borrower warrants and represents to the Lender that to the best of
their knowledge and belief and based on environmental assessments of the
Inventory commissioned by the Borrower, except to the extent disclosed to the
Lender in environmental assessments or other writings or to the extent that it
would not materially and adversely affect the use and marketability of any
Inventory, the Inventory has not been and is not now being used as a storage
facility for any "Hazardous Substances", nor has it been used in violation of
any federal, state or local environmental law, ordinance or regulation, that no
proceedings have been commenced, or notice(s) received, concerning any alleged
violation of any such environmental law, ordinance or regulation, and that the
Inventory is free of hazardous or toxic substances and wastes, contaminants,
oil, radioactive or other materials the removal of which is required or the
maintenance of which is restricted, prohibited or penalized by any federal,
state or local agency, authority or governmental unit except as set forth in the
Site Assessments. The Borrower covenants that it shall neither permit any such
materials to be brought on to the Inventory, nor shall it acquire real property
to be added to the Loan Inventory upon which any such materials exist, except to
the extent disclosed to the Lender in environmental assessments or other
writings or to the extent that it would not materially and adversely affect the
use and marketability of any Inventory; and if such materials are so brought or
found located thereon, such materials shall be immediately removed, with proper
disposal, to the extent required by applicable environmental laws, ordinances
and regulations, and all required environmental cleanup procedures shall be
diligently undertaken pursuant to all such laws, ordinances and regulations. The
Borrower further represents and warrants that the Borrower will promptly
transmit to the Lender copies of any citations, orders, notices or other
material governmental or other communications received with respect to any
hazardous materials, substances, wastes or other environmentally regulated
substances affecting the Inventory. Notwithstanding the foregoing, there shall
not be a default of this provision should the Borrower store or use minimal
quantities of the aforesaid materials, provided that: such substances are of a
type and are held only in a quantity normally used in connection with the
construction, occupancy or operation of comparable buildings or residential
developments (such as cleaning fluids and supplies normally used in the day to
day operation of residential developments), such substances are being held,
stored and used in complete and strict compliance with all applicable laws,
regulations, ordinances and requirements, and the indemnity set forth below
shall always apply to such substances, and it shall continue to be the
responsibility of the Borrower to take all remedial actions required under and
in accordance with this Agreement in the event of any unlawful release of any
such substance.
Borrower hereby agrees to indemnify Lender and hold Lender harmless
from and against any and all losses, liabilities, including strict liability,
damages, injuries, expenses, including reasonable attorneys' fees, costs of any
settlement or judgment and claims of any and every kind whatsoever paid incurred
or suffered by, or asserted against, Lender by any person or entity or
governmental agency for, with respect to, or as a direct or indirect result of,
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the presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission, discharging or release from the Inventory of any Hazardous Substance
(including, without limitation, any losses, liabili ties, including strict
liability, damages, injuries, expenses, including reasonable attorneys' fees,
costs of any settlement or judgment or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act, any so
called federal, state or local "Superfund" "Superlien" laws, statutes, law
ordinance, code, rule, regulation, order or decree regulating, with respect to
or imposing liability, including strict liability, substances or standards of
conduct concerning any Hazardous Substance), regardless of whether within the
control of Lender.
For purposes of this Agreement, "Hazardous Substances" shall mean and
include those elements or compounds which are contained in the list of hazardous
substances adopted by the United States Environmental Protection Agency ("EPA")
and the list of toxic pollutants designated by Congress or the EPA or defined by
any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material as now or at any time hereafter in effect.
If Borrower receives any notice of (i) the happening of any material
event involving the spill, release, leak, seepage, discharge or clean-up of any
Hazardous Substance on any of the Inventory or in connection with Borrower's
operations thereon or (ii) any complaint, order, citation or material notice
with regard to air emissions, water discharges, or any other environ mental,
health or safety matter affecting Borrower (an "Environmental Complaint") from
any person or entity (including without limitation the EPA) then Borrower shall
immediately notify Lender orally and in writing of said notice.
Lender shall have the right but not the obligation, and without
limitation of Lender's rights under this Agreement, to enter onto the Inventory
or to take such other actions as it deems necessary or advisable to clean up,
remove, resolve or minimize the impact of, or otherwise deal with, any such
Hazardous Substance or Environmental Complaint following receipt of any notice
from any person or entity (including, without limitation, the EPA) asserting the
existence of any Hazardous Substance or an Environmental Complaint pertaining to
the Inventory or any part thereof which, if true, could result in an order, suit
or other action against Borrower, which would have a material adverse effect on
the Borrower, and/or which, in the sole opinion of Lender, could jeopardize its
security under this Agreement. All reasonable costs and expenses incurred by
Lender in the exercise of any such rights shall be secured by this Agreement and
shall be payable by Borrower upon demand.
Section 6.16. Insurance.
The Borrower shall keep the Inventory comprising the Loan Inventory
insured by responsible insurance companies in such amounts and against such
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risks as is customary for owners of similar businesses and properties in the
same general areas in which the Borrower and its Restricted Subsidiaries operate
or, to the customary extent (and in a manner approved by the Lender) the
Borrower may be self insured. All insurance herein provided for shall be in form
and with companies reasonably approved by the Lender. The Borrower shall also
maintain general liability insurance, workman's compensation insurance,
automobile insurance for all vehicles owned by them and any other insurance
reasonably required by the Lender, to the extent commercially available at a
reasonable cost. On the Agreement Date, the Borrower shall deliver to the Lender
a copy of a certificate of insurance evidencing the insurance required
hereunder. In addition, on the date of delivery of each report required by
Section 4.6 hereof, the Borrower shall certify to the Lender that all insurance
policies required to be maintained hereunder remain in full force and effect.
Section 6.17. Reportable Event.
Promptly after Borrower receives notice or otherwise becomes aware
thereof, the Borrower shall notify the Lender of the occurrence of any
Reportable Event with respect to any Plan as to which the Pension Benefit
Guaranty Corporation has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the occurrence
of such event (provided that the Borrower shall give the Lender notice of any
failure to meet the minimum funding standards of Section 412 of the Code or
Section 302 of ERISA, regardless of the issuance of any waivers in accordance
with Section 412(d) of the Code.
Section 6.18. Secured Indebtedness.
The Borrower shall not, and shall not permit any of its Restricted
Subsidiaries to, incur or permit to exist any Indebtedness which is (a) secured
in whole or in part by any of the Inventory (other than Permitted Encumbrances);
or (b) contains any provision requiring the Borrower or any Restricted
Subsidiary to grant to the lender thereunder any Lien at a future date or upon
the occurrence of any subsequent event; except that the Borrower and its
Restricted Subsidiaries may incur Indebtedness in favor of a seller of Inventory
to the Borrower which is secured solely by the Inventory contemporaneously
acquired from such seller and Indebtedness secured solely by the Borrower's
headquarters building located in Arlington, Texas.
ARTICLE VII
DEFAULT AND REMEDIES
Section 7.1. Defaults.
Subsequent to any applicable notice and/or cure rights afforded by the
Loan Documents, each of the following shall constitute a Default, whatever the
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment or order of any court
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or any order, rule, or regulation of any governmental or non-governmental body:
7.1(1) Payment. Default by the Borrower in the payment of any principal,
interest or payment due to the Lender under the Note or under any of the Loan
Documents;
7.1(2) Performance. Default in the payment or performance of any other
liability, obligation or covenant of the Borrower to the Lender under the Loan
Documents, for a period of ten (10) days after written notice; provided (i) if
Borrower reasonably cannot perform within such (10) day period and, in Lender's
reasonable judgment, Lender's security will not be impaired, Borrower may have
such additional time to perform as Borrower reasonably may require, provided and
for so long as Borrower proceeds with due diligence to cure said default; and
(ii) if Lender's security reasonably will be materially impaired if Borrower
does not perform in less than ten (10) days, Borrower will have only such period
following written notice in which to perform as Lender may reasonably specify.
7.1(3) Representation. Any representation, warranty, statement,
certificate, schedule or report made or furnished by the Borrower that proves to
have been false or erroneous in any material respect at the time of the making
thereof, or to have omitted any substantial liability or claim against the
Borrower, or if on the date of execution of this Agreement there shall have been
any materially adverse change in any of the facts disclosed therein, which
change shall not have been disclosed to the Lender at or prior to the time of
such execution;
7.1(4) Litigation. Any litigation or any proceedings which are pending
against the Borrower or Restricted Subsidiaries, the outcome of which would in
Lender's reasonable determination materially adversely affect the continued
operation of the Borrower, and the Borrower failing to take corrective measures
reasonably satisfactory to the Lender within ten (10) days;
7.1(5) Obligations to Others. The failure of the Borrower to pay, when
due, any other indebtedness for borrowed money owed by the Borrower to the
Lender, or default by the Borrower in the performance of the terms of any loan
agreement or indenture relating to such indebtedness, which failure or default
would materially adversely affect the business, operations or financial
condition of the Borrower, and any such default shall not have been remedied
within thirty (30) days thereafter;
7.1(6) Obligations to Lender. Any default by Borrower on any other
direct obliga tion that Borrower may have to the Lender which continues uncured
for thirty (30) days after notice from Lender;
7.1(7) Other Default. There shall occur any Event of Default in the
performance or observance of any agreement or covenant or breach of any
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representation or warranty contained in any of the Loan Documents (other than
this Agreement or as otherwise provided in this Section 7.1 of this Agreement)
or any Subsidiary Guaranty, which shall not be cured to the Lender's
satisfaction within the applicable cure period, if any, provided for in such
Loan Document or ninety (90) days from the date the Borrower receives notice
from the Lender with respect thereto if no cure period is provided in such Loan
Document;
7.1(8) Title 11 Relief. There shall be entered a decree or order for
relief in respect of the Borrower or any of its Restricted Subsidiaries under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy law or other similar law, or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or similar official of the Borrower or any of its Restricted Subsidiaries, or of
any substantial part of their respective properties, or ordering the winding-up
or liquidation of the affairs of the Borrower or any of its Restricted
Subsidiaries, or an involuntary petition shall be filed against the Borrower or
any of its Restricted Subsidiaries, and a temporary stay entered, and (i) such
petition and stay shall not be diligently contested, or (ii) any such petition
and stay shall continue undismissed for a period of thirty (30) consecutive
days;
7.1(9) Title 11 Petition. The Borrower or any of its Restricted
Subsidiaries shall file a petition, answer, or consent seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy law or other similar law, or
the Borrower or any of its Restricted Subsidiaries shall consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator, or other similar official of the Borrower or
any of its Restricted Subsidiaries, or of any substantial part of their
respective properties, or the Borrower or any of its Restricted Subsidiaries
shall fail generally to pay their respective debts as they become due, or the
Borrower or any of its Restricted Subsidiaries shall take any corporate or
partnership action to authorize any such action;
7.1(10) Judgment. A final judgment shall be entered by any court
against the Borrower or any of its Restricted Subsidiaries for the payment of
money which exceeds $500,000.00, which judgment is not covered by insurance or a
warrant of attachment or execution or similar process shall be issued or levied
against property of the Borrower or any of its Restricted Subsidiaries which,
together with all other such property of the Borrower or any of its Restricted
Subsidiaries subject to other such process, exceeds in value $500,000.00 in the
aggregate, and if, within thirty (30) days after the entry, issue, or levy
thereof, such judgment, warrant, or process shall not have been paid or
discharged or bonded or stayed pending appeal, or if, after the expiration of
any such stay, such judgment, warrant, or process shall not have been paid or
discharged;
7.1(11) ERISA Funding. (1) There shall be at any time any "accumulated
funding deficiency," as defined in ERISA or in Section 412 of the Code, with
respect to any Plan; or (2) a trustee shall be appointed by a United States
District Court to administer any Plan; or the Pension Benefit Guaranty
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<PAGE>
Corporation shall institute proceedings to terminate any Plan; or (3) any of the
Borrower and its ERISA Affiliates shall incur any liability to the Pension
Benefit Guaranty Corporation in connection with the termination of any Plan; or
(4) any Plan or trust created under any Plan of any of the Borrower and its
ERISA Affiliates shall engage in a non-exempt "prohibited transactions (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code) which would
subject the Borrower or any ERISA Affiliate to the tax or penalty on "prohibited
transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and
by reason of any or all of the events described in clauses (1) through (4), as
applicable, the Borrower shall have waived (and/or is likely to incur) and/or
incurred liability in excess of $1,000,000.00 in the aggregate;
7.1(12) Invalidity of Documents. All or any portion of any Loan
Document shall at any time and for any reason be declared by a court of
competent jurisdiction in a suit with respect to such Loan Document to be null
and void, or a proceeding shall be commenced by any governmental authority
involving a legitimate dispute or by the Borrower or any of its Restricted
Subsidiaries, having jurisdiction over the Borrower or any of its Restricted
Subsidiaries, seeking to establish the invalidity or unenforceability thereof
(exclusive of questions of interpretation of any provision thereof), or the
Borrower or any of its Restricted Subsidiaries shall deny that it has any
liability or obligation for the payment of principal or interest purported to be
created under any Loan Document;
7.1(13) Change of Control. There shall occur any Change of Control;
7.1(14) Transfer of Property. Except for conveyances of all or any part
of the Loan Inventory between the Borrower and the Guarantors there occurs any
sale, lease, conveyance, assignment, pledge, encumbrance, or transfer of all or
any part of the Loan Inventory or any interest therein, voluntarily or
involuntarily, whether by operation of law or otherwise, except (i) in
accordance with the terms of this Agreement, (ii) for execution of contracts
with prospective purchasers, (iii) for Permitted Encumbrances, and (iv) in the
ordinary course of business;
7.1(15) Property Change. Except in the normal course of Borrower's
development of inventory into Developed Lots and construction of Dwellings
thereon, without the prior written consent of Lender, Borrower grants any
easement or dedication, files any plat, condominium declaration, or restriction
or otherwise encumbers all or any portion of the Loan Inventory, or seeks or
permits any zoning reclassification or variance, unless such action is expressly
permitted by the Loan Documents or does not affect any Inventory which is part
of the Loan Inventory; or
Notwithstanding anything contained herein to the contrary, the occurrence of any
of the foregoing shall not be a Default or an Event of Default hereunder if: (i)
the occurrence pertains only to specific parcel(s) within the Loan Inventory;
and (ii) the affected parcel(s) is (are) removed from the Loan Inventory on
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<PAGE>
or before ten (10) days in the case of a monetary occurrence and thirty (30)
days in the case of a non-monetary occurrence after the occurrence or, if the
Borrower is entitled to notice and cure, within the applicable notice and cure
period.
