FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the Quarterly Period Ended June 30, 1998
----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period From To
------------------ --------------------
Commission file number 1-14122
---------
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
incorporation or organization) Identification No.)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(817) 856-8200
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value -- 55,613,693 shares as of July 31, 1998
----------
This Report contains 18 pages.
----
<PAGE>
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
ITEM 1. Financial Statements.
Consolidated Balance Sheets--June 30, 1998 and September 30, 1997. 3
Consolidated Statements of Income--Three Months and Nine Months
Ended June 30, 1998 and 1997. 4
Consolidated Statement of Stockholders' Equity--Nine Months
Ended June 30, 1998. 5
Consolidated Statements of Cash Flows--Nine Months Ended
June 30, 1998 and 1997. 6
Notes to Consolidated Financial Statements. 7-9
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition. 10-14
PART II. OTHER INFORMATION.
ITEM 2. Changes in Securities. 15
ITEM 4. Submission of Matters to a Vote of Security Holders. 15
ITEM 5. Other Information. 16
ITEM 6. Exhibits and Reports on Form 8-K. 16-17
SIGNATURES. 18
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1998 1997
---------- -------------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash.............................................. $ 112,747 $ 78,228
Inventories....................................... 1,291,283 1,024,268
Property and equipment (net)...................... 24,264 16,988
Other assets...................................... 66,473 56,420
Excess of cost over net assets acquired (net)..... 57,509 37,717
---------- ----------
1,552,276 1,213,621
---------- ----------
Financing:
Mortgage loans held for sale...................... 66,308 34,072
Other assets...................................... 3,284 630
---------- ----------
69,592 34,702
---------- ----------
$1,621,868 $1,248,323
========== ==========
LIABILITIES
Homebuilding:
Accounts payable and other liabilities............ $ 214,274 $ 165,309
---------- ----------
Notes payable:
Financial institutions......................... 523,438 231,500
8 3/8% senior notes due 2004, net.............. 147,655 147,370
10% senior notes due 2006, net................. 147,112 148,462
6 7/8% convertible subordinated notes
due 2002, net................................ 82,684 86,250
Other.......................................... 4,997 18,970
---------- ----------
905,886 632,552
---------- ----------
1,120,160 797,861
---------- ----------
Financing:
Other liabilities................................. 5,509 506
Notes payable to financial institutions........... - 18,188
---------- ----------
5,509 18,694
---------- ----------
1,125,669 816,555
---------- ----------
Minority interest................................. 3,632 3,902
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000
shares authorized, no shares issued............. - -
Common stock, $.01 par value, 100,000,000 shares
authorized, 53,349,785 at June 30, 1998 and
52,749,527 at September 30, 1997, issued and
outstanding..................................... 533 527
Additional capital................................ 275,886 268,631
Retained earnings................................. 216,148 158,708
---------- ----------
492,567 427,866
---------- ----------
$1,621,868 $1,248,323
========== ==========
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Ended June 30, Ended June 30,
------------------- ----------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
(In thousands, except net income per share)
(Unaudited)
Homebuilding:
Revenues
Home sales.................... $606,161 $416,923 $1,472,591 $1,056,086
Land/lot sales................ 2,183 18,140 3,266 34,007
-------- -------- ---------- ----------
608,344 435,063 1,475,857 1,090,093
-------- -------- ---------- ----------
Cost of sales
Home sales.................... 497,568 344,208 1,207,713 868,744
Land/lot sales................ 1,568 17,915 2,404 32,666
-------- -------- ---------- ----------
499,136 362,123 1,210,117 901,410
-------- -------- ---------- ----------
Gross profit
Home sales.................... 108,593 72,715 264,878 187,342
Land/lot sales................ 615 225 862 1,341
-------- -------- ---------- ----------
109,208 72,940 265,740 188,683
Selling, general and
administrative expense......... 58,360 45,537 152,517 114,691
Interest expense................ 4,136 2,976 9,204 7,587
Other (income).................. (2,413) (981) (4,466) (2,757)
-------- -------- ---------- ----------
49,125 25,408 108,485 69,162
-------- -------- ---------- ----------
Financing:
Revenues........................ 5,520 3,249 14,163 9,165
Selling, general and
administrative expense......... 3,900 2,586 9,690 7,087
Interest expense................ 648 157 1,293 373
Other (income).................. (704) (323) (1,758) (897)
-------- -------- ---------- ----------
1,676 829 4,938 2,602
-------- -------- ---------- ----------
Merger costs.................... 11,917 - 11,917 -
======== ======== ========== ==========
INCOME BEFORE INCOME TAXES.... 38,884 26,237 101,506 71,764
Provision for income taxes...... 15,796 10,614 40,602 28,552
-------- -------- ---------- ----------
NET INCOME.................. $ 23,088 $ 15,623 $ 60,904 $ 43,212
======== ======== ========== ==========
Net income per share:
Basic....................... $0.44 $0.30 $1.15 $0.87
Diluted..................... $0.39 $0.27 $1.02 $0.78
======== ======== ========== ==========
Weighted average number of
shares of stock outstanding:
Basic....................... 53,066 52,621 52,897 49,864
Diluted..................... 62,241 61,199 62,178 58,504
======== ======== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Total
Common Additional Retained Stockholders'
Stock Capital Earnings Equity
------------------------------------------
(In thousands)
(Unaudited)
Balances at October 1, 1997 $527 $268,631 $158,708 $427,866
Net income......................... - - 60,904 60,904
Issuance under D.R. Horton, Inc.
employee benefit plans........... - 480 - 480
Exercise of stock options ......... 2 1,906 - 1,908
Issuances pursuant to conversion
of 6 7/8% convertible debt....... 3 3,745 - 3,748
Issuance as partial consideration
for acquisition.................. 1 1,124 - 1,125
Cash dividends..................... - - (3,464) (3,464)
------------------------------------------
Balances at June 30, 1998 $533 $275,886 $216,148 $492,567
==========================================
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended June 30,
----------------------
1998 1997
-------- --------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income.......................................... $ 60,904 $ 43,212
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 6,970 5,255
Expense associated with issuance of stock
under employee benefit plans.................... 328 224
Changes in operating assets and liabilities:
Increase in inventories........................ (195,030) (154,472)
Increase in other assets....................... (8,829) (5,774)
Increase in mortgage loans held for sale....... (32,236) (8,353)
Increase in accounts payable
and other liabilities......................... 47,970 3,751
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (119,923) (116,157)
-------- --------
INVESTING ACTIVITIES
Purchase of property and equipment.................. (8,725) (6,016)
Net cash paid for acquisitions...................... (33,091) (43,498)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (41,816) (49,514)
-------- --------
FINANCING ACTIVITIES
Proceeds from notes payable......................... 356,901 211,905
Repayment of notes payable.......................... (159,317) (218,576)
Issuance of senior notes payable.................... - 167,546
Repurchase of stock................................. - (2,519)
Issuance of common stock............................ - 39,979
Proceeds from issuance of stock
under employee benefit plans....................... 2,388 1,297
Cash dividends paid................................. (3,464) (2,434)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 196,508 197,198
-------- --------
INCREASE (DECREASE) IN CASH 34,769 31,527
Cash at beginning of period.......................... 78,228 58,011
-------- --------
Cash at end of period................................ $112,997 $89,538
======== ========
Supplemental cash flow information:
Interest paid...................................... $ 11,712 $ 8,394
======== ========
Income taxes paid.................................. $ 41,020 $30,713
======== ========
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of D.R. Horton, Inc. (the "Company") and its subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation. The statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended
June 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending September 30, 1998.
Business - The Company is a national builder that is engaged primarily in the
construction and sale of single-family housing in the United States. The Company
designs, builds and sells single-family houses on lots developed by the Company
and on finished lots which it purchases, ready for home construction.
Periodically, the Company sells lots it has developed. The Company also provides
title agency and mortgage brokerage services to its homebuyers.
Merger - On April 20, 1998, the Company and Continental Homes Holding Corp.
(Continental) consummated a merger pursuant to which Continental was merged into
the Company, with 2.25 shares of the Company common shares exchanged for each
outstanding share of Continental. Approximately 15,459,500 Horton common shares
were issued to effect the merger. The merger with Continental was treated as a
pooling of interests for accounting purposes. Therefore, all financial amounts
have been presented as if Continental and the Company had been combined at the
earliest period presented.
Results of operation - The results of operations for the separate companies and
the combined amounts prior to combination that are included in the consolidated
financial statements are:
Six months ended
March 31,
----------------------
1998 1997
-------- --------
(In thousands)
Revenue (homebuilding activities):
D.R. Horton, Inc. $508,603 $303,977
Continental 358,910 351,053
-------- --------
Combined 867,513 655,030
-------- --------
Net income:
D.R. Horton, Inc. 22,574 13,498
Continental 15,242 14,091
-------- --------
Combined $ 37,816 $ 27,589
======== ========
NOTE B - MERGER COSTS
Costs associated with the merger with Continental have been charged to the
results of operations and consist primarily of fees to third party investment,
accounting and legal advisors.
NOTE C - NET INCOME PER SHARE
Basic net income per share for the three and nine month periods ended June 30,
1998 and 1997, is based on the weighted average number of shares of common stock
outstanding. Diluted net income per share is based on the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding.
-7-
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 1998
NOTE D - PROVISIONS FOR INCOME TAXES
Deferred tax liabilities and assets, arising from temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, consist primarily of differences
in depreciation, warranty costs and inventory cost capitalization methods and
were, as of June 30, 1998, not material.
The provisions for income tax expense for the three and nine month periods ended
June 30, 1998 and 1997, are based on the effective tax rates estimated to be in
effect for the respective years. The deferred income tax provisions were not
significant in either period.
The difference between income tax expense and tax computed by applying the
statutory Federal income tax rate to income before income taxes is due primarily
to the effect of applicable state income taxes.