In the event that any such parcel is a Lot Under Development, Developed Lot or
Dwelling Lot, then the Loan Funding Availability shall be immediately calculated
excluding such parcel. If, as the result of such removal, the outstanding
principal balance under the Loan would exceed the Loan Funding Availability, the
Borrower shall pay (X) to the Lender on the Reconciliation Date immediately
following the removal of such Inventory from the Loan Inventory, a principal
payment on the Loan in an amount sufficient to eliminate such excess of the
aggregate outstanding principal balance of the Loan over the Loan Funding
Availability, together with any due and unpaid interest on such excess or (Y)
add additional Inventory to the Loan Inventory (which is acceptable to the
Lender) in an amount sufficient to cause the Loan Funding Availability to equal
or exceed the Loan.
Section 7.2. Remedies.
If a Default shall have occurred and shall be continuing:
7.2(1) Optional Acceleration. With the exception of a Default specified
in Sections 7.1(8), 7.1(9) and 7.1(10), Lender may, by notice to the Borrower
(i) declare the Note, all interest thereon and all other amounts payable under
this Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the Note, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower,
and (ii) terminate this Agreement.
7.2(2) Immediate Acceleration. Upon the occurrence of a Default under
Sections 7. l(8), 7.1(9) or 7.1(10) hereof, this Agreement shall automatically
terminate and such principal, interest (including without limitation, interest
which would have accrued but for the commencement of a case or proceeding under
the federal bankruptcy laws), and other amounts payable under this Agreement or
the Note shall thereupon and concurrently therewith become due and payable, all
without any action by the Lender, all without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in this
Agreement or in the Note to the contrary notwithstanding.
7.2(3) Loan Document Rights. The Lender shall exercise all of the
post-default rights granted to it and to them under the Loan Documents or under
Applicable Law.
7.2(4) Cumulative Rights. The rights and remedies of the Lender
hereunder shall be cumulative, and not exclusive.
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<PAGE>
Section 7.3. Cross Default.
All of the Note and other Loan Documents are "cross defaulted such that
(a) the occurrence of an Event of Default under any one of the Loan Documents
shall constitute an Event of Default under this Agreement and all of the Loan
Documents and (b) the occurrence of a Default under any one of the Loan
Documents shall constitute a Default under this Agreement and all of the other
Loan Documents.
Section 7.4. Waiver of Default.
The Lender at any time may waive any default or any event of default
which shall have occurred and any of its consequences, in which case the parties
hereto shall be restored to their former positions and rights and obligations
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon, and no such waiver shall
be effective unless it is in a written document executed by a duly authorized
officer.
Section 7.5. Rights and Remedies Not Waived.
No course of dealing between the Borrower and the Lender or any failure
or delay on the part of the Lender in exercising any rights or remedies
hereunder shall operate as a waiver of any rights or remedies of the Lender and
no single or partial exercise of any rights or remedies hereunder shall operate
as a waiver or preclude the exercise of any other rights or remedies hereunder.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Lien; Setoff By Lender.
The Borrower hereby grants to the Lender a continuing lien for all
indebtedness and other liabilities of the Borrower to the Lender upon any and
all moneys, securities, and other property of the Borrower and the proceeds
thereof, now or hereafter held or received by or in transit to, the Lender from
or to the Borrower, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of the Borrower with, and any and all claims of the Borrower against
the Lender at any time existing. Upon the occurrence of any Event of Default,
the Lender is hereby authorized at any time and from time to time, without
notice to the Borrower setoff, appropriate, and apply any or all items
hereinabove referred to against all indebtedness and other liabilities of the
Borrower to the Lender, whether under this Agreement, the Loan Documents or
otherwise, and whether now existing or hereafter arising.
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<PAGE>
Section 8.2. Waivers.
The Borrower waives presentment, demand, protest, notice of default,
nonpayment, partial payments and all other notices and formalities relating to
this Agreement other than notices speci fically required hereunder. The Borrower
consents to and waives notice of the granting of indulgences or extensions of
time of payment, the taking or releasing of security, the addition or release of
persons primarily or secondarily liable on or with respect to liabilities of the
Borrower to the Lender, all in such manner and at such time or times as the
Lender may deem advisable. No act or omission of the Lender shall in any way
impair or affect any of the indebtedness or liabilities of the Borrower to the
Lender or rights of the Lender in any security. No delay by the Lender to
exercise any right, power or remedy hereunder or under any security agreement,
and no indulgence given to the Borrower in case of any default, shall impair any
such right, power or remedy or be construed as having created a course of
dealing or performance contrary to the specific provisions of this Agreement or
as a waiver of any default by the Borrower or any acquiescence therein or as a
violation of any of the terms or provisions of this Agreement. The Lender shall
have the right at all times to enforce the provisions of this Agreement and all
other documents executed in connection herewith in strict accordance with their
terms, notwithstanding any course of dealing or performance by the Lender in
refraining from so doing at any time and notwithstanding any custom in the
banking trade. No course of dealing between the Borrower and the Lender shall
operate as a waiver of any of the Lender's rights.
Section 8.3. Benefit.
This Agreement is made and entered into for the sole protection and
benefit of the Lender and the Borrower, their successors and assigns, and no
other person or persons other than the Borrower shall have any right of action
hereon or rights to the Loan proceeds at any time. Lender shall not (a) owe any
duty whatsoever to any claimant for labor performed or material furnished in
connection with the construction of any Dwelling or improvement on any
Inventory, or (b) owe any duty to apply any undisbursed portion of the Loan to
the payment of any claim, or (c) owe any duty to exercise any right or power of
the Lender hereunder or arising from any Default by the Borrower.
Section 8.4. Assignment.
The terms hereof shall be binding upon and inure to the benefit of the
heirs, successors, assigns, and personal representatives of the parties hereto;
provided, however, that the Borrower shall not assign this Agreement or any of
its rights, interests, duties or obligations hereunder or any Loan proceeds or
other monies to be advanced hereunder in whole or in part without the prior
written consent of the Lender and any such assignment (whether voluntary or by
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<PAGE>
operation law) without said consent shall be void and render automatically
terminated any obligation of Lender to advance any further monies pursuant to
this Agreement or any other Loan Document.
Section 8.5. Amendment and Waiver.
This Agreement and the other Loan Documents represent the final
agreement between the Lender and the Borrower and may not be contradicted by
evidence of prior, contemporaneous or subsequent oral or written agreements of
the Borrower and the Lender. Neither this Agreement nor any of the Loan
Documents may be amended orally, nor may any provision hereof be waived orally
but only by an instrument in writing signed by the Lender and the Borrower.
Section 8.6. Terms.
Whenever the context and construction require, all words used in the
singular number herein shall be deemed to have been used in the plural, and vice
versa, and the masculine gender shall include the feminine and neuter and the
neuter shall include the masculine and feminine.
Section 8.7. Governing Law and Jurisdiction.
This Agreement shall be construed in accordance with the laws of the
State of Florida, and such laws shall govern the interpretation, construction
and enforcement hereof.
Section 8.8. Publicity.
Subject-to the Borrower's approval, the Lender shall have the right to
incorporate its name into signage placed upon the Loan Inventory situated in
Florida. Lender shall have the right to secure printed publicity through
newspaper and other media concerning the Inventory and source of financing.
Section 8.9. Expenses of Lender.
The Borrower promises to reimburse the Lender promptly for all
reasonable out-of-pocket expenses of every nature which the Lender may incur in
connection with the Loan Documents, the making of any loans provided for herein
or the collection of the Borrower's indebtedness, including, but not limited to,
reasonable attorneys' fees of Lender's counsel relating to the preparation of
the Loan Documents, all recording fees, and documentary stamps. Such expenses
shall be paid at closing or in a reasonable time thereafter upon receipt of
written invoices. The Borrower shall also pay reasonable post-closing expenses
incurred by the Lender on behalf of the Borrower. Furthermore, the Borrower
shall be liable for post-closing collection expenses, including, but not limited
to the collection of obligations of the Borrower hereunder, including reasonable
attorneys' fees, including appellate proceedings, post-judgment proceedings and
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<PAGE>
bankruptcy proceedings. In the event the Borrower fails to pay such expenses
within a reasonable time, the Lender may either (a) disburse to itself under the
terms of the Note any sums payable to Lender and such disbursement shall be
considered with like effect as if same had been made to Borrower, or (b) pay
such expenses on the Borrower's behalf and charge the Borrower's account.
Section 8.10. Invalidation of Provisions.
In the event that any one or more of the provisions of this Agreement
is deemed invalid by a court having jurisdiction over this Agreement or other
similar authority, Lender may, in its sole discretion, terminate this Agreement
in whole or in part.
Section 8.11. Notices.
All notices, requests, consents, demands and other communications
required or which any party desires to give hereunder or under any other Loan
Document shall, unless other specifically provided in such other Loan Document,
be deemed sufficiently given or furnished if (a) in writing and delivered by
personal delivery, by courier, or by registered or certified United States mail,
postage prepaid, addressed to the party to whom directed at the addresses
specified below (unless changed by similar notice in writing given by the
particular party whose address is to be changed), (b) by telex with confirmation
thereof in writing by sender pursuant to subsection (a) above, (c) facsimile to
the facsimile number specified below with confirmation thereof in writing by
sender pursuant to subsection (a) above, or (d) by oral communication with
confirmation thereof in writing by the notifying party pursuant to subsection
(a) above within three (3) business days after such oral communication. Any such
notice or communication shall be deemed to have been given and to be effective
either at the time of personal delivery or, in the case of courier or mail, as
of the date of first attempted delivery at the address and in the manner
provided herein, or, in the case of telex, when transmitted (answer back
confirmed), or, in the case of facsimile, upon receipt or, in the case of oral
communication, upon the effectiveness of written confirmation as hereinabove
provided. Notwithstanding the foregoing, no notice of change of address shall be
effective except upon receipt. This Section shall not be construed in any way to
affect or impair any waiver of notice or demand provided in any Loan Document or
to require giving of notice or demand to or upon any person in any situation or
for any reason.
BORROWER:
D. R. Horton, Inc.
1901 Ascension Boulevard
Suite 100
Arlington, Texas 76006
Attn: David J. Keller
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<PAGE>
and
Ted I. Harbour
Facsimile No.: (817) 856-8249
Telephone No.: (817) 856-8200
LENDER:
Barnett Bank, N.A.
707 Mendham Boulevard
Post Office Box 678267
Orlando, Florida 32867-8267
Attn: Closing Department Manager
Facsimile No.: (407) 658-3826
Telephone No.: (407) 658-3815
With a copy to:
Winderweedle, Haines, Ward & Woodman, P.A.
250 Park Avenue South, 5th Floor
Post Office Box 880
Winter Park, Florida 32790-0880
Attn: Victor E. Woodman, Esquire
Facsimile No.: (407) 645-3728
Telephone No.: (407) 246-8412
Section 8.12. Termination by the Borrower.
The Borrower may terminate this Agreement in its entirety by giving at
least ten (10) days prior written notice of its intention to terminate and by
payment in full of all Obligations. Upon the date of termination, the Borrower's
obligation for the payment of the fee provided for in Section 2.8 hereof shall
terminate.
Section 8.13. Controlling Agreement.
In the event any provision of this Agreement is inconsistent with any
provision of any other document, whether heretofore executed, required or
executed pursuant to this Agreement or otherwise, the provisions of this
Agreement shall be controlling.
Section 8.14. Titles.
Titles to the sections of this Agreement are solely for the convenience
of the parties hereto and are not an aid in the interpretation of this Agreement
or any part thereof.
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<PAGE>
Section 8.15. Counterparts.
This Agreement may be executed in any number of counterparts and by the
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same Agreement.
Section 8.16. Time is of the Essence.
The parties agree that time shall be of the essence in interpreting
each and every term and condition contained herein.
Section 8.17. Waiver of Trial by Jury.
The Borrower and the Lender knowingly, voluntarily and intentionally
waive the right either may have to a trial by jury in respect of any litigation
based hereon, or arising out of, under or in connection with the Loan Documents
and any agreement contemplated to be executed in conjunction therewith, or any
course of conduct, course of dealing, statements (whether verbal or written) or
actions of either party. This provision is a material inducement for the Lender
entering into the loan evidenced by the Loan Documents.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Signed, sealed and delivered
in the presence of:
D. R. HORTON, INC., a Delaware
Corporation
____________________________________ By:__/s/ David J. Keller_____
DAVID J. KELLER,
Executive Vice President
- ------------------------------------
"Borrower"
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<PAGE>
BARNETT BANK, N.A., a national
banking association
____________________________________ By:__/s/ Steven J. Markowkia
STEVEN J. MARKOWSKIA
Its: Vice President
- ------------------------------------
"Lender"
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<PAGE>
REVOLVING CREDIT AGREEMENT
between
D.R. HORTON, INC., as the Borrower
and
PNC BANK, NATIONAL ASSOCIATION, as the Bank
Dated September 17, 1996
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
2. LOANS 15
2.1 Extension of Credit 15
2.2 Manner of Borrowing and Disbursement Under Revolving Loan 15
2.3 Interest on Revolving Loan 16
2.4 Unused Fee on Revolving Loan 16
2.5 Termination of Revolving Loan Commitment 16
2.6 Note and Loan Account 17
2.7 Repayment of Loans 17
2.8 Manner of Payment 17
2.9 Application of Payments 18
2.10 Additions and Deletions of Guarantors 18
3. INVENTORY AND FUNDING AVAILABILITY 19
3.1 Loan Funding Availability 19
4. LOAN DISBURSEMENTS 21
4.1 Prior to the First Disbursement 21
4.2 Subsequent Disbursement 22
5. BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES 23
5.1 Payment 23
5.2 Performance 23
5.3 Additional Information 23
5.4 Quarterly Financial Statements and Other Information 23
5.5 Compliance Certificates 24
5.6 Annual Financial Statements and Information Certificate
of Default 24
5.7 Financial and Inventory Covenants 24
5.8 Other Financial Documentation 25
5.9 Relating to Multibank Loan Agreement 25
5.10 Payment of Contractors 26
5.11 Inspection and Appraisal 26
5.12 Fees and Expenses 26
5.13 Hazardous Substances 26
5.14 Insurance 27
5.15 Litigation 28
5.16 Reportable Event 28
5.17 Secured Indebtedness 28
<PAGE>
6. DEFAULT AND REMEDIES 28
6.1 Defaults 28
6.2 Remedies 31
6.3 Waivers 31
6.4 Cross-Default 32
6.5 No Liability of the Bank 32
7. REGARDING THE MULTIBANK LOAN AGREEMENT 32
7.1 Subsequent Amendment of Multibank Loan Agreement 32
7.2 Notice of Amendment 33
7.3 Bank's Right to Subsequent Amendment 33
8. GENERAL CONDITIONS 33
8.1 Benefit 33
8.2 Assignment 33
8.3 Amendment and Waiver 34
8.4 Additional Obligations and Amendments 34
8.5 [Reserved] 34
8.6 Terms 34
8.7 Governing Law and Jurisdiction 34
8.8 [Reserved] 35
8.9 Attorney's Fees 35
8.10 Mandatory Arbitration 35
8.11 Invalidation of Provisions 36
8.12 Execution in Counterparts 36
8.13 Captions 36
8.14 Notices 36
8.15 Final Agreement 37
<PAGE>
Exhibits
Exhibit A - Form of Inventory Quarterly Report
Exhibit B - Form of Inventory Summary Report
Exhibit C - Form of Request for Advance
Exhibit D - Form of Quarterly Compliance Certificate
Schedule
Schedule 1.70 - Subsidiaries of the Borrower
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT ("Agreement") dated as of September 17,
1996 is by and between D. R. HORTON, INC., a Delaware corporation (the
"Borrower") and PNC BANK, NATIONAL ASSOCIATION ("the Bank").
IN CONSIDERATION of the sum of TEN AND NO/100 DOLLARS ($l0.00) in hand
paid by each party to the other and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by each of the
undersigned, the undersigned hereby covenant and agree as follows:
1.DEFINITIONS
For the purposes of this Agreement, the words and phrases set forth
below shall have the following meanings:
1.1 Acquisition Cost.
If the subject Developed Lot or Land Parcel was purchased
individually, the Acquisition Cost for such Developed Lot or Land Parcel shall
be the actual purchase price and closing costs approved by the Bank and paid by
the Borrower or its Restricted Subsidiaries for the acquisition of such
individual Developed Lot or Land Parcel excluding Administrative Costs, together
with all applicable Development Costs. If the subject Developed Lot or Land
Parcel was part of a larger group of Developed Lots or Land Parcels, the
Acquisition Cost for such Developed Lot or Land Parcel shall be the pro rata
portion of the overall actual purchase price and closing costs approved by the
Bank and paid by the Borrower and its Restricted Subsidiaries for the
acquisition of such larger group of Developed Lots or Land Parcels allocable to
the subject Developed Lot or Land Parcel excluding Administrative Costs,
together with a pro rata portion of all applicable Development Costs.
1.2 Administrative Costs.
Costs and expenses incurred by the Borrower or its Restricted
Subsidiaries in connection with (a) the marketing and selling of Inventory which
is part of the Loan Inventory and (b) the administration, management and
operation of the Borrower's and its Restricted Subsidiaries' businesses
(excluding without limitation Interest Expense and fees payable hereunder).
1.3 Advance or Advances.
Amounts advanced by the Bank to the Borrower pursuant to
Article 2 hereof on the occasion of any borrowing.
<PAGE>
1.4 Affiliate.
Any Person (other than a Person whose sole relationship with
the Borrower is as an employee) directly or indirectly controlling, controlled
by, or under common control with the Borrower. For purposes of this definition,
"control" when used with respect to any Person means the direct or indirect
beneficial ownership of more than twenty percent (20%) of the voting securities
or voting equity or partnership interests of such Person or the power to direct
or cause the direction of the management and policies of such Person, whether by
control or otherwise.
1.5 Agreement.
This Revolving Credit Agreement.
1.6 Agreement Date.
The date as of which the Borrower and the Bank execute this
Agreement.
1.7 Applicable Law.
In respect of any Person, all provisions of constitutions,
statutes, rules, regulations and orders of governmental bodies or regulatory
agencies applicable to such Person, including without limitation all orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Person in question is a party or by which it is bound.
1.8 Authorized Signatory.
With respect to the Borrower, such personnel of the Borrower
as set forth in an incumbency certificate of the Borrower delivered to the Bank
on the Agreement Date (or any duly executed incumbency certificate delivered
after the Agreement Date) and certified therein as being duly authorized by the
Borrower to execute documents, agreements and instruments on behalf of the
Borrower.
1.9 Available Revolving Loan Commitment.
As of any date of determination, an amount equal to the lesser
of (a) the Revolving Loan Commitment or (b)(i) the Loan Funding Availability
less (ii) the sum of (A) the principal amount of the Revolving Loan then
outstanding and (B) the outstanding principal balances of all unsecured
Indebtedness for Money Borrowed (excluding capitalized lease obligations, notes
payable for insurance premiums, non-recourse promissory notes for seller
financing and promissory notes issued as earnest money for contracts).
1.10 Bank.
PNC Bank, National Association.
2
<PAGE>
1.11 Borrower.
D. R. Horton, Inc., a Delaware corporation.
1.12 Business Day.
A day on which the Bank is not authorized or required to be
closed and foreign exchange markets are open for the transaction of business
required for this Agreement in New Jersey.
1.13 Change of Control.
Either (i) any sale, lease or other transfer (in one
transaction or a series of transactions) of all or substantially all of the
consolidated assets of the Borrower and its Restricted Subsidiaries to any
Person (other than a Restricted Subsidiary of the Borrower), provided that a
transaction where the holders of all classes of Common Equity of the Borrower
immediately prior to such transaction own, directly or indirectly, 50% or more
of all classes of Common Equity of such Person immediately after such
transaction shall not be a Change of Control; (ii) a "person" or "group" within
the meaning of Section 13(d) of the Exchange Act (other than the Borrower or
Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton, or
any trust or other entity formed or controlled by Donald R. Horton, his wife,
children or grandchildren, or Terrill J. Horton) becomes the "beneficial owner"
(as defined in Rule 13d-8 under the Exchange Act) of Common Equity of the
Borrower representing more than 50% of the voting power of the Common Equity of
the Borrower; (iii) Continuing Directors cease to constitute at least a majority
of the Board of Directors of the Borrower; or (iv) the stockholders of the
Borrower approve any plan or proposal for the liquidation or dissolution of the
Borrower, provided that a liquidation or dissolution of the Borrower which is
part of a transaction that does not constitute a Change of Control under the
proviso contained in clause (i) above shall not constitute a Change of Control.
1.14 Change of Management.
Donald R. Horton shall cease to serve either as Chairman of
the Board of Directors of the Borrower or as President of the Borrower.
1.15 Code.
Internal Revenue Code of 1986, as amended.
1.16 Common Equity.
With respect to any Person, capital stock of such Person that
is generally entitled to (i) vote in the election of directors of such Person,
or (ii) if such Person is not a corporation, vote or otherwise participate in
the selection of the governing body, partners, managers or others that will
control the management or policies of such Person.
3
<PAGE>
1.17 Construction Costs.
All costs accepted by the Bank actually incurred by the
Borrower or its Restricted Subsidiaries with respect to the construction of a
Dwelling as of the date of determination by the Bank excluding (a) projected
costs and costs for materials or labor not yet delivered to provided to or
incorporated into such Dwelling and (b) Administrative Costs.
1.18 Continuing Director.
A director who either was a member of the board of directors
of the Borrower on the Agreement Date or who became a director of the Borrower
subsequent to such date and whose election, or nomination for election by the
Borrower's stockholders, was duly approved by a majority of the Continuing
Directors on the board of directors of the Borrower at the time of such
approval, either by a specific vote or by approval of the proxy statement issued
by the Borrower on behalf of the entire board of directors of the Borrower in
which such individual is named as nominee for a director.
1.19 Default.
Any of the events specified in Section 6.1 hereof, provided
that any requirement for notice or lapse of time, or both, has been satisfied.
1.20 Default Rate.
A simple per annum interest rate equal to the sum of (a) the
Revolving Loan Rate, as the case may be, plus (b) two hundred basis points (2%).
1.21 Developed Lots.
Subdivision lots owned by the Borrower or its Restricted
Subsidiaries, subject to a recorded plat, which the Borrower has designated and
the Bank has accepted to be included and are included as "Developed Lots" in the
calculation of the Loan Funding Availability (exclusive of any Dwelling Lot). An
individual Developed Lot is sometimes referred to herein as a "Developed Lot."
1.22 Development Costs.
All costs accepted by the Bank actually incurred by the
Borrower and its Restricted Subsidiaries with respect to the development of a
Land Parcel into a Developed Lot or Developed Lots as of the date of
determination by the Bank excluding (a) projected costs and costs for materials
or labor not yet delivered to, provided to or incorporated into such parcel of
land and (b) Administrative Costs.
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1.23 Dwelling.
A house which the Borrower or any Restricted Subsidiary has
constructed or is constructing on a Developed Lot which has been designated as a
Dwelling Lot.
1.24 Dwelling Lots.
Developed Lots with Dwellings which the Borrower or any
Restricted Subsidiary has designated and the Bank has accepted to be included
and are included as "Dwelling Lots" in the calculation of the Loan Funding
Availability. The term "Dwelling Lot" includes the Dwelling located thereon. An
individual Dwelling Lot is sometimes referred to herein as a "Dwelling Lot."
1.25 EBITDA.
With respect to the Borrower and all Restricted Subsidiaries,
earnings for the preceding twelve (12) months (including without limitation
dividends from Unrestricted Subsidiaries, including without limitation net
income (or loss) of any Person that accrued prior to the date that such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated with
the Borrower or any of its Restricted Subsidiaries) before interest incurred,
state and federal income taxes paid, franchise taxes paid and depreciation and
amortization, all in accordance with GAAP.
1.26 ERISA.
The Employee Retirement Income Security Act of 1974, as in
effect on the Agreement Date and as such Act may be amended thereafter from time
to time.
1.27 ERISA Affiliate.
(a) Any corporation which is a member of the same controlled
group of corporations (within the meaning of Code Section 414(b)) as is the
Borrower, (b) any other trade or business (whether or not incorporated) under
common control (within the meaning of Code Section 414(c)) with the Borrower,
(c) any other corporation, partnership or other organization which is a member
of an affiliated service group (within the meaning of Code Section 414(m)) with
the Borrower, or (d) any other entity required to be aggregated with the
Borrower pursuant to regulations under Code Section 414(o).
1.28 Event of Default.
Any event specified in Section 6.1 hereof and any other event
which with any passage of time or giving of notice (or both) would constitute
such Event of Default.
1.29 Exchange Act.
The Securities Exchange Act of 1934, as amended.
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1.30 Federal Funds Effective Rate.
As of any date, the "Federal Funds Effective Rate" for each
relevant month as published in the Federal Reserve Statistical Release H.15
(519), as published by the Board of Governors of the Federal Reserve System, or
any successor publication published by the Board of Governors of the Federal
Reserve System.
1.31 Financial Covenant Carve Out.
Any acquisition of Inventory, which the Borrower has elected
to exclude from the calculation of the covenants set forth in Sections 5.7(a),
(b), (g), (h) and (i) hereof; provided, however, that no acquisition may qualify
as a "Financial Covenant Carve Out" if (a) the Borrower has elected to have an
acquisition designated as a "Financial Covenant Carve Out" in the preceding
twelve (12) calendar month period; (b) such acquisition has already been
designated as a "Financial Covenant Carve Out" on the last day of each of the
two (2) fiscal quarter ends immediately following the date of such acquisition;
(c) contemporaneously with delivery by the Borrower of the notice of designation
of an acquisition as a "Financial Covenant Carve Out," the Borrower fails to
deliver to the Bank a plan of action reflecting that the Borrower will be in
compliance (after giving effect to such acquisition) with the covenants in
Sections 5.7(a), (b), (g), (h) and (i) hereof on or prior to the last day of the
third fiscal quarter following the date of such acquisition; and (d) the
acquisition in question would, if it were included in the compliance
calculations, cause (1) the ratio of Notes Payable to Tangible Net Worth to
exceed (A) as of the last day of each fiscal quarter of the Borrower in 1996,
1.9 to 1 and (B) as of the last day of each fiscal quarter of the Borrower in
1997 prior to the Revolving Loan Maturity Date, 2.1 to 1 or (2) the ratio of
Total Liabilities to Tangible Net Worth to exceed (A) as of the last day of each
fiscal quarter of the Borrower in 1996, 2.25 to 1 and (B) as of the last day of
each fiscal quarter of the Borrower in 1997 prior to the Revolving Loan Maturity
Date, 2.5 to 1.
1.32 Fixed Charges.
The aggregate consolidated interest incurred of the Borrower
and its Restricted Subsidiaries for the most recently completed four (4) fiscal
quarters for which results have been reported to the Bank.
1.33 Fixed Charges Coverage Ratio.
The ratio of the Borrower's EBITDA to Fixed Charges.
1.34 Force Majeure Delay.
A delay to the development of a Lot Under Development or a
delay to the construction of a Dwelling which is caused by fire, earthquake or
other acts of God, strike, lockout, acts of public enemy, riot, insurrection or
governmental regulation of the sale or transportation of materials, supplies or
labor, provided that the Borrower furnishes the Bank with written notice of any
such delay within ten (10) days from the commencement of any such delay and
provided that the period of the Force Majeure shall not exceed the period of
delay caused by such event.
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1.35 Funding Period.
A period commencing on the day immediately following the date
that the Loan Funding Availability is established pursuant to Section 3.1(c)
hereof by the Bank and ending on the date that the Loan Funding Availability
next is established pursuant to Section 3.1(c) hereof by the Bank.