NOTE E - INTEREST
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Capitalized interest, beginning of period $38,058 $22,601 $28,952 $17,846
Interest incurred 19,955 13,834 52,573 36,505
Interest expensed:
Directly (4,784) (3,133) (10,497) (7,960)
Amortized to cost of sales (11,396) (7,641) (29,195) (20,730)
------- ------- ------- -------
Capitalized interest, end of period $41,833 $25,661 $41,833 $25,661
======= ======= ======= =======
</TABLE>
NOTE F - ACQUISITIONS
On February 14, 1998, D.R. Horton, Inc. closed the acquisition of the
outstanding stock of C. Richard Dobson Builders, Inc. (Dobson), and certain of
its affiliated companies, for $23.4 million. Dobson's assets (primarily
inventories) on that date approximated $64.3 million; its liabilities, including
$49.3 in notes payable paid at closing, approximated $52.4 million. In May and
June, 1998, the Company completed the acquisition of the principal assets
(approximately $16.4 million, primarily inventories) of Mareli Development &
Construction Co., Inc. (Mareli), of Louisville, Kentucky, and RMP Properties,
Inc. (RMP), of Portland, Oregon, for $7.8 million in cash, 70,249 shares of
Horton common stock valued at $1.1 million, and the assumption of approximately
$16.0 million in trade accounts and notes payable associated with the acquired
assets. Mareli's and RMP's liabilities included $13.5 million in notes payable
which were paid at closing. Operating results of the acquired entities since the
respective dates of acquisition are included in the financial statements as of
and for the periods ended June 30, 1998. The acquisitions were treated as
purchases for accounting purposes.
-8-
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 1998
NOTE G - SUMMARIZED FINANCIAL INFORMATION
The 8 3/8% and 10% senior notes payable are fully and unconditionally
guaranteed, on a joint and several basis, by all the Company's direct and
indirect subsidiaries other than certain inconsequential subsidiaries. Each of
the guarantors is a wholly-owned subsidiary of the Company. Summarized financial
information of the Company and its subsidiaries is presented below. Separate
financial statements and other disclosures concerning the guarantor subsidiaries
are not presented because management has determined that they are not material
to investors.
As of and for the periods ended: (In thousands)
<TABLE>
<CAPTION>
June 30, 1998 (Unaudited)
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets............... $1,206,583 $1,335,638 $110,484 ($1,030,837) $1,621,868
Total liabilities.......... 975,922 1,086,243 92,183 (1,025,047) 1,129,301
Revenues................... 239,556 1,226,200 24,264 - 1,490,020
Gross profit............... 32,913 230,939 1,888 - 265,740
Net income................. 1,657 57,287 1,960 - 60,904
<CAPTION>
June 30, 1997 (Unaudited)
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets............... $612,306 $901,706 $61,063 ($369,358) $1,205,717
Total liabilities.......... 396,355 732,564 38,749 (368,473) 799,195
Revenues................... 194,219 891,871 13,168 - 1,099,258
Gross profit............... 38,534 149,380 769 - 188,683
Net income................. 4,615 39,122 (525) - 43,212
<CAPTION>
September 30, 1997
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets............... $620,636 $934,497 $66,666 ($373,476) $1,248,323
Total liabilities.......... 396,853 751,672 44,573 (372,641) 820,457
Revenues................... 286,568 1,269,391 24,750 - 1,580,709
Gross profit............... 51,484 222,040 1,347 - 274,871
Net income................. 4,248 59,373 1,341 - 64,962
</TABLE>
-9-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following tables set forth certain operating and financial data for the
Company's homebuilding activities:
Percentages of Homebuilding Revenue
--------------------------------------
Three Nine
Months Ended Months Ended
June 30, June 30,
--------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
Cost and expenses:
Cost of sales 82.0% 83.2% 82.0% 82.7%
Selling, general and
administrative expense 9.6 10.5 10.3 10.5
Interest expense 0.7 0.7 0.6 0.7
------ ------ ------ ------
Total costs and expenses 92.3 94.4 92.9 93.9
Other (income) (0.4) (0.2) (0.3) (0.3)
------ ------ ------ ------
Income before income taxes 8.1% 5.8% 7.4% 6.4%
====== ====== ====== ======
<TABLE>
<CAPTION>
New sales contracts, net Homes in
of cancellations Home closings sales backlog
------------------------------ ------------------------------ --------------
Three Nine Three Nine
Months Ended Months Ended Months Ended Months Ended As of
June 30, June 30, June 30, June 30, June 30,
-------------- -------------- -------------- -------------- --------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic (Maryland,
New Jersey, North and
South Carolina, Virginia) 748 272 1,695 572 595 280 1,267 547 1,032 353
Midwest (Illinois, Kansas,
Kentucky, Minnesota,
Missouri, Ohio) 227 143 652 372 188 125 428 336 456 220
Southeast (Alabama,
Florida, Georgia)
Tennessee) 658 561 2,004 1,098 743 487 1,810 1,026 914 647
Southwest (Arizona, New
Mexico, Texas) 1,988 1,615 5,276 4,115 1,652 1,265 4,519 3,703 2,784 2,192
West (California, Colorado,
Nevada, Oregon, Utah) 790 538 2,311 1,344 751 524 1,688 1,274 1,373 651
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Totals 4,411 3,129 11,938 7,501 3,929 2,681 9,712 6,886 6,559 4,063
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues from homebuilding activities in the three months ended June 30, 1998,
increased by 39.8%, to $608.3 million, from $435.1 million in the comparable
period of 1997, despite a decline in land sales from $18.1 million in the 1997
period to $2.2 million in 1998. The number of homes closed by the Company
increased by 46.5%, to 3,929 homes in the three months ended June 30, 1998, from
2,681 in the same period of 1997. Percentage increases in the number of homes
closed ranging from 30.6% to 112.5% were achieved in the Company's five market
regions. The increases in both revenues and homes closed were due to strong
housing demand, the Company's entrance into new markets, and the results
achieved by C. Richard Dobson Builders, Inc. (Dobson), which was acquired in
February, 1998; Mareli Development & Construction Co. (Mareli) of Louisville,
Kentucky, acquired in May, 1998; and RMP Development, Inc., (RMP) of Portland,
Oregon, acquired in June, 1998. In markets where the Company operated during the
third fiscal quarters of both 1998 and 1997, home closings increased by 35.1%,
to 3,621 homes in the 1998 period.
The average selling price of homes closed in the three months ended June 30,
1998, was $154,300, down 0.8% over the $155,500 average selling price in the
comparable period of 1997. The price mix of homes closed shifted downward during
the current period, offset in part by increases in home selling prices made
possible by favorable real estate market conditions.
New net sales contracts increased 41.0%, to 4,411 homes in the three months
ended June 30, 1998, from 3,129 homes in the three months ended June 30, 1997.
In markets in which the Company operated during the third fiscal quarters of
both 1998 and 1997, sales contracts were 4,126 homes in the current three-month
period, a 31.9% increase over 1997.
The Company was operating in 511 subdivisions at June 30, 1998, compared to 367
subdivisions at June 30, 1997. At June 30, 1998, the Company's backlog of sales
contracts was 6,559 homes, a 61.4% increase over comparable figures at June 30,
1997. In markets in which the Company operated during the third fiscal quarters
of both 1998 and 1997, the sales backlog at June 30, 1998, was 6,007 homes, a
47.8% increase over 1997.
Cost of sales increased by 37.8%, to $499.1 million in the three months ended
June 30, 1998, from $362.1 million in the comparable period of 1997. The
increase was primarily attributable to the increase in revenues. As a percentage
of revenues, cost of sales for the quarter decreased to 82.0% in 1998 from 83.2%
in 1997, due primarily to increases in home selling prices beyond the increases
in home construction costs.
Selling, general and administrative (SG&A) expense increased by 28.2%, to $58.4
million in the three months ended June 30, 1998, from $45.5 million in the
comparable period of 1997. As a percentage of revenues, SG&A expense for the
quarter decreased 0.9%, to 9.6% in 1998 from 10.5% in 1997. The decrease in SG&A
expenses as a percentage of revenues was primarily due to increased revenues to
absorb the fixed elements of overhead and costs associated with integrating
three 1997 acquisitions into the Company.
Interest expense totalled $4.1 million in the three months ended June 30, 1998,
compared to $3.0 million in the comparable period of 1997. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. As a percentage of revenues, interest expense remained constant, at
0.7%, in the three months ended June 30, 1998, compared to the comparable period
of 1997. 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 on funds temporarily
invested, increased to $2.4 million in the three months ended June 30, 1998,
from $1.0 million in the same period of 1997, due primarily to larger investable
balances.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues from financing activities increased 69.9%, to $5.5 million in the three
months ended June 30, 1998, from $3.2 million in the comparable period of 1997.
Income before income taxes from financing activities increased 102.2%, to $1.7
million in the three months ended June 30, 1998, from $0.8 million in the
comparable period of 1997. The increases in financing activity revenues and
income before taxes were due primarily to the increased volume of mortgage and
title services provided to the Company's homebuilding customers.
In the three months ended June 30, 1998, the Company expensed $11.9 million in
non-recurring costs associated with the merger with Continental. The costs
consisted primarily of fees to third party investment, accounting and legal
advisors.
The provision for income taxes increased 48.8%, to $15.8 million in the three
months ended June 30, 1998, from $10.6 million in the comparable period of 1997,
due primarily to the increase in taxable income and an increase in the overall
estimated income tax rate anticipated for fiscal 1998, caused by the
non-deductibility of certain merger costs.
Nine Months Ended June 30, 1998 Compared to Nine Months Ended June 30, 1997
Revenues from homebuilding activities in the nine months ended June 30, 1998,
increased by 35.4%, to $1,475.9 million, from $1,090.1 million in the comparable
period of 1997, despite a decline in land sales from $34.0 million in the 1997
period to $3.3 million in 1998. The number of homes closed by the Company
increased by 41.0%, to 9,712 in the nine months ended June 30, 1998, from 6,886
in the same period of 1997. Percentage increases in homes closed ranging from
22.0% to 131.6% were achieved in the Company's market regions. In markets where
the Company operated during both nine-month periods ended June 30, 1998 and
1997, home closings increased 26.3%, to 8,700 homes in the 1998 period.