1.36 GAAP.
As in effect as of the Agreement Date, generally accepted
accounting principles consistently applied.
1.37 Governmental Authority.
Any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
1.38 Guarantors.
DRH Construction, Inc., a Delaware corporation
D.R. Horton, Inc. - Albuquerque, a Delaware corporation
D.R. Horton, Inc. - Minnesota, a Delaware corporation
D.R. Horton Los Angeles Holding Company, Inc., a California corporation
D.R. Horton Los Angeles Management Company, Inc., a California corp.
D.R. Horton Los Angeles No. 9, Inc., a California corporation
D.R. Horton Los Angeles No. 10, Inc., a California corporation
D.R. Horton Los Angeles No. 11, Inc., a California corporation
D.R. Horton, Inc. - Birmingham, a Delaware corporation
D.R. Horton, Inc. - Greensboro, a Delaware corporation
D.R. Horton San Diego Holding Company, Inc., a California corporation
D.R. Horton San Diego Management Company, Inc., a California corporation
D.R. Horton San Diego No. 9, Inc., a California corporation
D.R. Horton San Diego No. 10, Inc., a California corporation
D.R. Horton San Diego No. 11, Inc., a California corporation
D.R. Horton San Diego No. 12, Inc., a California corporation
D.R. Horton San Diego No. 13, Inc., a California corporation
D.R. Horton San Diego No. 14, Inc., a California corporation
D.R. Horton San Diego No. 15, Inc., a California corporation
D.R. Horton San Diego No. 16, Inc., a California corporation
D.R. Horton San Diego No. 17, Inc., a California corporation
D. R. Horton - Texas, Ltd., a Texas limited partnership
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together with each additional Restricted Subsidiary of Borrower as may from time
to time deliver a Guaranty of the Revolving Loan (if such Guaranty is accepted
by the Bank) and excluding such parties, if any, who as are released from their
Guaranty obligations to the Bank, all pursuant to Section 2.10.
1.39 Guaranty or Guaranteed.
As applied to an obligation (each a "primary obligation"),
shall mean and include (a) any guaranty, direct or indirect, in any manner, of
any part or all of such primary obligation, and (b) any agreement, direct or
indirect, contingent or otherwise, the practical effect of which is to assure in
any way the payment or performance (or payment of damages in the event of
non-performance) of any part or all of such primary obligation, including,
without limiting the foregoing, any reimbursement obligations as to amounts
drawn down by beneficiaries of outstanding letters of credit and any obligation
of such Person (the "primary obligor"), whether or not contingent, (i) to
purchase any such primary obligation or any property or asset constituting
direct or indirect security therefor, (ii) to advance or supply funds (1) for
the purchase or payment of such primary obligation or (2) to maintain working
capital, equity capital or the net worth, cash flow, solvency or other balance
sheet or income statement condition of any other Person, (iii) to purchase
property, assets, securities or services primarily for the purpose of assuring
the owner or holder of any primary obligation of the ability of the primary
obligor with respect to such primary obligation to make payment thereof, or (iv)
otherwise to assure or hold harmless the owner or holder of such primary
obligation against loss in respect thereof.
1.40 Indebtedness.
With respect to any specified Person, (a) all items, except
items of (i) shareholders' and partners' equity, (ii) capital stock, (iii)
surplus, (iv) general contingency or deferred tax reserves, (v) liabilities for
deposits and (vi) deferred income, which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person, (b) all direct or indirect obligations secured by
any Lien to which any property or asset owned by such Person is subject, whether
or not the obligation secured thereby shall have been assumed and (c) all
reimbursement obligations with respect to issued letters of credit.
1.41 Indebtedness for Money Borrowed.
With respect to any specified Person, all money borrowed by
such Person and Indebtedness represented by notes payable by such Person and
drafts accepted representing extensions of credit to such Person, all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments, all Indebtedness of such Person upon which interest charges
are customarily paid, and all Indebtedness of such Person issued or assumed as
full or partial payment for property or services, whether or not any such notes,
drafts, obligations or Indebtedness represent Indebtedness for money borrowed.
For purposes of this definition, interest which is accrued but not paid on the
original due date or within any applicable cure or grace period as provided by
the underlying contract for such interest shall be deemed Indebtedness for Money
Borrowed.
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1.42 Interest Expense.
In respect of any period, an amount equal to the sum of the
interest incurred during such period based on a stated interest rate with
respect to Indebtedness for Money Borrowed of the Borrower and its Restricted
Subsidiaries on a consolidated basis.
1.43 Inventory.
All real and personal property, improvements and fixtures
owned by the Borrower or the Restricted Subsidiaries, including but not limited
to all Land Parcels, Lots Under Development, Development Lots and Dwelling Lots.
1.44 Inventory Quarterly Report.
The detailed quarterly written report with respect to the Loan
Inventory, in substantially the form of Exhibit A attached hereto, to be
prepared by the Borrower and submitted to the Bank in accordance with Section
3.1(c) hereof.
1.45 Inventory Summary Report.
The monthly written summary of the Loan Inventory, in
substantially the form of Exhibit B attached hereto, to be prepared by the
Borrower and submitted to the Bank in accordance with Section 3.1(c) hereof.
1.46 Land Parcels.
Parcels of land owned by the Borrower or any of its Restricted
Subsidiaries which are, as of the date of determination, not scheduled for
commencement of development into Developed Lots during the twelve (12) calendar
months immediately following such date of determination and which the Borrower
has designated as "Land Parcels." An individual Land Parcel is sometimes
referred to as a "Land Parcel."
1.47 Lien.
With respect to any property, any mortgage, lien, pledge,
assignment, charge, security interest, title retention agreement, levy,
execution, seizure, attachment, garnishment, or other encumbrance of any kind in
the nature of any of the foregoing in respect of such property, whether or not
choate, vested or perfected.
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1.48 Loan Documents.
This Agreement, the Revolving Loan Note and any and all other
documents evidencing the Revolving Loan Note as the same may be amended,
substituted, replaced, extended or renewed from time to time.
1.49 Loan Funding Availability.
The amount available for advancement under the Revolving Loan
Note to the Borrower established pursuant to Section 3.1 hereof, at any
applicable time, by the Bank based on the Loan Inventory.
1.50 Loan Inventory
Lots Under Development, Developed Lots and Dwelling Lots which
are not encumbered by a Lien or Liens (other than any Permitted Encumbrance) and
which have been designated by the Borrower and accepted by the Bank as "Loan
Inventory" to be utilized for the purpose of calculating the Loan Funding
Availability.
1.51 Lots Under Development.
Land Parcels which are, as of the date of determination, being
developed into Developed Lots or which are scheduled for the commencement of
development into Developed Lots within twelve (12) calendar months after the
date of determination, and which the Borrower has designated and the Bank has
accepted to be included and are included as "Lots Under Development" in the
calculation of the Loan Funding Availability. An individual Lot Under
Development is sometimes referred to as a "Lot Under Development."
1.52 Models.
A Dwelling Lot containing a dwelling unit which is designated
by the Borrower as a model unit for use in marketing and promoting the sale of
Dwelling Lots.
1.53 Multibank Loan Agreement.
The Master Loan and Inter-Creditor Agreement among the
Borrower, NationsBank, N.A. (South) as Administrative Agent and the "Banks"
party thereto dated April 16, 1996, as amended, pursuant to which such "Banks"
agreed to provide to the Borrower unsecured credit facilities aggregating up to
$260,000,000.
1.54 [RESERVED]
1.55 Notes Payable.
With respect to the Borrower and all Restricted Subsidiaries,
all Indebtedness for Money Borrowed other than promissory notes issued as
earnest money for contracts, non-recourse promissory notes for seller financing
and notes payable for insurance premiums and capitalized lease obligations.
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1.56 Obligations.
(a) All payment and performance obligations of the Borrower
and all other obligors to the Bank under this Agreement and the other Loan
Documents, as they may be amended from time to time, or as a result of making
the Revolving Loan, and (b) the obligation to pay an amount equal to the amount
of any and all damages which the Borrower is obligated to pay pursuant to the
Loan Documents to, or on behalf of, the Bank which it may suffer by reason of a
breach by any of the Borrower or any other obligor of any obligation, covenant
or undertaking with respect to this Agreement or any other Loan Document.
1.57 Permitted Encumbrances.
Liens, encumbrances, easements and other matters which (a) are
on real estate for real estate taxes not yet delinquent, (b) are for taxes,
assessments, judgments, governmental charges or levies or claims, the
non-payment of which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside on the
Borrower's books (but only so long as no foreclosure, distraint sale or similar
proceedings have been commenced with respect thereto and remain unstayed for a
period of thirty (30) days after their commencement), (c) are in favor of
carriers, warehousemen, mechanics, laborers and materialmen incurred in the
ordinary course of business for sums not yet past due or being diligently
contested in good faith (if adequate reserves are being maintained by the
Borrower with respect thereto), (d) are incurred in the ordinary course of
business in connection with workers' compensation and unemployment insurance, or
(e) are easements, rights-of-way, restrictions or similar encumbrances on the
use of real property which does not interfere with the ordinary conduct of
business of the Borrower or materially detract from the value of such real
property.
1.58 Person.
An individual, corporation, partnership, limited liability
company, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
1.59 Plan.
An employee benefit plan within the meaning of Section 3(3) of
ERISA maintained by or contributed to by the Borrower or any ERISA Affiliate.
1.60 Reconciliation Date.
Two (2) Business Days after the Borrower's receipt of notice
from the Bank pursuant to Section 3.1(d) hereof that the outstanding principal
balance of the Revolving Loan exceeds the Available Revolving Loan Commitment.
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1.61 Reportable Event.
Shall have the meaning set forth in Section 4043(b) of ERISA.
1.62 Request for Advance.
Any certificate signed by an Authorized Signatory of the
Borrower requesting an Advance hereunder which will increase the amount of the
Revolving Loan outstanding, which certificate shall be denominated a "Request
for Advance," and shall be in substantially the form of Exhibit C attached
hereto. Each Request for Advance shall, among other things, (a) specify the date
of the Advance, which shall be a Business Day, (b) specify the amount of the
Advance, (c) state that there shall not exist, on the date of the requested
Advance and after giving effect thereto, a Default or an Event of Default, and
(d) state that all conditions precedent to the making of the Advance have been
satisfied.
1.63 Restricted Subsidiary.
Any Subsidiary of the Borrower which has been designated as a
Restricted Subsidiary by the Borrower and from which the Bank is required to
receive a duly executed Subsidiary Guaranty, including without limitation the
Guarantors.
1.64 Revolving Loan.
The revolving line of credit to be advanced by the Bank
pursuant to the terms of this Agreement and evidenced by the Revolving Loan
Note.
1.6 Revolving Loan Commitment.
The obligation of the Bank to advance funds in the maximum sum
of $20,000,000 to the Borrower pursuant to the terms hereof as such obligations
may be reduced from time to time pursuant to the terms hereof.
1.66 Revolving Loan Maturity Date.
September 16, 1997, or such earlier date as payment of the
Revolving Loan shall be due (whether by acceleration or otherwise).
1.67 Revolving Loan Note.
The promissory note by the Borrower in favor of the Bank
evidencing the Revolving Loan, as well as any promissory note or notes issued by
the Borrower in substitution, replacement, extension, amendment or renewal of
such promissory note.
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1.68 Revolving Loan Rate.
At any time, the annual rate of interest, to be calculated
daily, based on the Three-Month LIBOR as announced on each such day plus one
hundred fifty basis points (1.5%).
1.69 Speculative Lot.
Any Dwelling Lots having a fully or partially constructed
dwelling unit thereon which Dwelling Lot is not subject to a bona fide contract
for the sale of such Dwelling Lot to a third party, excluding Developed Lots
containing Dwellings used as Models.
1.70 Subsidiary.
As applied to any Person, (a) any corporation of which fifty percent
(50%) or more of the outstanding stock (other than directors' qualifying shares)
having ordinary voting power to elect a majority of its board of directors,
regardless of the existence at the time of a right of the holders of any class
or classes of securities of such corporation to exercise such voting power by
reason of the happening of any contingency, or any partnership of which fifty
percent (50%) or more of the outstanding partnership interests, is at the time
owned by such Person, or by one or more Subsidiaries of such Person, or by such
Person and one or more Subsidiaries of such Person, and (b) any other entity
which is controlled or susceptible to being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person; provided, however, that for purposes of this
Agreement and the other Loan Documents the term "Subsidiary" shall not include
DRH Mortgage Company, Ltd., a Texas limited partnership. Unless the context
otherwise requires, "Subsidiaries" as used herein shall mean the Subsidiaries of
the Borrower. The Subsidiaries of the Borrower as of the Closing Date are set
forth on Schedule 1.70 attached hereto.
1.71 Subsidiary Guaranty.
A guaranty agreement in form and substance satisfactory to the
Bank whereunder a Restricted Subsidiary guarantees the full and faithful payment
and performance of all of the Obligations of the Borrower hereunder and under
the other Loan Documents.
1.72 Tangible Assets.
The difference between total assets of the Borrower and its
Restricted Subsidiaries and all intangible assets of the Borrower and its
Restricted Subsidiaries, all as determined in accordance with GAAP.
1.73 Tangible Net Worth.
With respect to the Borrower and its Restricted Subsidiaries,
(A) stockholders' equity on a consolidated basis less (B) (i) all "intangible
assets" as defined under GAAP plus (ii) amounts invested in Unrestricted
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Subsidiaries of such Person plus (iii) Guaranties of or in respect of the
Indebtedness of Unrestricted Subsidiaries.
1.74 Third-Party Notes Payable.
With respect to the Borrower and its Restricted Subsidiaries,
all Indebtedness for Money Borrowed other than (a) publicly issued Indebtedness
for Money Borrowed which is pari passu with the Obligations, (b) non-recourse
Indebtedness, (c) Indebtedness owed to the seller of any Inventory acquired by
the Borrower or its Restricted Subsidiaries, (d) Indebtedness which is
structurally subordinate to the Obligations or which is convertible into equity
at the option of the Borrowers, (e) Indebtedness for earnest money, (f) notes
payable for insurance premiums and capitalized lease obligations and (g) the
Borrower's obligations under the Multibank Loan Agreement.
1.75 Three-Month LIBOR.
As of any date of determination, a rate of interest per annum
equal to the three (3) month London Interbank Offered Rate for deposits in
United States dollars (rounded to two decimal places) in amounts comparable to
the outstanding principal amount of the Revolving Loan then outstanding, which
interest rate is set forth in The Wall Street Journal (Eastern Edition) on the
next Business Day; provided, however, if more than one such offered rate appears
in The Wall Street Journal (Eastern Edition), the applicable rate shall be the
average thereof.
1.76 Total Capital.
The sum of the Tangible Net Worth of the Borrower and its
Restricted Subsidiaries plus Notes Payable of the Borrower and its Restricted
Subsidiaries.
1.77 Total Liabilities.
All items required by GAAP to be set forth as "liabilities" on
the Borrower's and its Restricted Subsidiaries' consolidated balance sheet.
1.78 Unrestricted Subsidiaries.
Subsidiaries of the Borrower which are not Restricted
Subsidiaries.
1.79 Working Capital.
The total of the Borrower's and its Restricted Subsidiaries'
assets minus the sum of the Borrower's and Restricted Subsidiaries' fixed
assets, intangible assets, earnest monies for lot and land option contracts
represented by promissory notes payable by the Borrower and Restricted
Subsidiaries and the total of the Borrower's and Restricted Subsidiaries'
liabilities. [Total Assets - (Fixed Assets + Intangible Assets + Earnest Monies
Represented by Promissory Notes + Total Liabilities).]
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Except where the context otherwise requires, definitions
imparting the singular shall include the plural and vice versa. Except where
otherwise specifically restricted, reference to a party to a Loan Document
includes that party and its successors and assigns. All terms used herein which
are defined in Article 9 of the Uniform Commercial Code in effect in the State
of New Jersey on the date hereof and which are not otherwise defined herein
shall have the same meanings herein as set forth therein.
All accounting terms used herein without definition shall be
used as defined under GAAP as of the Agreement Date.
References presented in quotation marks in connection with the
Multibank Loan Agreement refer to terms defined in the Multibank Loan Agreement.
2.LOANS
2.1 Extension of Credit.
(a)Revolving Loan. Subject to the terms and conditions of, and in
reliance upon the representations and warranties made in this Agreement and the
other Loan Documents and upon the terms and subject to the conditions of this
Agreement, the Bank agrees to lend and relend to the Borrower, prior to the
Revolving Loan Maturity Date, amounts which in the aggregate at any one time
outstanding do not exceed the Available Revolving Loan Commitment. Advances
under the Revolving Loan Commitment may be repaid and reborrowed from time to
time on a revolving basis as set forth herein.
(b)Use of Loan Proceeds. The Bank and the Borrower agree that the
proceeds of the Revolving Loan shall be used for general corporate purposes,
including without limitation working capital support, home construction, lot
acquisition, lot development, land acquisition, asset acquisitions and stock
acquisitions.
2.2 Manner of Borrowing and Disbursement Under Revolving Loan.
(a)Advances. The Borrower shall give the Bank irrevocable written
notice for Advances under the Revolving Loan not later than 12:00 noon (Eastern
time) on the day immediately preceding the date of the requested Advance in the
form of a Request for Advance, or notice by telephone or telecopy followed
immediately by a Request for Advance; provided, however, that the failure by the
Borrower to confirm any notice by telephone or telecopy with a Request for
Advance shall not invalidate any notice so given. Each Advance hereunder shall
be in principal amounts of not less than $100,000 and in integral multiples of
$100,000. Subsequent to the initial Advance(s) of the Revolving Loan made on the
Agreement Date, the Borrower may not request, in the aggregate, more than (i)
two (2) Advances in any calendar month plus (ii) four (4) additional Advances in
any twelve (12) calendar month period. In any event, the Borrower may not
request, in the aggregate, more than twenty-eight (28) Advances in any twelve
(12) calendar month period.
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(b)Disbursement. Prior to 2:00 p.m. (Eastern time) on the date of an
Advance hereunder, the Bank shall, subject to the satisfaction of the conditions
set forth in this Agreement, disburse funds representing such Advance in
immediately available funds by transferring the amounts so made
available by wire transfer pursuant to the instructions of the Borrower.
2.3 Interest on Revolving Loan.
(a)Revolving Loan. Interest on the Revolving Loan shall be computed on
the basis of a hypothetical year of 360 days for the actual number of days
elapsed during each calendar month and shall be payable at a simple interest
rate equal to the Revolving Loan Rate times the principal balance outstanding
from time to time under the Revolving Loan Note for the number of days such
principal amounts are outstanding during such calendar month. Interest then
outstanding shall be due and payable in arrears as provided in Section 2.7
hereof.
(b)Upon Default. Upon the occurrence and during the continuance of a
Default, the Bank may accelerate the maturity of the Revolving Loan, exercise
any other rights or remedies hereunder in connection with the exercise of this
right) or charge interest on the outstanding principal balance of the Revolving
Loan at the Default Rate from the date of such Default. Such interest shall be
payable on the earliest of demand, the first (1st) Business Day of the next
calendar month or the Revolving Loan Maturity Date and shall accrue until the
earlier of (i) waiver or cure of the applicable Default, (ii) agreement by the
Bank to rescind the charging of interest at the Default Rate, or (iii) payment
in full of the Obligations.
2.4 Unused Fee on Revolving Loan.
The Borrower agrees to pay to the Bank an unused fee for each calendar
year on the difference between (i) the Revolving Loan Commitment and (ii) the
daily sum of the outstanding Revolving Loan for each day during the applicable
period at the rate of 25 basis points (.25%). Subject to Section 2.5, such
unused fee shall be computed on the basis of a hypothetical year of 360 days for
the actual number of days elapsed, shall be due and payable quarterly in arrears
on the eighteenth (18th) day of each October, January, April and July and on the
Revolving Loan Maturity Date for the period beginning on the first day of the
then current calendar quarter through the Revolving Loan Maturity Date,
commencing on October 18, 1996 (for the period from the Agreement Date through
September 30, 1996), and on the Revolving Loan Maturity Date, and shall be fully
earned when due and non-refundable when paid.
2.5 Termination of Revolving Loan Commitment.
The Borrower may terminate the Revolving Loan Commitment in its
entirety (but not in part) upon thirty (30) calendar days' notice to the Bank
stating an intention so to terminate and by paying to the Bank all outstanding
Obligations. Commencing as of the receipt such notice, the fee otherwise payable
pursuant to Section 2.4 shall cease to accrue.
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2.6 Note and Loan Account.
(a)The Revolving Loan shall be repayable in accordance with the terms
and provisions set forth herein and shall be evidenced by the Revolving Loan
Note. The Revolving Loan Note shall be issued by the Borrower to the Bank and
shall be duly executed and delivered by Authorized Signatories.
(b)The Bank may open and maintain on its books in the name of the
Borrower a loan account with respect to the Revolving Loan Note and interest
thereon. The Bank shall credit such loan account for each payment on account of
principal of or interest on the Revolving Loan. The records of the Bank with
respect to the accounts maintained by it shall be prima facie evidence of the
Revolving Loan and accrued interest thereon, but the failure to maintain such
records shall not impair the obligation of the Borrower to repay Indebtedness
hereunder.
2.7 Repayment of Loans.
(a)Interest. The Borrower shall pay, on the eighteenth (18th) calendar
day of each month, all interest on the Revolving Loan which has accrued as of
the first (1st) calendar day of such month, commencing on the eighteenth (18th)
calendar day of the first (1st) full calendar month following the
Agreement Date.
(b)Reconciliation of Loan Inventory. The Borrower shall repay certain
portions of the outstanding principal of the Revolving Loan and accrued and
unpaid interest thereon upon the reconciliation of the Loan Funding Availability
against the outstanding principal balance under the Revolving Loan Note as
provided in Section 3.1 hereof.
(c)Maturity. In addition to the foregoing, a final payment of all
Obligations then outstanding shall be due and payable by the Borrower on the
Revolving Loan Maturity Date.
2.8 Manner of Payment.
(a)Each payment (including any prepayment) by the Borrower on account
of the principal of or interest on the Revolving Loan, fees and any other amount
owed to the Bank under this Agreement, the Revolving Loan Note or the other Loan
Documents shall be made not later than 3:00 p.m. (Eastern time) on the date
specified for payment under this Agreement or such other Loan Document to the
Bank an account designated by the Bank in lawful money of the United States of
America in immediately available funds. Any payment received by the Bank after
3:00 p.m. (Eastern time) shall be deemed received on the next Business Day for
purposes of interest accrual.
(b)If any payment under this Agreement or the Revolving Loan Note shall
be specified to be made upon a day which is not a Business Day, it shall be made
on the next succeeding day which is a Business Day, and such extension of time
shall in such case be included in computing interest and fees, if any, in
connection with such payment.
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(c)The Borrower may not make payments, in the aggregate, under this
Agreement (excluding any payments specifically required pursuant to the terms of
this Agreement) more than (i) two (2) times in any calendar month, plus (ii)
four (4) additional times in any twelve (12) calendar month period. In any
event, the Borrower may not make, in the aggregate, more than twenty-eight (28)
payments (excluding any payments specifically required pursuant to the terms of
this Agreement) under this Agreement in any twelve (12) calendar month period.
(d)The Borrower agrees to pay principal, interest, fees, and all other
amounts due hereunder or under the Revolving Loan Note without set-off or
counterclaim or any deduction whatsoever.
2.9 Application of Payments.
Unless otherwise specifically provided in this Agreement or the other
Loan Documents, payments made to the Bank (as voluntary payments, upon the
realization on collateral for the Obligations, or otherwise), shall be applied
(subject to Section 2.2(b) hereof) in the following order to the extent such
Obligations are then due and payable hereunder: First, to the costs and
expenses, if any, incurred by the Bank in the collection of such amounts under
this Agreement or any of the other Loan Documents, including without limitation
any reasonable costs incurred in connection with the sale or disposition of any
collateral for the Obligations; Second, all fees and commissions then due and
payable by the Borrower to the Bank under this Agreement or any Loan Document;
Third, to any due and unpaid interest which may have accrued on the Revolving
Loan; Fourth, to any unpaid principal of the Revolving Loan; Fifth, to any other
Obligations not otherwise referred to this Section 2.9 until all such
Obligations are paid in full; Sixth, to actual damages incurred by the Bank by
reason of any breach hereof or of any other Loan Documents by the Borrower or a
Restricted Subsidiary; and Seventh, upon satisfaction in full of all
Obligations, to the Borrower or as otherwise required by law.
2.10 Additions and Deletions of Guarantors
(a)Addition of Restricted Subsidiary. Whenever the Borrower intends for
a Person to become a Restricted Subsidiary and Guarantor, it shall deliver to
the Bank (i) written notice stating such fact and making reference to this
Agreement and this Section 2.10; (ii) a written description of (A) the stock or
other equity ownership of such Person, (B) the principal business activity of
such Person, (C) whether such Person is party to, or guarantor with respect to,
the Multibank Loan Agreement or is maker of, or guarantor with respect to, a
Third-Party Note Payable and (D) the date (which shall not be fewer than ten
(10) Business Days after the receipt by the Bank of such notice) on which the
Borrower intends such Person to become a Restricted Subsidiary and Guarantor;
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(iii) a statement that no Default or Event of Default shall exist after such
Person becomes a Restricted Subsidiary and Guarantor, and (iv) a fully executed
Subsidiary Guaranty in the form delivered by the Guarantors on or about the date
hereof (except for name and date changes). Such Person shall become a Restricted
Subsidiary upon the satisfaction of all such conditions, effective on the date
so specified by the Borrower in such notice, but only upon the delivery of the
Bank of its written consent (which shall not be unreasonably withheld).
(b)Deletion of Restricted Subsidiary. Whenever the Borrower intends for
a Person to cease being a Restricted Subsidiary it shall deliver to the Bank (i)
written notice stating such fact and making reference to this Agreement and this
Section 2.10; and (ii) a statement (A) of the intended effective date of such
cessation (which shall not be fewer than ten (10) Business Days after the
receipt by the Bank of such notice) and (B) that no Default or Event of Default
shall exist after such Person ceases to be a Restricted Subsidiary. Such Person
shall cease to be a Restricted Subsidiary and Guarantor on the date specified by
the Borrower in such notice, but only upon the delivery by the Bank of its
written consent to such cessation (which shall not be unreasonably withheld).
3.INVENTORY AND FUNDING AVAILABILITY
3.1 Loan Funding Availability.
At the designated times set forth herein, the Bank shall establish a
Loan Funding Availability for the Loan Inventory.
(a)Calculation of Loan Funding Availability. The Loan Funding
Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that
at no time may the sum of "A" and "B" exceed thirty percent (30%) of Loan
Funding Availability.
A = seventy-five percent (75%) of the sum of all
Acquisition Costs for all Lots Under Development which are included in the Loan
Inventory. If, after a parcel of land is designated a Lot Under Development,
development of such parcel ceases for thirty (30) calendar days or more (other
than by reason of a Force Majeure Delay), at the discretion of the Bank, the
Loan Funding Availability for such parcel may be reduced to an amount determined
by the Bank (which amount can be zero) until development of such Lot Under
Development is resumed to the satisfaction of the Bank.
B = seventy-five percent (75%) of the sum of all
Acquisition Costs for all Developed Lots included in the Loan Inventory.
C = one hundred percent (100%) of the sum of all
Acquisition Costs and Construction Costs for all Dwelling Lots included in the
Loan Inventory.