The average selling price of homes closed in the nine months ended June 30,
1998, was $151,600, a 1.2% decrease over the comparable period of 1997. The
decrease in average sales price was attributable to differences in the
geographic mix of markets in which homes were closed. Also, the price mix of
homes closed decreased during the 1998 period, offset in part by increases in
home selling prices made possible by favorable real estate market conditions.
New net sales contracts increased 59.2%, to 11,938 homes for the nine months
ended June 30, 1998, from 7,501 homes for the nine months ended June 30, 1997.
Percentage increases in new net sales contracts ranging from 28.2% to 196.3%
were achieved in the Company's market regions. In markets where the Company
operated during both nine-month periods ended June 30, 1998 and 1997, sales
contracts increased 43.3%, to 10,746 in the 1998 period.
Cost of sales increased by 34.2%, to $1,210.1 million in the nine months ended
June 30, 1998, from $901.4 million in the comparable period of 1997. The
increase was partly attributable to the increase in revenues. As a percentage of
revenues, cost of sales decreased to 82.0% in the nine months ended June 30,
1998, from 82.7% in the same period of 1997, due primarily to increases in home
selling prices beyond the increase in home construction costs.
Selling, general and administrative (SG&A) expense increased by 33.0%, to $152.5
million in the nine months ended June 30, 1998, from $114.7 million in the
comparable period of 1997. As a percentage of revenues, SG&A expense decreased
to 10.3% for the nine months ended June 30, 1998, from 10.5% for the same period
of 1997. The decrease in SG&A expense as a percentage of revenues is partially
due to increased revenues to absorb the fixed elements of overhead and the costs
associated with integrating the 1997 acquisitions into the Company.
Interest expense during the nine months ended June 30, 1998 amounted to $9.2
million, compared to $7.6 million in the comparable period of 1996. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. As a percentage of revenues, interest expense declined slightly,
to 0.6% in the nine months ended June 30, 1998, from 0.7% in the comparable
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
period of 1997. 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 on funds temporarily
invested, increased to $4.5 million in the nine months ended June 30, 1998, from
$2.8 million in the same period of 1997, due primarily to larger investable
balances.
Revenues from financing activities increased 54.5%, to $14.2 million in the nine
months ended June 30, 1998, from $9.2 million in the comparable period of 1997.
Income before income taxes from financing activities increased 89.8%, to $4.9
million in the nine months ended June 30, 1998, from $2.6 million in the
comparable period of 1997. The increases in financing activity revenues and
income before taxes were due primarily to the increased volume of mortgage and
title services provided to the Company's homebuilding customers.
In the nine months ended June 30, 1998, the Company expensed $11.9 million in
non-recurring costs associated with the merger with Continental. The costs
consisted primarily of fees to third party investment, accounting and legal
advisors.
The provision for income taxes increased by 42.2%, to $40.6 million in the nine
months ended June 30, 1998, from $28.6 million in the comparable period of 1997,
due primarily to the increase in taxable income and an increase in the overall
estimated income tax rate anticipated for fiscal 1998, caused by the
non-deductibility of certain merger costs.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had available cash and cash equivalents of $112.7
million. Inventories (including finished homes, construction in progress, and
developed residential lots and other land) at June 30, 1998, had increased by
$267.0 million since September 30, 1997, partly due to the acquisitions of the
assets (primarily inventories) of Dobson, Mareli, and RMP. Inventories also
increased due to a general increase in business activity and the expansion of
operations in all of the Company's market areas. The inventory increase, the
merger with Continental, and the acquisitions of Dobson, Mareli and RMP, were
financed primarily by borrowing under the revolving credit facility. As a
result, the Company's ratio of notes payable to total capital at June 30, 1998,
increased to 64.8% at June 30, 1998, compared to the September 30, 1997 level of
60.3%. The stockholders' equity to total assets ratio decreased during the nine
months to 30.4% at June 30, 1998, from 34.3% at September 30, 1997.
During fiscal 1998, the Company's Board of Directors has declared three
quarterly cash dividends of $.0225 per common share, the last of which is
payable on August 14, 1998, to stockholders of record on August 3, 1998.
In February, 1998, the Company completed the acquisition of all the outstanding
capital stock of C. Richard Dobson Builders, Inc. (Dobson), and certain of its
affiliated companies, for $23.4 million. Dobson's assets, primarily inventories,
amounted to approximately $64.3 million. Total liabilities assumed amounted to
approximately $52.4 million, including notes payable of $49.3 million, which
were paid at closing. The Dobson acquisition was accounted for as a purchase.
On April 20, 1998, the Company closed its merger with Continental Homes Holding
Corp. (Continental). In accordance with the terms of the merger agreement, a
total of 15,459,514 shares of D.R. Horton, Inc. common stock were exchanged for
all of the Continental common stock outstanding, based upon an exchange ratio of
2.25. At the time of the merger, the Company assumed Continental's existing
public debt, consisting of $150 million 10% senior notes due April 15, 2006, and
$86.1 million in 6 7/8% convertible subordinated notes due November 1, 2002. The
convertible notes may currently be exchanged for Horton common stock at the rate
of 94.73625 shares for each $1,000 principal amount. The convertible notes are
redeemable in whole or in part at the option of the Company at any time on or
after November 1, 1998, at redemption prices decreasing from 103.438%. If
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
current conditions prevail until November 1, 1998, the Company intends to call
all the convertible notes outstanding at that time. As of June 30, 1998,
approximately $3.7 million of convertible notes had been exchanged for common
stock.
On April 21, 1998, the Company increased and restructured its unsecured bank
credit facility, to $825 million, consisting of a $775 million four-year
revolving loan and a $50 million four-year letter of credit facility. At June
30, 1998, the Company had outstanding debt of $905.9 million, of which $515.0
million represented advances under the bank credit facility. Under the debt
covenants associated with the restructured credit facility, at June 30, 1998,
the Company had additional borrowing capacity of $345.2 million. Mortgage
activities are presently being financed through borrowings under the bank
revolving credit facility. It is contemplated that a separate warehouse
financing facility for these activities will be in place in the future.
In May and June, 1998, the Company completed the acquisition of the principal
assets (approximately $16.4 million, primarily inventories) of Mareli
Development & Construction Co., Inc. (Mareli), of Louisville, Kentucky, and RMP
Properties, Inc. (RMP), of Portland, Oregon, for $7.8 million in cash, 70,249
shares of Horton common stock valued at $1.1 million, and the assumption of
approximately $16.0 million in trade accounts and notes payable associated with
the acquired assets. Mareli's and RMP's liabilities included $13.5 million in
notes payable which were paid at closing.
The Company's rapid growth and acquisition strategy require 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 credit facilities. The Company maintains a universal shelf registration
statement with a capacity of $400 million. Additionally, a shelf registration
has been filed for 10,000,000 shares of common stock issuable to effect, in
whole or in part, possible future acquisitions. Market conditions will determine
when and whether the Company will sell additional securities using the shelf
registration statements. The Company continuously evaluates its capital
structure and, in the future, may seek to further increase unsecured debt and
obtain additional equity to fund ongoing operations as well as to pursue
additional growth opportunities.
Except for ordinary expenditures for the construction of homes, the acquisition
of land and lots for development and sale of homes, at June 30, 1998, 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.
Safe Harbor Statement
Certain statements contained herein, as well as statements made by the Company
in periodic press releases and oral statements made by the Company's officials
to analysts and stockholders in the course of presentations about the Company
may be construed as "Forward-Looking Statements" as defined in the Private
Securities Litigation Reform Act of 1995. Such statements may involve unstated
risks, uncertainties and other factors that may cause actual results to differ
materially from those initially anticipated. Such risks, uncertainties and other
factors include, but are not limited to, the Company's substantial leverage,
changes in general economic and market conditions, changes in interest rates and
the availability of mortgage financing, changes in costs and availability of
material, supplies and labor, general competitive conditions, the availability
of capital and the ability to successfully effect acquisitions.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities.
Certain new indebtedness and limitations on payment of dividends or
other distributions by the Company on its Common Stock were created in
connection with its April 20, 1998 acquisition of Continental Homes Holding
Corp. ("Continental"). As part of that acquisition, the Company executed (i) a
First Supplemental Indenture, dated as of April 20, 1998, among the Company, the
Guarantors named therein and First Union Bank, as Trustee, assuming an Indenture
dated as of April 15, 1996, between Continental and First Union Bank, as
Trustee, and Continental's related 10% Senior Notes, due 2006, and (ii) a First
Supplemental Indenture, dated as of April 20, 1998, between the Company and
Manufacturers and Traders Trust Company, as Trustee, assuming an Indenture dated
as of November 1, 1995, between Continental and Manufacturers and Traders Trust
Company, as Trustee, and Continental's related 6-7/8% Convertible Subordinated
Notes, due 2002. The Indenture, and the Supplemental Indenture, related to the
10% Senior Notes impose limitations on the ability of the Company and its
subsidiaries guaranteeing the assumed notes to, among other things, incur
indebtedness, make "Restricted Payments" (as defined, which includes payments of
dividends or other distributions on the Common Stock of the Company), effect
certain "Asset Sales" (as defined), enter into certain transactions with
affiliates, merge or consolidate with any person, or transfer all or
substantially all of their properties and assets. These limitations are similar
to limitations already existing by reason of the Company's 8-3/8% Senior Notes,
due 2004, and the related Indenture. Other information concerning the
acquisition of Continental has previously been reported in, and is described in,
the Company's Registration Statement on Form S-4 (Registration Number 333-
44279) dated March 13, 1998 and the Company's current reports on Form 8-K, dated
April 14, 1998, April 20, 1998 (filed on April 21, 1998), April 20, 1998 (filed
on May 4, 1998) and June 5, 1998 (filed on June 8, 1998).