(b)Designation of Land Parcels, Lots Under Development, Developed Lots
and Dwelling Lots. On or before the fifteenth (15th) calendar day of each
calendar month (other than a month following the end of a calendar quarter), the
Borrower shall deliver to the Bank an Inventory Summary Report in the form
attached hereto as Exhibit B and incorporated herein. On or before the fifteenth
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(15th) calendar day of each month following the end of a calendar quarter, the
Borrower shall deliver to the Bank an Inventory Quarterly Report in the form
attached hereto as Exhibit A and incorporated herein which form shall have been
completed and signed by the Borrower. The Inventory Summary Report and Inventory
Quarterly Report shall reflect Inventory that the Borrower desires to have
designated as Loan Inventory. Upon the Bank's receipt of the Inventory Summary
Report or Inventory Quarterly Report, as the case may be, the Bank may conduct
inspections or reviews of the subject Inventory that the Bank deems appropriate,
at the expense of the Bank except as hereinafter expressly provided. Based upon
the information in the Inventory Summary Report or Inventory Quarterly Report,
as the case may be, and the other information compiled by the Bank, the Bank
shall determine, in its discretion, whether a Lot Under Development, Developed
Lot or Dwelling Lot not previously designated as part of the Loan Inventory
shall be designated part of the Loan Inventory and, if so, whether such Lot
Under Development, Developed Lot or Dwelling Lot shall be designated a Lot Under
Development, Developed Lot or Dwelling Lot.
(c)Periodic Establishment of Loan Funding Availability. Within two (2)
business days of the Bank's receipt of an Inventory Summary Report or Inventory
Quarterly Report, as the case may be, the Bank shall establish the Loan Funding
Availability based on the Report delivered to the Bank and information compiled
by the Bank. In the event the Borrower does not submit the Inventory Summary
Report or Inventory Quarterly Report in the time and manner set forth above or
furnish sufficient information to the Bank to enable the Bank to establish a new
Loan Funding Availability, the Bank will establish a Loan Funding Availability
based on some or all of the previous information submitted to the Bank by the
Borrower in the immediately preceding Inventory Summary Report or Inventory
Quarterly Report and the information compiled by the Bank, as required
hereunder, in connection therewith, as the case may be, or other information
available to the Bank.
(d)Reconciliation. In the event that the Loan Funding Availability for
a particular Funding Period is less than the then-outstanding principal amount
under the Revolving Loan, amounts due under the Multibank Loan Agreement and
Third-Party Notes Payable (other than amounts due hereunder) and unpaid draws
and other amounts due in respect of letters of credit issued under the Multibank
Loan Agreement, the Bank shall notify the Borrower thereof. On or before the
Reconciliation Date, the Borrower shall (i) (A) pay to the Bank a principal
payment to be applied to the Revolving Loan and/or (B) provide to the Bank
evidence that the principal amount of the Multibank Loan Agreement or the
Third-Party Notes Payable (other than the Revolving Loan) has been reduced in an
aggregate amount sufficient to eliminate the excess of the outstanding principal
amount of the Revolving Loan, the Multibank Loan Agreement and Third-Party Notes
Payable (other than the Revolving Loan) and unpaid draws and other amounts due
in respect of letters of credit issued under the Multibank Loan Agreement over
the Loan Funding Availability, together with any accrued and unpaid interest on
such excess, or (ii) provide a revised Inventory Summary Report or Inventory
Quarterly Report designating sufficient additional Inventory (which shall be
acceptable to the Bank, in its discretion) as Loan Inventory to cause the Loan
Funding Availability to equal or exceed the outstanding principal of the
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Revolving Loan, the Multibank Loan Agreement and Third-Party Notes Payable
(other than the Revolving Loan).
(e)Removal/Disapproval of Inventory for Loan Funding Availability. If,
at any time, the Bank determines, in its reasonable discretion, that any part of
the Loan Inventory is not acceptable for inclusion in the calculation of the
Loan Funding Availability as a result of an unforeseen material adverse change
in the condition of such portion of the Loan Inventory or as a result of the
existence of hazardous wastes or materials in or on any Inventory which are in
violation of any warranty, representation or covenant of the Loan Documents
regarding such hazardous wastes or materials, the Bank may exclude such portion
of the Loan Inventory from the calculation of the Loan Funding Availability. If,
after such exclusion, the then-outstanding principal amount under the Revolving
Loan Note would exceed the Loan Funding Availability, the Borrower shall pay to
the Bank on the Reconciliation Date immediately following the exclusion of such
Loan Inventory, a principal payment on the Revolving Loan in an amount
sufficient to eliminate such excess of the aggregate outstanding principal
balance of the Revolving Loan over the Loan Funding Availability, together with
accrued and unpaid interest on such excess.
4.LOAN DISBURSEMENTS
4.1 Prior to the First Disbursement.
Prior to requesting the first disbursement under the Revolving Loan the
Borrower shall deliver all of the following items to the Bank, in form and
substance satisfactory to the Bank. The Bank shall have no obligation to make
the first disbursement hereunder until all of these items have been so executed
and/or delivered to the Bank.
(a)Notes and Guaranties. A Revolving Loan Note by the Borrower payable
to the order of the Bank and a Guaranty from each Guarantor in favor of the
Bank.
(b)Taxpayer Identification Number. The Borrower's federal taxpayer
identification number.
(c)Authority Documents of Borrower. Articles of Incorporation of the
Borrower certified by the office of the Secretary of State in which the Borrower
is incorporated; Bylaws of the Borrower certified by an officer of the Borrower;
Certificate of Existence of the Borrower issued by the state in which the
Borrower is incorporated; Incumbency Certificate of the Borrower reflecting the
Authorized Signatories; Corporate resolutions of the Borrower certified by an
officer of the Borrower and authorizing the Borrower to enter into this
Agreement and execute all related documents and Loan Documents applicable to the
Revolving Loan; and documentation evidencing the Borrower's qualification to do
business for each state in which any part of the Loan Inventory owned by
Borrower is located certified by the office of the Secretary of State of such
state.
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(d)Attorney's Opinion. The written opinion of the Borrower's and
Guarantors' counsel in form and content acceptable to the Bank and which
addresses the following matters:
(i)Existence, Due Authorization and Execution. The Borrower
and each guarantor is duly organized and existing as a corporation
and is in good standing and qualified to do business under the laws
of Borrower's and each Guarantor's, respectively, state of
incorporation and the states in which Borrower and such Guarantor
owns Loan Inventory and that the Loan Documents evidencing the Loans
have been properly executed by the persons authorized to do so;
(ii)Enforceability. The Loan Documents are enforceable against
the Borrower and Guarantors in accordance with their terms; and
(iii)Miscellaneous. As to such other matters as the Bank may
reasonably request.
Such opinions may be qualified to the extent of the knowledge
of such counsel based upon reasonable investigation.
(e)Inventory Quarterly Report. The Inventory Quarterly Report that the
Borrower is required to deliver pursuant to Section 3.1(b) hereof, for the most
recent calendar quarter.
(f)Request for Advance. The Request for Advance that the Borrower is
required to deliver pursuant to Section 2.2 hereof.
(g)Other Documents. Other documents that the Bank may reasonably
require.
(h)Fees. Payment of all fees and expenses payable on the Agreement Date
to the Bank.
(i)Insurance. Certificate(s) of insurance required pursuant to Section
5.14 hereof.
4.2 Subsequent Disbursements.
Prior to requesting subsequent disbursements under the Revolving Loan
(subsequent to the first disbursement) the Borrower shall execute and deliver to
the Bank all of the following items, in form and substance satisfactory to the
Bank. The Bank shall have no obligation to make further disbursements until all
of these items have been properly executed and delivered to the Bank.
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(a)Inventory Summary Report. The Inventory Summary Report that the
Borrower is required to deliver pursuant to Section 3.1(b) hereof.
(b)Inventory Quarterly Report. The Inventory Quarterly Report that the
Borrower is required to deliver pursuant to Section 3.1(b) hereof.
(c)Request for Advance. The Request for Advance that the Borrower is
required to deliver pursuant to Section 2.2 hereof.
(d)Other Documents. Such other documents that the Bank may reasonably
require.
5.BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES
The Borrower makes the following covenants, agreements, representations
and warranties with respect to the Loan Documents and the obligations thereunder
to the Bank:
5.1 Payment.
The Borrower shall pay when due all sums owing under this Agreement,
the Revolving Loan Note and the other Loan Documents executed by the Borrower.
5.2 Performance.
The Borrower shall perform all Obligations under this Agreement, the
Revolving Loan Note and the other Loan Documents executed by the Borrower.
5.3Additional Information.
On request of the Bank, the Borrower shall deliver to the Bank any
documents or information with respect to the Inventory that the Bank may
reasonably require, including without limitation surveys and acquisition closing
documentation.
5.4 Quarterly Financial Statements and Other Information.
Within forty-five (45) days after the last day of each quarter in each
fiscal year of the Borrower, except the last quarter in each such fiscal year of
the Borrower, the Borrower shall deliver to the Bank the Form 10-Q of the
Borrower as filed with the Securities and Exchange Commission. Within ten (10)
days from the date of filing, the Borrower shall provide to the Bank a copy of
every other report filed by the Borrower with the Securities and Exchange
Commission under the Exchange Act and a copy of each registration statement
filed by the Borrower with the Securities and Exchange Commission pursuant to
the Securities Act of 1933. Together with information required hereby, the
Borrower shall deliver to the Bank internally prepared consolidated financial
statements of the Borrower and the Restricted Subsidiaries (and excluding
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financial information relating to the Unrestricted Subsidiaries) for the same
period in form and substance satisfactory to the Bank.
5.5 Compliance Certificates.
Within forty-five (45) days from the end of each fiscal quarter of the
Borrower, the Borrower shall provide to the Bank a certificate signed by an
Authorized Signatory of the Borrower in the form attached hereto as Exhibit D
setting forth such calculations required to establish whether the Borrower was
in compliance with Section 5.7 hereof.
5.6 Annual Financial Statements and Information Certificate of No
Default.
Within one hundred (100) days after the end of each fiscal year of the
Borrower, the Borrower shall deliver to the Bank the Form 10-K of the Borrower
as filed with the Securities and Exchange Commission, together with the audited
consolidated financial statements of the Borrower (which shall be prepared by an
independent accounting firm of recognized standing). Together with information
required hereby, the Borrower shall deliver to the Bank internally prepared
consolidated financial statements of the Borrower and the Restricted
Subsidiaries (and excluding financial information relating to the Unrestricted
Subsidiaries) for the same period in form and substance satisfactory to the
Bank.
5.7 Financial and Inventory Covenants.
Until the obligations are repaid in full, the Borrower shall adhere to
the following financial covenants (after giving effect to any Financial Covenant
Carve Out), all on a consolidated basis with the Restricted Subsidiaries and
determined as of the last day of each fiscal quarter of the Borrower:
(a)The Borrower shall maintain at all times a ratio of Notes Payable to
Tangible Net Worth of not greater than 1.75 to 1.0 on a consolidated basis.
(b)The Borrower shall maintain at all times a ratio of Total
Liabilities to Tangible Net Worth of not more than 2.25 to 1.
(c)The Borrower shall maintain at all times a ratio of (i) EBITDA to
(ii) Fixed Charges of not less than 3.0 to
1.0.
(d)The Borrower shall maintain at all times Working Capital of
$100,000,000 on a consolidated basis.
(e)The Borrower shall maintain at all times a minimum Tangible Net
Worth of one hundred ten million and no/100 dollars ($110,000,000.00), plus
fifty percent (50%) of annual net profits for such fiscal year, plus fifty
percent (50%) of any capital paid into the Borrower (other than stock issued in
connection with an employee stock ownership plan, an employee stock option plan,
an employee stock purchase plan or for an acquisition), plus one hundred percent
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(100%) of net losses with absolute minimum Tangible Net Worth of not less than
one hundred ten million and no/100 dollars ($110,000,000.00), on a consolidated
basis.
(f)The Borrower shall not at any time permit Third-Party Notes Payable
to be greater than thirteen percent (13%) of Tangible Assets on a consolidated
basis.
(g)The total number of Speculative Lots owned by the Borrower and its
Restricted Subsidiaries at any given time shall not exceed sixty percent (60%)
of all Dwelling Lots (completely or partially constructed) then owned by the
Borrower and its Restricted Subsidiaries. Models shall not be considered
"Speculative Lots" for purposes of this Section 5.7(g).
(h)The Borrower shall not permit the total number of Developed Lots and
Lots Under Development, in each case, then owned by the Borrower and all
Restricted Subsidiaries, at any given time to exceed two and one-half (2 1/2)
times the number of Developed Lots containing Dwellings closed by the Borrower
and all Restricted Subsidiaries during the immediately preceding twelve (12)
calendar months. The Borrower shall not permit the aggregate cost of all
Developed Lots and Lots Under Development, in each case, then owned by the
Borrower and all Restricted Subsidiaries, at any given time to exceed forty
percent (40%) of all Tangible Assets of the Borrower on a consolidated basis.
(i)The cost of the land owned by Borrower and all Restricted
Subsidiaries at any given time which has not been developed into Developed Lots
and is not scheduled for commencement of development into Developed Lots within
twelve (12) calendar months from the date of determination shall not exceed ten
percent (10%) of all Tangible Assets of the Borrower and its Restricted
Subsidiaries on a consolidated basis. In the event that the Borrower or any
Restricted Subsidiary classifies certain undeveloped land as being scheduled for
development within twelve (12) calendar months for the purpose of this provision
and, as of the last day of such twelve (12) calendar month period, development
of such land has not commenced, such land shall not be classified as scheduled
for development within twelve (12) calendar months until such development is
commenced.
5.8 Other Financial Documentation.
The Borrower shall provide to the Bank such other financial information
as the Bank may reasonably request from time to time to clarify or amplify the
information required to be furnished to the Bank under this Agreement.
5.9 Relating to Multibank Loan Agreement.
The Borrower represents and warrants to the Bank that:
(a)As of the date hereof, there exists no "Default" or "Event of
Default" under the Multibank Loan Agreement nor any default (or event which with
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the passage of time or the giving of notice or both would cause or constitute a
default) under any other Third Party Notes Payable; and
(b)The Revolving Loan Note and the Obligations are "Third Party Notes
Payable" under, and are otherwise permitted by, the Multibank Loan Agreement.
5.10 Payment of Contractors.
The Borrower shall pay in a timely manner, and shall cause its
Subsidiaries to pay in a timely manner, any and all contractors and
subcontractors who conduct work in or on the Inventory, subject to the right of
the Borrower to contest any amount in dispute, so long as the contesting of such
amount is pursued diligently and in good faith. The Borrower will advise the
Bank in writing immediately if the Borrower or any of its Subsidiaries receives
any written notice from any contractor(s), subcontractor(s) or material
furnisher(s) to the effect that said contractor(s) or material furnisher(s) have
not been paid for any labor or materials furnished to or in the Inventory and
such outstanding payment or payments are individually or collectively equal to
or greater than two hundred thousand and no/100 dollars ($200,000.00) per
subdivision or seven million and no/100 dollars ($7,000,000.00) in the
aggregate. The Borrower will further make available to the Bank, for inspection
and copying, on demand, any contracts, bills of sale, statements, receipted
vouchers or agreements, under which the Borrower claims title to any materials,
fixtures or articles used in the development of the Loan Inventory or
construction of improvements on the Loan Inventory, including without limitation
the Dwellings.
5.11 Inspection and Appraisal.
The Borrower shall permit the Bank and its authorized agents to enter
upon the Inventory during normal working hours and as often as they desire, for
the purpose of inspecting or appraising the Loan Inventory or the construction
of the Dwellings.
5.12 Fees and Expenses.
The Borrower shall pay when due all commitment and renewal fees and
external legal fees incurred by the Bank in connection with the making of the
Revolving Loan.
5.13 Hazardous Substances.
The Borrower warrants and represents to the Bank that to the best of
its knowledge and belief and based on environmental assessments of the Inventory
commissioned by the Borrower, except to the extent disclosed to the Bank in
environmental assessments or other writings (on which the Bank is fully entitled
to rely) or to the extent that it would not materially and adversely affect the
use and marketability of any Inventory, the Inventory has not been and is not
now being used in violation of any federal, state or local environmental law,
ordinance or regulation, that no proceedings have been commenced, or notice(s)
received, concerning any alleged violation of any such environmental law,
ordinance or regulation, and that the Inventory is free of hazardous or toxic
substances and wastes, contaminants, oil, radioactive or other materials, the
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removal of which is required or the maintenance of which is restricted,
prohibited or penalized by any federal, state or local agency, authority or
governmental unit except as set forth in the site assessments delivered in
connection with the Multibank Loan Agreement. The Borrower covenants that it
shall neither permit any such materials to be brought on to the Inventory, nor
shall it acquire real property to be added to the Loan Inventory upon which any
such materials exist, except to the extent disclosed to the Bank in
environmental assessments or other writings (on which the Bank is fully entitled
to rely) or to the extent that it would not materially and adversely affect the
use and marketability of any Inventory; and if such materials are so brought or
found located thereon, such materials shall be immediately removed, with proper
disposal, to the extent required by applicable environmental laws, ordinances
and regulations, and all required environmental cleanup procedures shall be
diligently undertaken pursuant to all such laws, ordinances and regulations. The
Borrower further represents and warrants that the Borrower will promptly
transmit to the Bank copies of any citations, orders, notices or other material
governmental or other communications received with respect to any hazardous
materials, substances, wastes or other environmentally regulated substances
affecting the Inventory. Notwithstanding the foregoing, there shall not be a
default of this provision should the Borrower store or use minimal quantities of
the aforesaid materials, provided that: such substances are of a type and are
held only in a quantity normally used in connection with the construction,
occupancy or operation of comparable buildings or residential developments (such
as cleaning fluids and supplies normally used in the day-to-day operation of
residential developments), such substances are being held, stored and used in
complete and strict compliance with all applicable laws, regulations, ordinances
and requirements, and the indemnity set forth below shall always apply to such
substances, and it shall continue to be the responsibility of the Borrower to
take all remedial actions required under and in accordance with this Agreement
in the event of any unlawful release of any such substance.
5.14 Insurance.
The Borrower shall keep the Inventory comprising the Loan Inventory
insured by responsible insurance companies in such amounts and against such
risks as is customary for owners of similar businesses and properties in the
same general areas in which the Borrower and its Restricted Subsidiaries operate
or, to the customary extent (and in a manner approved by the Bank) the Borrower
may be self-insured. All insurance herein provided for shall be in form and with
companies reasonably approved by the Bank. The Borrower shall also maintain
general liability insurance, workmen's compensation insurance, automobile
insurance for all vehicles owned by them and any other insurance reasonably
required by the Bank, to the extent commercially available at a reasonable cost.
On the Agreement Date, the Borrower shall deliver to the Bank a copy of a
certificate of insurance evidencing the insurance required hereunder. In
addition, on the date of delivery of each report required by Section 3.1(b)
hereof, the Borrower shall certify to the Bank that all insurance policies
required to be maintained hereunder remain in full force and effect.
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5.15 Litigation.
The Borrower warrants and represents to the Bank that as of the
Agreement Date, none of the Borrower nor any Restricted Subsidiary is a party to
any litigation having a reasonable probability of being adversely determined to
the Borrower or any Restricted Subsidiary which, if adversely determined, would
impair the ability of the Borrower to carry on its business substantially as now
conducted or contemplated or would materially adversely affect the financial
condition, business or operations of the Borrower.
5.16 Reportable Event.
Promptly after Borrower receives notice or otherwise becomes aware
thereof, the Borrower shall notify the Bank of the occurrence of any Reportable
Event with respect to any Plan as to which the Pension Benefit Guaranty
Corporation has not by regulation waived the requirement of Section 4043(a) of
ERISA that it be notified with thirty (30) days of the occurrence of such event
(provided that the Borrower shall give the Bank notice of any failure to meet
the minimum funding standards of Section 412 of the Code or Section 302 of
ERISA, regardless of the issuance of any waivers in accordance with Section
412(d) of the Code.
5.17 Secured Indebtedness.
The Borrower shall not, and shall not permit any of its Restricted
Subsidiaries to, incur or permit to exist any Indebtedness which is secured in
whole or in part by any of the Inventory (other than Permitted Encumbrances);
except that the Borrower and its Restricted Subsidiaries may incur Indebtedness
in favor of a seller of Inventory to the Borrower which is secured solely by the
Inventory contemporaneously acquired from such seller and Indebtedness secured
solely by the Borrower's headquarters building located in Arlington, Texas.
6.DEFAULT AND REMEDIES
6.1 Defaults.
Each of the following shall constitute a Default, whatever the reason
for such event and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment or order of any court or any
order, rule, or regulation of any governmental or non-governmental body:
(a)Any representation or warranty made under this Agreement shall prove
incorrect or misleading in any material respect when made or deemed to have been
made;
(b)The Borrower shall default in the payment of any principal, interest
or other monetary amounts payable hereunder or under the Revolving Loan Note, or
under the other Loan Documents (other than payments due on the Revolving Loan
Maturity Date, on which date all outstanding Obligations to pay money shall be
paid to the Bank without notice, cure or delay) which payment default is not
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cured within thirty (30) calendar days of Borrower's receipt of notice from the
Bank;
(c)The Borrower shall default in the performance or observance of any
other agreement or covenant contained in this Agreement not specifically
referred to elsewhere in this Section 6.1, and such Event of Default shall not
be cured to the Bank's satisfaction within a period of ninety (90) days from the
date the Borrower receives notice from the Bank with respect thereto;
(d)There shall occur any Event of Default in the performance or
observance of any agreement or covenant or breach of any representation or
warranty contained in any of the Loan Documents (other than this Agreement or as
otherwise provided in this Section 6.1 of this Agreement) or any Subsidiary
Guaranty, which shall not be cured to the Bank's satisfaction within the
applicable cure period, if any, provided for in such Loan Document or ninety
(90) days from the date the Borrower receives notice from the Bank with respect
thereto if no cure period is provided in such Loan Document;
(e)There shall be entered a decree or order for relief in respect of
the Borrower or any of its Restricted Subsidiaries under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other applicable
federal or state bankruptcy law or other similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator, or similar official of
the Borrower or any of its Restricted Subsidiaries, or of any substantial part
of their respective properties, or ordering the winding up or liquidation of the
affairs of the Borrower or any of its Restricted Subsidiaries, or an involuntary
petition shall be filed against the Borrower or any of its Restricted
Subsidiaries, and a temporary stay entered, and (i) such petition and stay shall
not be diligently contested, or (ii) any such petition and stay shall continue
undismissed for a period of thirty (30) consecutive days;
(f)The Borrower or any of its Restricted Subsidiaries shall file a
petition, answer, or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable federal
or state bankruptcy law or other similar law, or the Borrower or any of its
Restricted Subsidiaries shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment or taking
of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator, or other similar official of the Borrower or any of its Restricted
Subsidiaries, or of any substantial part of their respective properties, or the
Borrower or any of its Restricted Subsidiaries shall fail generally to pay their
respective debts as they become due, or the Borrower or any of its Restricted
Subsidiaries shall take any corporate or partnership action to authorize any
such action;
(g)A final judgment shall be entered by any court against the Borrower
or any of its Restricted Subsidiaries for the payment of money which exceeds
$500,000.00, which judgment is not covered by insurance or a warrant of
attachment or execution or similar process shall be issued or levied against
property of the Borrower or any of its Restricted Subsidiaries which, together
29
<PAGE>
with all other such property of the Borrower or any of its Restricted
Subsidiaries subject to other such process, exceeds in value $500,000.00 in the
aggregate, and if, within thirty (30) days after the entry, issue, or levy
thereof, such judgment, warrant, or process shall not have been paid or
discharged or bonded or stayed pending appeal, or if, after the expiration of
any such stay, such judgment, warrant, or process shall not have been paid or
discharged;
(h) (1) There shall be at any time any "accumulated funding
deficiency," as defined in ERISA or in Section 412 of the Code, with respect to
any Plan; or (2) a trustee shall be appointed by a United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall
institute proceedings to terminate any Plan; or (3) any of the Borrower and its
ERISA Affiliates shall incur any liability to the Pension Benefit Guaranty
Corporation in connection with the termination of any Plan; or (4) any Plan or
trust created under any Plan of any of the Borrower and its ERISA Affiliates
shall engage in a nonexempt "prohibited transaction" (as such term is defined in
Section 406 of ERISA or Section 4975 of the Code) which would subject the
Borrower or any ERISA Affiliate to the tax or penalty on "prohibited
transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and
by reason of any or all of the events described in clauses (1) through (4), as
applicable, the Borrower shall have waived (and/or is likely to incur) and/or
incurred liability in excess of $1,000,000.00 in the aggregate;
(i)All or any portion of any Loan Document shall at any time and for
any reason be declared by a court of competent jurisdiction in a suit with
respect to such Loan Document to be null and void, or a proceeding shall be
commenced by any governmental authority involving a legitimate dispute or by the
Borrower or any of its Restricted Subsidiaries, having jurisdiction over the
Borrower or any of its Restricted Subsidiaries, seeking to establish the
invalidity or unenforceability thereof (exclusive of questions of interpretation
of any provision thereof), or the Borrower or any of its Restricted Subsidiaries
shall deny that it has any liability or obligation for the payment of principal
or interest purported to be created under any Loan Document;
(j)There shall occur any Change of Control;
(k)Except for conveyances of all or any part of the Loan Inventory
between the Borrower and the Guarantors, there occurs any sale, lease,
conveyance, assignment, pledge, encumbrance, or transfer of all or any part of
the Loan Inventory or any interest therein, voluntarily or involuntarily,
whether by operation of law or otherwise, except (i) in accordance with the
terms of this Agreement, (ii) for execution of contracts with prospective
purchasers, (iii) for Permitted Encumbrances, and (iv) in the ordinary course of
business.
Notwithstanding anything contained herein to the contrary, the
occurrence of any of the foregoing shall not be a Default or an Event of Default
hereunder if: (i) the occurrence pertains only to specific parcel(s) within the
Loan Inventory; and (ii) the affected parcel(s) is (are) removed from the Loan
Inventory on or before ten (10) days in the case of a monetary occurrence and
thirty (30) days in the case of a nonmonetary occurrence after the occurrence
or, if the Borrower is entitled to notice and cure, within the applicable notice
30
<PAGE>
and cure period. In the event that any such parcel is a Lot Under Development,
Developed Lot or Dwelling Lot, then the Loan Funding Availability shall be
immediately calculated excluding such parcel. If, as the result of such removal,
the outstanding principal balance under the Revolving Loan would exceed the Loan
Funding Availability, the Borrower shall pay (X) to the Bank on the
Reconciliation Date immediately following the removal of such Inventory from the
Loan Inventory, a principal payment on the Revolving Loan in an amount
sufficient to eliminate such excess of the aggregate outstanding principal
balance of the Revolving Loan over the Loan Funding Availability, together with
any due and unpaid interest on such excess, or (Y) add additional Inventory to
the Loan Inventory (which is acceptable to the Bank) in an amount sufficient to
cause the Loan Funding Availability to equal or exceed the Revolving Loan.
6.2 Remedies.
If a Default shall have occurred and shall be continuing:
(a)With the exception of a Default specified in Sections 6.1(e), (f) or
(g) hereof, the Bank may by notice to the Borrower (i) declare the Revolving
Loan Note, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the Revolving Loan Note, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower, and (ii) terminate the Revolving Loan Commitment.
(b)Upon the occurrence of a Default under Sections 6.1(e), (f) or (g)
hereof, the Revolving Loan Commitment shall automatically terminate, and such
principal, interest (including without limitation interest which would have
accrued but for the commencement of a case or proceeding under the federal
bankruptcy laws), and other amounts payable under this Agreement or the
Revolving Loan Note shall thereupon and concurrently therewith become due and
payable, all without any action by the Bank.
(c)The Bank may exercise all of the post-default rights granted to it
and to them under the Loan Documents or under Applicable Law.
(d)The rights and remedies of the Bank hereunder shall be cumulative,
and not exclusive.
6.3 Waivers.
Neither a waiver of any Default or Event of Default by the Borrower
hereunder nor any representation by the Bank as to the nonoccurrence or
nonexistence thereof shall be implied from any delay or omission by the Bank to
notify the Borrower thereof or to take action on account of such Default or
Event of Default, and no express waiver shall affect any Default or Event of
Default other than the matter specified in the waiver, and it shall be operative
only for the time and to the extent therein stated. Waivers of any covenants,
terms or conditions contained herein must be in writing and shall not be
construed as a waiver of any subsequent breach of the same covenant, term or
31
<PAGE>
condition. No consent or approval to or of any act by the Borrower requiring
further consent or approval shall be deemed to waive or render unnecessary the
consent or approval to or of any subsequent or similar act. Any exercise of any
right or remedy of the Bank hereunder shall not in any way constitute a cure or
waiver of a Default or an Event of Default, or invalidate any act done pursuant
to any notice of the occurrence of a Default or an Event of Default, or
prejudice the Bank in the exercise of any of its rights hereunder or under the
Revolving Loan Note or any other Loan Documents, unless, in the exercise of said
rights, the Bank realizes all amounts owed to it under the Revolving Loan Note
and other Loan Documents.