On June 8, 1998, the Company issued 70,249 shares (the "Shares") of its
Common Stock, $.01 par value, to RMP Properties, Inc. ("RMP"). The shares were
valued at $1,250,000 and were issued to RMP as partial consideration for the
assets of RMP. Roger M. Pollock ("Pollock") was the sole owner of RMP. The
Shares were issued in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act of 1933, based on: the sophistication of
Pollock; his experience in and knowledge of homebuilding; the fact that the
Company provided Pollock with copies of its most recent Annual Report on Form
10-K and annual meeting proxy statement, a Joint Proxy Statement and Prospectus
concerning the merger of Continental into the Company and all filings under the
Securities Exchange Act of 1934 since the filing of the Form 10-K and provided
Pollock access to the Company's executive officers to ask questions and receive
answers concerning the Company; and the facts that Pollock gave the Company
investment representations concerning the Shares and that the Shares are subject
to transfer restrictions which are reflected in restrictive legends on the
certificate for the Shares and stop transfer instructions with the Company's
transfer agent for Common Stock.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On April 20, 1998, the Company held a Special Meeting of Stockholders
(the "Meeting"). At the Meeting, the stockholders considered and approved a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
December 18, 1997 (the "Merger Agreement"), between the Company and Continental,
providing for, among other things, the merger of Continental into the Company
(the "Proposal"). The number of votes cast for and against the Proposal and the
number of abstentions were as follows:
Votes For Votes Against Abstentions
----------- ------------- -----------
32,142,409 229,081 9,641
15
<PAGE>
ITEM 5. Other Information.
In connection with the Company's acquisition of Continental, the
Company assumed all of the outstanding stock options granted by Continental
pursuant to Continental's 1986 and 1988 Stock Incentive Plans.
On April 21, 1998, the Company increased and restructured its unsecured
bank credit facility to $825 million, consisting of a $775 million four - year
revolving loan and a $50 million four-year letter of credit facility.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4.1 Indenture dated as of April 15, 1996
between Continental and First Union
National Bank, as Trustee, is
incorporated herein by reference from
Exhibit 4.1 to Continental's Annual
Report on Form 10-K for the year ended
May 31, 1996. The Commission file number
for Continental is 1-10700.
4.2 Indenture dated as of November 1, 1995
between Continental and Manufacturers
and Traders Trust Company, as Trustee,
is incorporated by reference from
Exhibit 4.1 to Continental's Quarterly
Report on Form 10-Q for the quarter
ended November 30, 1995. The Commission
file number for Continental is 1-10700.
4.3 First Supplemental Indenture, dated as
of April 20, 1998, among the Company,
the guarantors named therein and First
Union National Bank, as Trustee,
relating to Continental's 10% Senior
Notes, due 2006, is incorporated herein
by reference from Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
4.4 First Supplemental Indenture, dated as
of April 20, 1998, between the Company
and Manufacturers and Traders Trust
Company, as Trustee, relating to
Continental's 6-7/8% Convertible
Subordinated Notes, due 2002, is
incorporated herein by reference from
Exhibit 4.6 to the Company's Quarterly
Report on Form 10-Q for the quarter
ended March 31, 1998.
10.1* Master Loan and Inter-Creditor Agreement
dated as of April 21, 1998, among D.R.
Horton, Inc., as Borrower; NationsBank,
N.A., Bank of America National Trust and
Savings Association, Fleet National
Bank, Bank United, Comerica Bank, Credit
Lyonnais New York Branch, Societe
Generale, Southwest Agency, The First
National Bank of Chicago, PNC Bank,
National Association, Amsouth Bank, Bank
One, Arizona, NA, First American Bank
Texas, SSB, Harris Trust and Savings
Bank, Sanwa Bank California, Norwest
Bank Arizona, National Association and
Summit Bank, as Banks; and NationsBank,
N.A., as Administrative Agent.
10.2* Indemnification Agreement for new
Director, W. Thomas Hickcox. (On the
same date, an Indemnification Agreement
in substantially identical form was
executed with Bradley S. Anderson, who
was also elected a Director that day.)
10.3* Continental Homes Holding Corp. 1988
Stock Incentive Plan (as amended and
restated June 20, 1997).
16
<PAGE>
10.4* Restated Continental Homes Holding Corp.
1986 Stock Incentive Plan, and the First
Amendment thereto dated June 17, 1987.
10.5* Form of Stock Option Agreement pursuant
to Continental's 1986 and 1988 Stock
Incentive Plans.
- ----------
*Filed herewith.
(b) Reports on Form 8-K.
1. On April 14, 1998, the Company filed a
Current Report on Form 8-K (Item 5), which
included its press release of that date
announcing the exchange ratio for the merger
of Continental into the Company.
2. On April 21, 1998, the Company filed a
Current Report on Form 8-K, dated April 20,
1998 (Item 5), which included its April 21,
1998 press release announcing that the
stockholders of the Company and Continental
had approved the merger of Continental into
the Company.
3. On May 4, 1998, the Company filed a Current
Report on Form 8-K, dated April 20, 1998
(Item 2), which provided further information
concerning the acquisition of Continental
and incorporated by reference financial
statements of Continental and pro forma
combined financial information for the
Company and Continental.
4. On June 8, 1998, the Company filed a Current
Report on Form 8-K, dated June 5, 1998
(Items 5 and 7), which provided an updated
description of the Company's business as
combined with Continental, as well as
supplemental consolidated financial
statements of the Company for the three
years ended September 30, 1997 and
Management's Discussion and Analysis of
Financial Condition and Results of
Operations (Restated).
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.R. HORTON, INC.
Date: August 6, 1998 By /s/ David J. Keller
-----------------------------------------------
David J. Keller, on behalf of D.R. Horton, Inc.
and as Executive Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-18-
EXHIBIT 10.1
MASTER LOAN AND INTER-CREDITOR AGREEMENT
among
D.R. HORTON, INC., as Borrower;
NATIONSBANK, N.A.,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
FLEET NATIONAL BANK,
BANK UNITED,
COMERICA BANK,
CREDIT LYONNAIS NEW YORK BRANCH,
SOCIETE GENERALE, SOUTHWEST AGENCY,
THE FIRST NATIONAL BANK OF CHICAGO,
PNC BANK, NATIONAL ASSOCIATION,
AMSOUTH BANK, BANK ONE, ARIZONA, NA,
FIRST AMERICAN BANK TEXAS, SSB,
HARRIS TRUST AND SAVINGS BANK,
SANWA BANK CALIFORNIA,
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION
and SUMMIT BANK,
as Banks;
NATIONSBANK, N.A.,
as Issuing Bank for Letters of Credit;
AMSOUTH BANK, BANK ONE, ARIZONA, NA,
PNC BANK, NATIONAL ASSOCIATION
and THE FIRST NATIONAL BANK OF CHICAGO,
as Co-Agents;
BANK UNITED, COMERICA BANK,
CREDIT LYONNAIS NEW YORK BRANCH,
and SOCIETE GENERALE, SOUTHWEST AGENCY,
as Managing Agents;
FLEET NATIONAL BANK, as Documentation Agent;
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Syndication Agent;
and
NATIONSBANK, N.A., as Administrative Agent
Dated as of April 21, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
ARTICLE 2 LOANS AND LETTERS OF CREDIT.....................................18
2.1 Extension of Credit.............................................18
2.2 Manner of Borrowing and Disbursement Under Loans................19
2.3 Interest on Loans...............................................21
2.4 Issuance and Administration of Letters of Credit................21
2.5 Fees and Commissions on Loans and Letters of Credit.............26
2.6 Notes, Loan and Letters of Credit Accounts......................27
2.7 Repayment of Loans and Letters of Credit........................28
2.8 Manner of Payment...............................................28
2.9 Application of Payments.........................................29
ARTICLE 3 INVENTORY AND FUNDING AVAILABILITY..............................31
3.1 Loan Funding Availability.......................................31
ARTICLE 4 LOAN DISBURSEMENTS AND LETTERS OF CREDIT........................33
4.1 Prior to the First Disbursement or Letter of Credit.............33
4.2 Subsequent Disbursements and Letters of Credit..................35
ARTICLE 5 BORROWER'S COVENANTS, AGREEMENTS,
REPRESENTATIONS AND WARRANTIES..................................36
5.1 Payment.........................................................36
5.2 Performance.....................................................36
5.3 Additional Information..........................................36
5.4 Quarterly Financial Statements and Other Information............36
5.5 Compliance Certificates.........................................36
5.6 Annual Financial Statements and Information; Certificate
of No Default................................................36
5.7 Financial and Inventory Covenants...............................37
5.8 Other Financial Documentation...................................38
5.9 Payment of Contractors..........................................38
5.10 Inspection and Appraisal........................................38
5.11 Fees and Expenses...............................................38
5.12 Hazardous Substances............................................38
5.13 Insurance.......................................................39
5.14 Litigation......................................................40
5.15 Reportable Event................................................40
5.16 Secured Indebtedness............................................40
ARTICLE 6 DEFAULT AND REMEDIES............................................41
6.1 Defaults........................................................41
6.2 Remedies........................................................44
6.3 Waivers.........................................................45
- i -
<PAGE>
TABLE OF CONTENTS
(continued)
Page
6.4 Cross-Default...................................................45
6.5 No Liability of the Banks.......................................45
ARTICLE 7 THE ADMINISTRATIVE AGENT........................................46
7.1 Appointment and Authorization...................................46
7.2 Delegation of Duties............................................46
7.3 Interest Holders................................................47
7.4 Consultation with Counsel.......................................47
7.5 Documents.......................................................47
7.6 Administrative Agent and Affiliates.............................47
7.7 Responsibility of the Administrative Agent......................47
7.8 Action by Administrative Agent..................................48
7.9 Notice of Default or Event of Default...........................48
7.10 Responsibility Disclaimed.......................................49
7.11 Indemnification.................................................49
7.12 Credit Decision.................................................50
7.13 Successor Administrative Agent..................................50
7.14 Syndication Agent...............................................50
7.15 Documentation Agent.............................................51
7.16 Co-Agents.......................................................51
ARTICLE 8 GENERAL CONDITIONS..............................................51
8.1 Benefit.........................................................51
8.2 Assignment......................................................51
8.3 Amendment and Waiver............................................52
8.4 Additional Obligations and Amendments...........................53
8.5 Consideration of Renewal........................................53
8.6 Terms...........................................................53
8.7 Governing Law and Jurisdiction..................................54
8.8 Publicity.......................................................54
8.9 Attorneys' Fees.................................................54
8.10 Mandatory Arbitration...........................................55
8.11 Invalidation of Provisions......................................56
8.12 Execution in Counterparts.......................................56
8.13 Captions........................................................56
8.14 Notices.........................................................56
8.15 Final Agreement.................................................62
- ii -
<PAGE>
EXHIBITS
Exhibit A - Form of Acquisition Carve Out Notice
Exhibit B - Commitment Ratios
Exhibit C - Form of Inventory Summary Report
Exhibit D - Form of Operational Carve Out Notice
Exhibit E - Form of Request for Advance
Exhibit F - Form of Request for Issuance of Letter of Credit
Exhibit G - Form of Letter of Credit Application
Exhibit H - Form of Quarterly Compliance Certificate
Exhibit I - Form of Assignment and Assumption Agreement
SCHEDULES
Schedule 1.13 - Multi-Level Pricing Grid/Fees
Schedule 1.55 - Guarantors
Schedule 1.68 - Prior Letters of Credit
<PAGE>
MASTER LOAN AND INTER-CREDITOR AGREEMENT
THIS MASTER LOAN AND INTER-CREDITOR AGREEMENT (this "Agreement") dated
as of the 21st day of April, 1998, is entered into by and among D.R. HORTON,
INC., a Delaware corporation; NATIONSBANK, N.A., BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, FLEET NATIONAL BANK, BANK UNITED, COMERICA BANK, THE
FIRST NATIONAL BANK OF CHICAGO, CREDIT LYONNAIS NEW YORK BRANCH, PNC BANK,
NATIONAL ASSOCIATION, AMSOUTH BANK, BANK ONE, ARIZONA, NA, SOCIETE GENERALE,
SOUTHWEST AGENCY, FIRST AMERICAN BANK TEXAS, SSB, HARRIS TRUST AND SAVINGS BANK,
SANWA BANK CALIFORNIA, NORWEST BANK ARIZONA, NATIONAL ASSOCIATION and SUMMIT
BANK, as banks; NATIONSBANK, N.A., as issuing bank for letters of credit; BANK
UNITED, COMERICA BANK, CREDIT LYONNAIS NEW YORK BRANCH, THE FIRST NATIONAL BANK
OF CHICAGO and PNC BANK, NATIONAL ASSOCIATION, as co-agents; FLEET NATIONAL
BANK, as documentation agent; BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as syndication agent for the Banks; and NATIONSBANK, N.A., as
administrative agent for the Banks and the Issuing Bank.