6.4 Cross-Default.
The Revolving Loan Note and other Loan Documents are "cross-defaulted"
such that (a) the occurrence of an Event of Default under any one of the Loan
Documents shall constitute an Event of Default under this Agreement and all of
the Loan Documents, and (b) the occurrence of a Default under any one of the
Loan Documents shall constitute a Default under this Agreement and all of the
other Loan Documents.
6.5 No Liability of the Bank.
(a)Construction and/or Development. The Bank shall not be liable to any
party for (i) the development of or construction upon any of the Inventory, (ii)
the failure to develop or construct or protect improvements on the Inventory,
(iii) the payment of any expense incurred in connection with the development of
or construction upon the Inventory, (iv) the performance or nonperformance of
any other obligation of the Borrower, or (v) the Bank's exercise of any remedy
available to them. In addition, the Bank shall not be liable to the Borrower or
any third party for the failure of the Bank or its authorized agents to discover
or to reject materials or workmanship during the course of the Bank's
inspections of the Inventory.
(b)Dwelling Lots. In addition to Section 6.5(a) above, the Bank shall
not be liable to any party for (i) the construction or completion of the
Dwellings, (ii) the failure to construct, complete or protect the Dwellings,
(iii) the payment of any expense incurred in connection with the construction of
the Dwellings, (iv) the performance or nonperformance of any other obligation of
the Borrower, or (v) the Bank's exercise of any remedy available to it. In
addition, the Bank shall not be liable to the Borrower or any third party for
the failure of the Bank or its authorized agents to discover or to reject
materials or workmanship during the course of the Bank's inspections of the
Dwelling Lots.
7.REGARDING THE MULTIBANK LOAN AGREEMENT
7.1 Subsequent Amendment of Multibank Loan Agreement.
No amendment, modification, replacement or termination of the Multibank
Loan Agreement, nor any agreement with respect to Third-Party Notes Payable, nor
32
<PAGE>
any repayment, refinancing or forgiveness of the "Obligations" thereunder nor
the termination, cancellation, satisfaction or forgiveness of any Lien or
security interest granted (or purported to be granted) in connection with such
"Obligations" shall act so to affect this Agreement or the Loan Documents or
obligate the Bank to agree to or provide any similar change in or with respect
to this Agreement or the Loan Documents.
7.2 Notice of Amendment.
The Borrower shall deliver to the Bank within ten (10) calendar days of
the execution thereof, copies of any amendments, restatements, waivers,
modifications of, or agreements relating to, the Multibank Loan Agreement or the
"Loan Documents" executed in connection therewith.
7.3 Bank's Right to Subsequent Amendment.
In the event the Borrower is party to any amendment modification or
restatement of the Multibank Loan Agreement, the "Loan Documents" executed in
connection therewith which has the effect of imposing, in the Bank's judgment,
greater or more stringent or frequent obligations on the Borrower, then the Bank
may, in its discretion, require that corresponding amendments, modifications or
restatements be made to this Agreement or the Loan Documents.
8.GENERAL CONDITIONS
8.1 Benefit.
This Agreement is made and entered into for the sole protection and
benefit of the Bank and the Borrower, their successors and assigns, and no other
person or persons other than the Borrower shall have any right of action hereon
or rights to the Revolving Loan proceeds at any time. The Bank shall not (a) owe
any duty whatsoever to any claimant for labor performed or material furnished in
connection with the construction of any Dwelling or improvement on any
Inventory, or (b) owe any duty to apply any undisbursed portion of the Revolving
Loan to the payment of any claim, or (c) owe any duty to exercise any right or
power of the Bank hereunder or arising from any Default by the Borrower.
8.2 Assignment.
The terms hereof shall be binding upon and inure to the benefit of the
heirs, successors, assigns, and personal representatives of the parties hereto;
provided, however, that the Borrower shall not assign this Agreement or any of
its rights, interests, duties or obligations hereunder or any Revolving Loan
proceeds or other monies to be advanced hereunder in whole or in part without
the prior written consent of the Bank and any such assignment (whether voluntary
or by operation of law) without said consent shall be void and render
automatically terminated any obligation of any Bank hereunder to advance any
further monies pursuant to this Agreement or any other Loan Document. The Bank
may assign its rights and obligations under this Agreement, the Revolving Loan
Note and any other Loan Documents, in whole or in part, to any other Person,
provided that all of the provisions hereof shall continue in full force and
effect and, in the event of such assignment, the Bank shall thereafter be
33
<PAGE>
relieved of all liability hereunder with respect to actions or omissions of the
Bank occurring thereafter, but only to the extent of the interest so assigned
and any Revolving Loan disbursements made by any assignee(s) shall be deemed
made in pursuance and not in modification hereof and shall be evidenced by the
Revolving Loan Note and any other Loan Documents.
8.3 Amendment and Waiver.
Neither this Agreement nor any term hereof may be amended orally, nor
may any provision hereof be waived orally but only by an instrument in writing
signed by the Bank and, in the case of an amendment, also by the Borrower.
8.4 Additional Obligations and Amendments.
Without limiting the scope of Section 7.1, the Bank shall be under no
obligation to extend any loans to the Borrower other than as specifically set
forth in this Agreement. This Agreement shall not be amended except by a written
instrument signed by all parties hereto which instrument contains a specific
reference to this Agreement.
8.5 [Reserved].
8.6 Terms.
Whenever the context and construction require, all words used in the
singular number herein shall be deemed to have been used in the plural, and vice
versa, and the masculine gender shall include the feminine and neuter, and the
neuter shall include the masculine and feminine.
8.7 Governing Law and Jurisdiction.
This Agreement shall be construed in accordance with the laws of the
State of New Jersey, and such laws shall govern the interpretation, construction
and enforcement hereof. For the purposes of any legal action or proceeding
brought by the Bank with respect to this Agreement or the Loan Documents, the
Borrower hereby irrevocably submits to the jurisdiction and venue of the state
courts of the State of New Jersey. The Borrower also hereby submits to the
nonexclusive jurisdiction and venue of the United States District Court for the
District of New Jersey for any action, suit or proceeding arising out of or
relating to this Agreement or the Loan Documents. The Borrower hereby
irrevocably waives any objection it might now or hereafter be entitled to make
with respect to the venue of any suit, action or proceeding arising out of or
relating to this Agreement and the Loan Documents which is brought in the State
of New Jersey or, at the election of the Bank, in the United States District
Court for the District of New Jersey, and the Borrower hereby irrevocably waives
any right to claim that any such suit, action or proceeding brought in any such
court has been brought in an incorrect forum.
34
<PAGE>
8.8 [Reserved.]
8.9 Attorneys' Fees.
The Borrower shall pay on demand all attorneys' fees and other costs
and expenses actually incurred by the Bank in the enforcement of or preservation
of the Bank's rights under this Agreement and the other Loan Documents. To the
full extent permitted by applicable law, the Borrower agrees to pay interest on
any fees, costs or expenses due to the Bank, under this Section 8.9 which are
not paid when due at the Default Rate. In the event that any Loan Document
contains a provision regarding enforcement or preservation of rights which is
different from this Section 8.9, this Section 8.9 shall control.
8.10 Mandatory Arbitration.
Any controversy or claim between or among the parties hereto arising
out of or relating to this Agreement, the Loan Documents or any related
instruments, including any claim based on or arising from an alleged tort, shall
be determined by binding arbitration in accordance with the Federal Arbitration
Act (or, if not applicable, the applicable state law), the Rules of Practice and
Procedure for the Arbitration of Commercial Disputes of Endispute, Inc., doing
business as J.A.M.S./Endispute ("J.A.M.S."), as amended from time to time, and
the "Special Rules" set forth below. In the event of any inconsistency, the
Special Rules shall control. Judgment upon any arbitration award may be entered
in any court having jurisdiction. Any party to this Agreement may bring an
action, including a summary judgment or expedited proceeding, to compel
arbitration of any controversy or claim to which this provision applies in any
court having jurisdiction over such action.
(a)Special Rules. The arbitration shall be conducted in the City of
Trenton, New Jersey and administered by J.A.M.S. who will appoint an arbitrator;
if J.A.M.S. is unable or legally precluded from administering the arbitration,
then the American Arbitration Association will serve. All arbitration hearings
will be commenced within ninety (90) days of the demand for arbitration;
further, the arbitrator shall only, upon a showing of cause, be permitted to
extend the commencement of such hearing for up to an additional sixty (60) days.
(b)Reservation of Rights. Nothing in this Loan Agreement shall be
deemed to (i) limit the applicability of any otherwise applicable statutes of
limitation or repose and any waivers contained in this Loan Agreement; or (ii)
be a waiver by the Bank of the protection afforded to it or them by 12 U.S.C.
Sec. 91 or any substantially equivalent state law; or (iii) limit the right of a
the Bank (A) to exercise self-help remedies such as (but not limited to)
set-off, or (B) to obtain from a court provisional or ancillary remedies such as
injunctive relief or the appointment of a receiver. The Bank may exercise such
self-help remedies (including without limitation remedies under Section 6.2
hereof), or obtain such provisional or ancillary remedies before, during or
after the pendency of any arbitration proceeding brought pursuant to this Loan
Agreement. Neither the exercise of self-help remedies nor the institution or
maintenance of provisional or ancillary remedies shall constitute a waiver of
35
<PAGE>
the right of any party, including the claimant in any such action to arbitrate
the merits of the controversy or claim occasioning resort to such remedies.
No provision in this Agreement or any Loan Documents regarding
submission to jurisdiction and/or venue in any court is intended or shall be
construed to be in derogation of the provisions in this Agreement.
8.11 Invalidation of Provisions.
In the event that any one or more of the provisions of this Agreement
is deemed invalid by a court having jurisdiction over this Agreement or other
similar authority, the Bank may, in its sole discretion, terminate this
Agreement in whole or in part.
8.12 Execution in Counterparts.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same instrument.
8.13 Captions.
The captions herein are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this
Agreement or the intent of any provision hereof.
8.14 Notices.
All notices, requests, consents, demands and other communications
required or which any party desires to give hereunder or under any other Loan
Document shall, unless other specifically provided in such other Loan Document,
be deemed sufficiently given or furnished if (a) in writing and delivered by
personal delivery, by courier, or by registered or certified United States mail,
postage prepaid, addressed to the party to whom directed at the addresses
specified below (unless changed by similar notice in writing given by the
particular party whose address is to be changed), (b) by facsimile to the
facsimile number specified below with confirmation thereof in writing by sender
pursuant to subsection (a) above, or (c) by oral communication with confirmation
thereof in writing by the notifying party pursuant to subsection (a) above
within three (3) business days after such oral communication. Any such notice or
communication shall be deemed to have been given and to be effective either at
the time of personal delivery or, in the case of courier or mail, as of the date
of first attempted delivery at the address and in the manner provided herein or,
in the case of facsimile, upon receipt or, in the case of oral communication,
upon the effectiveness of written confirmation as hereinabove provided.
Notwithstanding the foregoing, no notice of change of address shall be effective
except upon receipt. This Section shall not be construed in any way to affect or
impair any waiver of notice or demand provided in any Loan Document or to
require giving of notice or demand to or upon any person in any situation or for
any reason.
36
<PAGE>
BORROWER:
D.R. HORTON, INC.
1901 Ascension Boulevard,Suite 100
Arlington, Texas 76006
Attn.: David J. Keller and Ted I. Harbour
Facsimile No.: (817) 856-8249 Telephone No.: (817) 856-8200
THE BANK:
PNC BANK, NATIONAL ASSOCIATION
Real Estate Group - 18th Floor
Suite J2-JTTC-18-6 Two Tower Center
East Brunswick, NJ 08816
Telephone No.: (908)220-3566 Facsimile No.: (908) 220-3755
8.15 Final Agreement.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have executed this Agreement as of the date first above written.
ATTEST:D.R. HORTON, INC., as the Borrower
By:_/s/ Ted Harbour_______ By:__/s/ David J. Keller______
Title:_Asst. Vice President Title:___CFO______________________
[Corporate Seal]
37
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as the Bank
By:__/s/________________________
Title:_Vice President___________
38
<PAGE>
D.R. Horton - Texas, Ltd.
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
pertaining to 1) the D.R. Horton, Inc. 1991 Stock Incentive Plan (Form S-8 No.
33-48874), 2) the D.R. Horton, Inc. Stock Tenure Plan (Form S-8 No. 33-83162)
and 3) the D.R. Horton, Inc. Employee Stock Purchase Plan (Form S-8 No.
333-3570) of our report dated November 8, 1996 with respect to the consolidated
financial statements of D.R. Horton, Inc. included in the Annual Report (Form
10-K) for the year ended September 30, 1996.
/s/ Ernst & Young LLP
Fort Worth, Texas
December 16, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Consolidated Balance Sheet and Consolidated Statement of Income found
on pages 14 and 15 of the Company's Form 10-K for the year ended September
30, 1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 32,467
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 345,283
<CURRENT-ASSETS> 377,750
<PP&E> 5,631
<DEPRECIATION> 0
<TOTAL-ASSETS> 402,913
<CURRENT-LIABILITIES> 55,402
<BONDS> 169,873
0
0
<COMMON> 324
<OTHER-SE> 177,314
<TOTAL-LIABILITY-AND-EQUITY> 402,913
<SALES> 547,336
<TOTAL-REVENUES> 547,336
<CGS> 449,054
<TOTAL-COSTS> 449,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,474
<INCOME-PRETAX> 44,432
<INCOME-TAX> 17,053
<INCOME-CONTINUING> 27,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,379
<EPS-PRIMARY> .87
<EPS-DILUTED> 0
</TABLE>