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. Whether by purchase, lease, exchange, issuance of
stock or other equity or debt securities, merger, reorganization or any other
method, (a) any acquisition by the Borrower or any of its Restricted
Subsidiaries of Inventory, (b) any acquisition by the Borrower or any of its
Restricted Subsidiaries of any other Person, which Person shall then become a
- 1 -
<PAGE>
Subsidiary of the Borrower or any such Restricted Subsidiary or (c) any
acquisition by the Borrower or any of its Restricted Subsidiaries of all or any
substantial part of the assets of any other Person.
1.2 Acquisition Carve Out Notice. The written notice by the Borrower in
substantially the form of Exhibit A attached hereto, delivered to the
Administrative Agent and the Banks not later than the end of the fiscal quarter
following the fiscal quarter in which an Acquisition is consummated notifying
such Persons of the election by the Borrower to initiate a Financial Covenant
Carve Out as a result of such Acquisition. Contemporaneously with the delivery
of an Acquisition Carve Out Notice, the Borrower shall deliver to the Managing
Agents a plan of action reflecting that the Borrower will be in compliance with
the covenants set forth in Sections 5.7(a), (e) and (g) hereof on or prior to
the last day of the applicable Financial Covenant Carve Out and failure to
deliver such plan of action shall render such Acquisition Carve Out Notice
ineffective.
1.3 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.
1.4 Acquisition Suspension Period. An Acquisition Suspension Period
shall occur upon delivery by the Borrower to the Administrative Agent and the
Banks of an Acquisition Carve Out Notice and shall continue until the earlier to
occur of (a) the last day of the third fiscal quarter immediately following the
fiscal quarter in which the Acquisition giving rise to such Acquisition Carve
Out Notice was consummated, or (b) the last day of the Borrower's fiscal quarter
in which the Leverage Ratio (determined in accordance with Section 5.7 hereof)
exceeds 2.6 to 1.0. Notwithstanding the foregoing, the maximum Leverage Ratio as
- 2 -
<PAGE>
of the last day of each fiscal quarter during an Acquisition Suspension Period
shall be 2.6 to 1.0, and failure to comply with such Leverage Ratio shall be an
Event of Default.
1.5 Adjusted Tangible Net Worth. With respect to the Borrower and its
Restricted Subsidiaries on a consolidated basis, as of any date, the sum of (a)
Tangible Net Worth and (b) the lesser of (i) fifty percent (50%) of the
aggregate principal amount of all subordinated debt of the Borrower and its
Restricted Subsidiaries then outstanding and (ii) twenty percent (20%) of
Tangible Net Worth.
1.6 Administrative Agent. NationsBank, N.A., in its capacity as
Administrative Agent hereunder.
1.7 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).
1.8 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.
1.9 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 contract or otherwise.
1.10 Agreement. This Master Loan and Inter-Creditor Agreement.
1.11 Agreement Date. The date as of which the Borrower, the Managing
Agents, the Co-Agents, the Issuing Bank and the Banks execute this Agreement.
- 3 -
<PAGE>
1.12 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.
1.13 Applicable Margin. The interest rate margins set forth on Schedule
1.13 attached hereto applicable to the Base Rate determined based upon the
Leverage Ratio for the fiscal quarter end being tested or the most recently
completed fiscal quarter for which financial statements have been delivered or
the Borrower's S&P/Moody's Rating, as applicable. The Applicable Margin shall be
automatically adjusted as of the later to occur of the first day of the calendar
month in which (a) the Borrower's quarterly compliance certificate is due or (b)
the Borrower's quarterly compliance certificate is actually delivered. At all
times during an Event of Default hereunder, the Applicable Margin shall be the
Applicable Margins set forth at Level VI of Schedule 1.13. In the event that the
Borrower qualifies for more than one level of pricing, the Applicable Margin
shall be based upon the highest level (with Level I being the lowest level) for
which the Borrower is qualified. The Applicable Margin from the Agreement Date
until the first adjustment date as provided above will be based upon the
Leverage Ratio for the most recently completed fiscal quarter of the Borrower
prior to the Agreement Date.
1.14 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.
1.15 Available Letter of Credit Commitment. As of any date of
determination, the Letter of Credit Commitment less all then outstanding Letter
of Credit Obligations.
1.16 Available Loan Commitment. As of any date of determination, an
amount equal to the lesser of (a) the Loan Commitment or (b) (i) the Loan
Funding Availability less (ii) the sum of (A) the principal amount of the Loans
then outstanding, (B) all unreimbursed draws under any Letter of Credit and (C)
the then outstanding principal balances of all other Unsecured Indebtedness.
- 4 -
<PAGE>
1.17 Banks. NationsBank, N.A.; Bank of America National Trust and
Savings Association; Fleet National Bank, Bank United, Comerica Bank, Credit
Lyonnais New York Branch, Societe Generale, Southwest Agency, The First National
Bank of Chicago, PNC Bank, National Association, AmSouth Bank, Bank One,
Arizona, NA, First American Bank Texas, SSB, Harris Trust and Savings Bank,
Sanwa Bank California, Norwest Bank Arizona, National Association and Summit
Bank. An individual Bank is sometimes referred to as a "Bank."
1.18 Base Rate. The lesser of (a)(i) the New York Federal Funds Rate
plus (ii) the Applicable Margin or (b) (i) the Three-Month LIBOR plus (ii) the
Applicable Margin.
1.19 Borrower. D.R. Horton, Inc., a Delaware corporation.
1.20 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.
1.21 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.
- 5 -
<PAGE>
1.22 Change of Management. Donald R. Horton shall cease to serve either
as (a) Chairman of the Board of Directors of the Borrower or (b) President or
other chief executive officer of the Borrower.
1.23 Closed Sales. For any calculation period, sales of Developed Lots
containing Dwellings which have been closed by the Borrower and all Restricted
Subsidiaries. Closed Sales shall include Developed Lots containing Dwellings
owned by any Person which is or becomes a Restricted Subsidiary before or after
the Agreement Date for which sales have closed during the applicable calculation
period. Closed Sales shall include closings attributable to acquisitions by the
Borrower and/or by its Restricted Subsidiaries or when substantially all assets
owned by any Person were acquired by the Borrower and/or Restricted Subsidiaries
before or after the Agreement Date.
1.24 Co-Agents. AmSouth Bank, Bank One, Arizona, NA, PNC Bank, National
Association and The First National Bank of Chicago, in their capacities as
Co-Agents hereunder.
1.25 Code. The Internal Revenue Code of 1986, as amended.
1.26 Commitments. The aggregate amount of the Loan Commitment and the
Letter of Credit Commitment.
1.27 Commitment Ratios. The percentages in which the Banks are
severally bound to satisfy any of the Loan Commitment, the Letter of Credit
Commitment or the Commitments as set forth on Exhibit B attached hereto and
incorporated herein.
1.28 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.
1.29 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
- 6 -
<PAGE>
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.
1.30 Continental Homes Merger. The merger of the Borrower with
Continental Homes Holding Corp., a Delaware corporation.
1.31 Continental Homes Merger Date. The date on which the Continental
Homes Merger is consummated.
1.32 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.
1.33 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.
1.34 Default Rate. A simple per annum interest rate equal to the sum of
the Base Rate, plus two hundred basis points (2.00%).
1.35 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."
1.36 Development Costs. All costs accepted by the Administrative Agent
and 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.
- 7 -
<PAGE>
1.37 Documentation Agent. Fleet National Bank, in its capacity as
Documentation Agent hereunder.
1.38 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.
1.39 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."
1.40 EBITDA. With respect to the Borrower and all Restricted
Subsidiaries, earnings for the preceding twelve (12) calendar 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 plus, for the twelve
(12) calendar month period following the Continental Homes Merger Date, an
amount not to exceed $15,000,000 (to adjust for costs associated with the
Continental Homes Merger) plus non-cash write downs of any assets.
1.41 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.
1.42 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).
- 8 -
<PAGE>
1.43 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.
1.44 Exchange Act. The Securities Exchange Act of 1934, as amended.
1.45 Facility Fee. Those certain fees paid by the Borrower to the Banks
pursuant to Section 2.5(b) hereof.
1.46 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.
1.47 Financial Covenant Carve Out. The Borrower's compliance with
either Sections 5.7(a), (e) and (g) hereof during any Acquisition Suspension
Period or with Section 5.7(a) hereof during any Operational Suspension Period
shall be suspended; provided, however, that there shall be no more than one
Financial Covenant Carve Out in any period of twelve (12) consecutive calendar
months beginning with the month in which the Financial Covenant Carve Out was
elected, and provided, further, however, that no Financial Covenant Carve Out
shall commence unless the Borrower was in compliance with all covenants for not
less than one full fiscal quarter immediately preceding any such Financial
Covenant Carve Out Notice.
1.48 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.
1.49 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 Delay shall not exceed the period of delay caused by such event.
- 9 -
<PAGE>
1.50 Funded Notes Payable. As of any date, the aggregate principal
amounts then outstanding of all Indebtedness for Money Borrowed of the Borrower
and its Restricted Subsidiaries, or any of them, in favor of any financial
services providers or any seller of real property, including, without
limitation, all pari passu public debt, subordinated debt or convertible debt of
the Borrower and its Restricted Subsidiaries, or any of them.
1.51 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.
1.52 GAAP. As in effect as of the Agreement Date, generally accepted
accounting principles consistently applied.
1.53 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.
1.54 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.
- 10 -
<PAGE>
1.55 Guarantors. Those Persons set forth on Schedule 1.55 attached
hereto, 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 the Administrative Agent.
1.56 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.
1.57 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 real property or services
(excluding trade payables and accruals incurred in the ordinary course of
business), 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.
1.58 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.
1.59 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.
- 11 -
<PAGE>
1.60 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.
1.61 Issuing Bank. NationsBank, N.A. (or any successor Issuing Bank
appointed in accordance with the provisions of this Agreement), as issuer of the
Letters of Credit.
1.62 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."
1.63 Letter of Credit Banks. NationsBank, N.A., Bank of America
National Trust and Savings Association and Fleet National Bank.
1.64 Letter of Credit Commitment. The obligation of the Issuing Bank to
issue Letters of Credit hereunder pursuant to the terms hereof in an aggregate
face amount not to exceed $50,000,000 at any time outstanding.
1.65 Letter of Credit Bank Commitment Ratio. The percentages in which
the Letter of Credit Banks are severally bound to reimburse the Issuing Bank for
draws under Letters of Credit pursuant to the terms hereof, as set forth on
Exhibit B attached hereto and incorporated herein.
1.66 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.
1.67 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
- 12 -
<PAGE>
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.
1.68 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 1.68 attached hereto. An individual Letter of Credit is sometimes
referred to as a "Letter of Credit."
1.69 Leverage Ratio. As of the last day of each fiscal quarter of the
Borrower, the ratio of (a) the Net Funded Notes Payable of the Borrower and its
Restricted Subsidiaries on a consolidated basis on such date to (b) Adjusted
Tangible Net Worth of the Borrower and its Restricted Subsidiaries on a
consolidated basis for the fiscal quarter end being tested.
1.70 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.
1.71 Loan Commitment. The several obligations of the Banks to advance
funds in the aggregate sum of up to $775,000,000 to the Borrower pursuant to the
terms hereof as such obligations may be reduced from time to time pursuant to
the terms hereof.
1.72 Loan Documents. This Agreement, the Notes and any and all other
documents evidencing the Notes or the Letters of Credit or executed in
connection therewith as the same may be amended, substituted, replaced, extended
or renewed from time to time.
- 13 -
<PAGE>
1.73 Loan Funding Availability. The amount of Unsecured Indebtedness
and unreimbursed draws under Letters of Credit which the Borrower may incur as
established pursuant to Section 3.1 hereof, at any applicable time, by the
Administrative Agent based on the Loan Inventory.
1.74 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.
1.75 Loans. Collectively, amounts advanced by the Banks to the Borrower
under the Loan Commitment pursuant to the terms of this Agreement and evidenced
by the Notes.
1.76 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."
1.77 Majority Banks. At any time, Banks the total of whose Commitment
Ratios with respect to the Commitments exceeds fifty percent (50%) of the
aggregate Commitment Ratios with respect to the Commitments of Banks entitled to
vote hereunder.
1.78 Managing Agents. Bank United, Comerica Bank, Credit Lyonnais New
York Branch and Societe General, Soutwest Agency, in their capacities as
Managing Agents.
1.79 Maturity Date. April 21, 2002, or such earlier date as payment of
the Loans and the Letter of Credit Obligations shall be due (whether by
acceleration or otherwise) as the same may be extended under Section 8.5 hereof.
1.80 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.
- 14 -
<PAGE>
1.81 Moody's Rating. At any time, with respect to any Person, the
rating in effect at such time assigned by Moody's Investors Service, Inc. for
the long term senior unsecured debt of such Person.
1.82 Net Funded Notes Payable. As of any date, Funded Notes Payable on
such date minus the Borrower's and the Restricted Subsidiaries' unrestricted
cash and cash equivalents on such date in excess of $15,000,000.
1.83 Net Total Liabilities. At any time, Total Liabilities of the
Borrower and its Restricted Subsidiaries less cash and cash equivalents of the
Borrower and its Restricted Subsidiaries.
1.84 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.
1.85 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 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 Note held by a Bank is sometimes referred to as a "Note."
The combined face amount of the Notes may not exceed SEVEN HUNDRED SEVENTY-FIVE
MILLION AND NO/100 DOLLARS ($775,000,000.00).
1.86 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, the Co-Agents and the Managing Agents, or any
of them, 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.
- 15 -
<PAGE>
1.87 Operational Carve Out Notice. The written notice by the Borrower
in substantially the form of Exhibit D attached hereto delivered to the
Administrative Agent and the Banks within sixty (60) days from the end of the
fiscal quarter for which this election is made notifying such Persons of the
election by the Borrower to initiate a Financial Covenant Carve Out as a result
of normal operational performance. Contemporaneously with the delivery of an
Operational Carve Out Notice, the Borrower shall provide to the Managing Agents
a plan of action reflecting that the Borrower will be in compliance with Section
5.7(a) hereof on or prior to the last day of the applicable Financial Covenant
Carve Out, and the failure to deliver such plan of action shall render such
Operational Carve Out Notice ineffective.
1.88 Operational Suspension Period. An Operational Suspension Period
shall occur upon delivery by the Borrower to the Administrative Agent and the
Banks of an Operational Carve Out Notice and shall continue until the earlier to
occur of (a) the last day of the second fiscal quarter immediately following the
fiscal quarter for which such Operational Carve Out Notice was delivered, or (b)
the last day of the Borrower's fiscal quarter on which the Leverage Ratio is to
be determined in accordance with Section 5.7 hereof, if on such date the
Leverage Ratio (determined in accordance with Section 5.7 hereof) exceeds 2.5 to
1.0. Notwithstanding the foregoing, the maximum Leverage Ratio for the Borrower
during an Operational Suspension Period shall be 2.5. to 1.0 at the end of each
fiscal quarter of the Borrower, and failure to comply with such Leverage Ratio
shall be an Event of Default.
1.89 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.
1.90 Permitted Encumbrances. Liens, encumbrances, easements and other
matters which (a) are in favor of the Managing Agents, the Co-Agents, 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
- 16 -
<PAGE>
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.
1.91 Person. An individual, corporation, partnership, limited liability
company, trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
1.92 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.
1.93 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 Unsecured Indebtedness plus
unpaid draws under Letters of Credit exceeds the Loan Funding Availability.
1.94 Reportable Event. Shall have the meaning set forth in Section
4043(b) of ERISA.
1.95 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 E 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.
1.96 Request for Issuance of Letter of Credit. Any certificate signed
by an Authorized Signatory of the Borrower requesting that the Issuing Bank
- 17 -
<PAGE>
issue a Letter of Credit hereunder, which certificate shall be in substantially
the form of Exhibit F 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 G 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.
1.97 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.
1.98 S&P Rating. At any time, with respect to any Person, the rating in
effect at such time assigned by Standard and Poor's Ratings Group, a division of
McGraw Hill, Inc., for the long term senior unsecured debt of such Person.
1.99 S&P/Moody's Rating. At any time, with respect to any Person, the
ratings in effect at such time assigned by Standard and Poor's Ratings Group, a
division of McGraw Hill, and Moody's Investors Service, Inc. for the long term
senior unsecured debt of such Person.
1.100 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.
1.101 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
- 18 -
<PAGE>
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. Unless the
context otherwise requires, "Subsidiaries" as used herein shall mean the
Subsidiaries of the Borrower.
1.102 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.
1.103 Super-Majority Banks. At any time, Banks the total of whose
Commitment Ratios with respect to the Commitments exceeds sixty-six and two
thirds percent (66-2/3%) of the aggregate Commitment Ratios with respect to the
Commitments of Banks entitled to vote hereunder.
1.104 Syndication Agent. Bank of America National Trust and Savings
Association, in its capacity as Syndication Agent hereunder.
1.105 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.
1.106 Tangible Net Worth. With respect to the Borrower and its
Restricted Subsidiaries, the net worth of the Borrower and its Restricted
Subsidiaries, as defined under GAAP, less all "intangible assets" created by
Acquisitions and operations subsequent to March 1, 1998. Any non-cash writedowns
of assets after March 1, 1998 will flow through the income statement of the
Borrower and its Restricted Subsidiaries such that its effect on net income will
be included when determining the amount of net income when used to determine
Tangible Net Worth.
1.107 Third Party Notes Payable. With respect to the Borrower and its
Restricted Subsidiaries, all Indebtedness for Money Borrowed other than (a) the
- 19 -
<PAGE>
Obligations and 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 Borrower,
(e) Indebtedness for earnest money and (f) notes payable for insurance premiums
and capitalized lease obligations.
1.108 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
appears in the Wall Street Journal (Eastern Edition), the applicable rate shall
be the highest thereof.
1.109 Total Liabilities. All items required by GAAP to be set forth as
"liabilities" on the Borrower's and its Restricted Subsidiaries' consolidated
balance sheet.
1.110 Unrestricted Subsidiaries. Subsidiaries of the Borrower which are
not Restricted Subsidiaries.
1.111 Unsecured Indebtedness. Indebtedness for Money Borrowed of the
Borrower and its Restricted Subsidiaries which is not secured in whole or in
part by any Lien except Permitted Encumbrances (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).
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
- 20 -
<PAGE>
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 $775,000,000 and the Issuing Bank
agrees to issue Letters of Credit on behalf of the Borrower in an aggregate face
amount not to exceed $50,000,000, all as provided below:
(a) The 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 with respect to the
Loan Commitment, and not jointly, upon the terms and subject to the conditions
of this Agreement, to lend and re-lend to the Borrower, prior to the Maturity
Date, amounts which in the aggregate at any one time outstanding do not exceed
the Available Loan Commitment. Advances under the Loan Commitment may be repaid
and reborrowed from time to time on a revolving basis as set forth herein.
(b) 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 Available Letter of Credit Commitment.
(c) Use of Loan Proceeds. The Administrative Agent, the Banks
and the Borrower agree that the proceeds of the Loans shall be used for general
- 21 -
<PAGE>
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 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
amount of such Bank's portion of the applicable Advance based upon such Bank's
Commitment Ratio in respect to such Loan. 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
- 22 -
<PAGE>
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
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.
- 23 -
<PAGE>
2.3 Interest on Loans .
(a) Prior to Default. Interest on 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 Base Rate times the principal balance outstanding from time to
time under the 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) 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 Maturity Date and
shall accrue until the earlier of (i) waiver or cure (to the satisfaction of the
Super-Majority Banks) of the 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 Available 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 $50,000,000. Each Letter of Credit shall (1) be denominated in U.S.
dollars, and (2) expire no later than the 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 further that the new expiration date does not extend beyond the
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,
- 24 -
<PAGE>
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 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 4
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
- 25 -
<PAGE>
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
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
- 26 -
<PAGE>
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%).
(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)
- 27 -
<PAGE>
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.
(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
- 28 -
<PAGE>
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
Banks, or any of them. This Section 2.4(h) shall survive termination of this
Agreement.
- 29 -
<PAGE>
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) Facility Fee on Loans. The Borrower agrees to pay to the
Administrative Agent for the benefit of the Banks, in accordance with their
respective Commitment Ratios, a facility fee for each calendar quarter based
upon the S&P/Moody's Rating or the Leverage Ratio, as applicable, of the
Borrower and its Restricted Subsidiaries in an amount equal to the applicable
Facility Fee amount set forth on Schedule 1.13 attached hereto multiplied by the
Loan Commitment on the last day of the applicable calendar quarter. The Facility
Fee shall be due and payable quarterly in arrears on the eighteenth (18th) day
of each February, May, August and November for the immediately preceding
calendar quarter and on the Maturity Date. The first payment of the Facility Fee
shall be due and payable on August 18, 1998, based on the S&P/Moody's Rating or
the Leverage Ratio, as applicable, as of June 30, 1998, for the period from the
Agreement Date through June 30, 1998. All Facility Fees shall be fully earned
when due and non-refundable when paid.
(c) Letter of Credit Fees. The Borrower agrees to pay to the
Administrative Agent (i) 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 seven-tenths of one percent (0.7%) per annum (the
"Letter of Credit Fees") and (ii) for the benefit of the Issuing Bank, an
issuing fee in the amount of $100 for each Letter of Credit (which additional
amount shall be due and payable on the date of issuance and renewal). 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
- 30 -
<PAGE>
due and non-refundable when paid. The Administrative Agent shall, promptly after
receipt of the Letter of Credit Fees, distribute such fee 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. Each Bank
shall be issued a Note payable to the order of such 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.
(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
- 31 -
<PAGE>
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 applicable 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 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
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 Loans, fees, and any other amount
- 32 -
<PAGE>
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) 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.
(e) The Borrower agrees that it will indemnify and hold
harmless each Bank and each of their respective employees, representatives,
officers and directors from and against any and all claims, liabilities,
- 33 -
<PAGE>
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 such Bank in any way relating to
or arising out of the making of the Loans, except that the Borrower shall not be
liable to 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
such Bank or any such claims, liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements arising
solely out of a controversy among the Banks. This Section 2.4(h) shall survive
termination of this Agreement.
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
Administrative Agent under this Agreement or any Loan Document; Third, to any
due and unpaid interest which may have accrued on the Loans, pro rata among the
Banks based on the outstanding principal amount of the Loans 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
Loans, pro rata among the Banks based on the principal amount of the Loans
outstanding immediately prior to such payment; Sixth, to the extent any Letters
of Credit are then outstanding, for deposit into the Letter of Credit Reserve
Account; Seventh, to any other Obligations not otherwise referred to in this
Section 2.9 until all such Obligations are paid in full; Eighth, 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
- 34 -
<PAGE>
the Borrower or a Restricted Subsidiary; and Ninth, upon satisfaction in full of
all Obligations, to the Borrower or as otherwise required by law.
Notwithstanding the foregoing, after the occurrence and during the continuance
of a Default or an Event of Default, payments with respect to items Fourth, and
Fifth 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 and other Unsecured Indebtedness.
(a) Calculation of Loan Funding Availability. The Loan Funding
Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that
during any period that the Borrower does not have (i) an S&P Rating of BBB- or
better or (ii) a Moody's Rating of Baa3 or better, the sum of "A" and "B" shall
not exceed (A) prior to the effectiveness of any Acquisition Carve Out, fifty
percent (50%) of the Loan Funding Availability and (B) during the effectiveness
of any Acquisition Carve Out, sixty-seven percent (67%) of any Loan Funding
Availability.
- 35 -
<PAGE>
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, the Borrower shall deliver to the Administrative Agent
an Inventory Summary Report in the form attached hereto as Exhibit C and
incorporated herein. The Inventory Summary 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, 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 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, 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
- 36 -
<PAGE>
does not submit the Inventory Summary 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 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 of all Unsecured Indebtedness 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 other Unsecured Indebtedness has been reduced in an
aggregate amount sufficient to eliminate the excess of the outstanding principal
amount of the Unsecured Indebtedness 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
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 all
Unsecured Indebtedness 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 Unsecured Indebtedness (and unpaid draws
under Letters of Credit) 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
- 37 -
<PAGE>
on the Loans (or provide to the Administrative Agent evidence satisfactory to
the Administrative Agent that other Unsecured Indebtedness has been reduced) or
unpaid draws under Letters of Credit in an amount sufficient to eliminate such
excess of the aggregate outstanding principal balance of the Unsecured
Indebtedness (and unpaid draws under Letters of Credit) over the Loan Funding
Availability, together with accrued and unpaid interest on such excess.
(f) Release of Guaranties. Contemporaneously with the delivery
of an Inventory Summary Report, the Borrower may request the release of any
Restricted Subsidiary from the Subsidiary Guaranty. In the event that the Loan
Funding Availability established by the Administrative Agent pursuant to Section
3.1(e) hereof, without consideration of any Inventory owned by such Restricted
Subsidiary, is equal to or greater than the amount otherwise required pursuant
to Section 3.1(d) hereof, then the Administrative Agent shall, upon receipt of a
certificate from the Borrower that no Default exists before and after giving
effect to such release, release such Restricted Subsidiary from the Subsidiary
Guaranty.
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 Subsidiary Guaranty. A Note by the Borrower
payable to the order of each Bank. A Subsidiary Guaranty from the Guarantors in
favor of the Banks and Administrative Agent.
(b) Taxpayer Identification Number. The Borrower's federal
taxpayer identification number.
- 38 -
<PAGE>
(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
Loans; 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. The
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 that the Loan Documents evidencing the Loans
have been properly executed by the persons author ized to do so;
(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) [RESERVED]
(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
- 39 -
<PAGE>
deliver in connection with any issuance of a Letter of Credit hereunder, as the
case may be.
(g) Other Documents. Other documents that the Administrative
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 5.13 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.
(k) Continental Homes. Executed merger agreement between the
Borrower and Continental Homes, including evidence in form satisfactory to the
Administrative Agent that the merger of Continental Homes with the Borrower is
effective.
4.2 Subsequent Disbursements and Letters of Credit. Prior to requesting
subsequent disbursements under the 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.
(a) Inventory Summary Report. The Inventory Summary Report
that the Borrower is required to deliver pursuant to Section 3.1(b) hereof.
(b) 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.
- 40 -
<PAGE>
(c) 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
- 41 -
<PAGE>
Administrative Agent a certificate signed by an Authorized Signatory of the
Borrower in the form attached hereto as Exhibit H setting forth such
calculations required to establish whether the Borrower was in compliance with
Section 5.7 hereof and setting forth a list of all Guarantors as of the last day
of such fiscal quarter.
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 Leverage Ratio
of not more than 2.25 to 1.
(b) The Borrower shall maintain at all times a ratio of (i)
EBITDA to (ii) Fixed Charges of not less than 2.50 to 1.0.
(c) As of the Agreement Date and continuing thereafter, the
Borrower shall maintain at all times a Tangible Net Worth of not less than three
hundred million and no/100 dollars ($300,000,000.00), 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).
(d) The Borrower shall not at any time permit Third Party
Notes Payable to be greater than twenty percent (20%) of Tangible Assets on a
consolidated basis; provided, however, that this amount shall not be operative
during any period in which the Borrower maintains (i) an S&P Rating of BBB- or
better or (ii) a Moody's Rating of Baa3 or better.
- 42 -
<PAGE>
(e) The total number of Speculative Lots owned by the Borrower
and its Restricted Subsidiaries at any given time shall not exceed fifty percent
(50%) of all Closed Sales during the immediately preceding twelve (12) calendar
months; provided, however, that this total amount shall not be operative during
any period in which the Borrower maintains (i) an S&P Rating of BBB- or better
or (ii) a Moody's Rating of BAA3 or better. Models shall not be considered
"Speculative Lots" for purposes of this Section 5.7(e).
(f) [INTENTIONALLY OMITTED]
(g) The costs of Developed Lots, Lots Under Development, and
Land Parcels owned by the Borrower and all Restricted Subsidiaries as of the
date of determination shall not exceed one hundred fifty percent (150%) of the
net worth (as defined under GAAP) of the Borrower and all Restricted
Subsidiaries, plus fifty percent (50%) of the aggregate principal amount of all
subordinated debt of the Borrower and its Restricted Subsidiaries; provided,
however, such fifty percent (50%) does not exceed twenty percent (20%) of
Tangible Net Worth.
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 Payment of Contractors. The Borrower shall pay in a timely manner,
and shall cause its Restricted 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 Restricted 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 one million
and no/100 dollars ($1,000,000.00) per subdivision or fourteen million and
no/100 dollars ($14,000,000.00) in the aggregate. The Borrower will further make
available to the Administrative Agent, for inspection and copying, on demand,
- 43 -
<PAGE>
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.
5.10 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.
5.11 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.
5.12 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
- 44 -
<PAGE>
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
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.
5.13 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.
5.14 Litigation. The Borrower warrants and represents to the
Administrative Agent, the Issuing Bank and the Banks that as of the Agreement
Date, neither 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.
- 45 -
<PAGE>
5.15 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.
5.16 Secured Indebtedness. The Borrower shall not, and shall not permit
any of its Restricted Subsidiaries to, incur or permit to exist any Indebtedness
which (a) is 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 (i) Indebtedness in favor of a seller
of Inventory to the Borrower which is secured solely by the Inventory
contemporaneously acquired from such seller, (ii) Indebtedness secured solely by
the Borrower's headquarters building located in Arlington, Texas or any other
office building owned by the Borrower or any Restricted Subsidiary, and (iii)
Indebtedness secured by any clubhouse located in any development of the Borrower
or any Restricted Subsidiary.
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;
- 46 -
<PAGE>
(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 which payment default
(other than payment due on the Maturity Date) 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;
(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
- 47 -
<PAGE>
federal or state bankruptcy law or other similar law, make an assignment for the
benefit of creditors, 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 $1,000,000.00, 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 $1,000,000.00 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 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 incurred or is likely to incur liability in
excess of $2,000,000.00 in the aggregate;
- 48 -
<PAGE>
(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; or
(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.
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
Lot or Dwelling Lot, then the Loan Funding Availability shall be immediately
- 49 -
<PAGE>
calculated excluding such parcel. If, as the result of such removal, the
outstanding principal balance under all Unsecured Indebtedness 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 all
Unsecured Indebtedness 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 SuperMajority 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 Commitments, 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 Commitments 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
- 50 -
<PAGE>
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.
(c) 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.
(d) 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
- 51 -
<PAGE>
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 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 any Restricted Subsidiary, 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 any
Restricted Subsidiary, 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.
- 52 -
<PAGE>
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
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.
- 53 -
<PAGE>
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
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
- 54 -
<PAGE>
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 SuperMajority 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
- 55 -
<PAGE>
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
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
- 56 -
<PAGE>
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
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
- 57 -
<PAGE>
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 Syndication Agent. The Syndication Agent shall have no duties or
obligations under this Agreement or the other Loan Documents in its capacity as
Syndication Agent.
7.15 Documentation Agent. The Documentation Agent shall have no duties
or obligations under this Agreement or the other Loan Documents in its capacity
as Documentation Agent.
7.16 Co-Agents. The Co-Agents shall have no duties or obligations under
this Agreement or the other Loan Documents in their capacities as Co-Agents.
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
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.
- 58 -
<PAGE>
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 subject to the last sentence
of this Section 8.2, (i) with the prior written consent of the Administrative
Agent only (which consent shall not be unreasonably withheld), a Bank may assign
not less than one hundred percent (100%) of its interest, rights and obligations
hereunder, and (ii) 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) such assignment is in
compliance with clause (i) of this sentence, or (b) in all other cases, (1) the
assignee shall assume all of the obligations of the assigning Bank under this
Agreement, to the extent of the interest so assigned and (2) following such
assignment, each of the assigning Bank and the assignee shall maintain a Loan
Commitment of not less than twenty-five million dollars ($25,000,000).
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). All
assignments permitted hereunder shall be made pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit I attached hereto. No
Managing Agent may assign any portion of its Loans or Loan Commitment hereunder
without the prior written consent of all Managing Agents (which consent shall
not be unreasonably withheld).
- 59 -
<PAGE>
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;
(b) (i) any change in the timing of, or the amount of,
payments of fees due hereunder or in the method of calculating funding
availability, (ii) any waiver of any Event of Default due to the failure by the
Borrower to pay any sum due hereunder, (iii) any amendment of this Section 8.3
or of the definitions of Majority Banks or Super-Majority Banks, or (iv) the
release of any Guarantor other than in connection with the conversion of such
Guarantor to an Unrestricted Subsidiary or in accordance with Section 3.1(f)
hereof, any amendment or waiver may be made only by an instrument in writing
signed by each of the Banks;
(c) (i) any change in the amount of the Loan Commitment, (ii)
any change in the timing of or the amount of payments of principal, interest or
fees due with respect to the Loans or any change in the rate of interest applied
thereto, any change may be made only by an instrument signed by each of the
Banks; and
Any amendment to accomplish any of the foregoing must also be signed 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. Each Bank agrees that it will not enter into any
financing agreement with the Borrower or any of its Restricted Subsidiaries
without the consent of all of the Banks.
- 60 -
<PAGE>
8.5 Consideration of Renewal. The Banks agree that no later than 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
Maturity Date for a period of not more than one (1) calendar year from the then
current Maturity Date. 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 the 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 Maturity Date. If the Banks and the Borrower
agree to so extend the 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 Maturity Date,
the Maturity Date then in effect with respect to such Bank's 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
Loans, 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
Loans, Loan Commitment and, in the case of Letter of Credit Banks, Letter of
Credit Commitment (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 Loans then outstanding, Letter of Credit Obligations, and accrued and
unpaid interest and fees then outstanding to such Bank. Notwithstanding anything
to the contrary contained herein, any such replacement bank assuming such Loan
Commitment and/or Letter of Credit Commitment shall assume not less than one
hundred percent (100%) of such assigning Bank's Loan Commitment and/or Letter of
Credit Commitment.
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 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
- 61 -
<PAGE>
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 Managing Agents, the
Co-Agents, the Issuing Bank and the Banks, or any of them, in the enforcement of
- 62 -
<PAGE>
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.
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
- 63 -
<PAGE>
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.
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
- 64 -
<PAGE>
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
AS ADMINISTRATIVE AGENT, AS ISSUING BANK AND AS A BANK:
NationsBank, N.A.
70 Mansell Court
Roswell, Georgia 30076
Attn: Henry A. Dyer
Facsimile No.: (770) 642-1261
Telephone No.: (770) 552-3559
- 65 -
<PAGE>
With copy to:
Powell, Goldstein, Frazer & Murphy
16th Floor
191 Peachtree St. N.E.
Atlanta, Georgia 30303
Attn: Douglas S. Gosden
Facsimile No.: (404) 572-6999
Telephone No.: (404) 572-6600
AS SYNDICATION AGENT AND AS A BANK:
Bank of America National Trust and Savings Association
40 East 52nd Street
6th Floor
New York, New York 10022
Attn: Robert Dowling, Vice President
Facsimile No.: (714) 260-5639
Telephone No.: (212) 836-5651
AS DOCUMENTATION AGENT AND AS A BANK:
Fleet National Bank
111 Westminster Street
Suite 800
Providence, Rhode Island 02903
Attn: Patrick Burns
Facsimile No.: (401) 278-5961
Telephone No.: (401) 278-5914
- 66 -
<PAGE>
AS A MANAGING AGENT AND AS A BANK:
Bank United
3200 S.W. Freeway
Suite 2000
Houston, Texas 77027
Attn: Carolynn Alexander
Facsimile No.: (713) 543-6928
Telephone No.: (713) 543-7955
AS A MANAGING AGENT AND AS A BANK:
Comerica Bank
1 Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226-3256
Attn: Dave Campell
Facsimile No.: (313) 222-9295
Telephone No.: (313) 222-9306
AS A MANAGING AGENT AND AS A BANK:
Credit Lyonnais New York Branch
2200 Ross Avenue
Suite 4400 West
Dallas, Texas 75201
Attn: Sam Hill
Facsimile No.: (214) 220-2323
Telephone No.: (214) 220-2300
- 67 -
<PAGE>
AS A MANAGING AGENT AND AS A BANK
Societe Generale, Southwest Agency
2001 Ross Avenue
Suite 4800
Dallas, Texas 75201
Attn: David Oldani
Facsimile No.: (214) 979-1104
Telephone No.: (214) 979-2736
AS A CO-AGENT AND AS A BANK
AmSouth Bank
Commercial Real Estate, 9th Floor
1900 5th Avenue North
Birmingham, Alabama 35203
Attn: Ronny Hudspeth
Facsimile No.: (205) 326-4075
Telephone No.: (205) 307-4227
AS A CO-AGENT AND AS A BANK
Bank One, Arizona, N.A.
201 N. Central
19th Floor
Phoenix, Arizona 85004
Attn: Jennifer Pescatore
Facsimile No.: (602) 221-4435
Telephone No.: (602) 221-2402
- 68 -
<PAGE>
AS A CO-AGENT AND AS A BANK:
PNC Bank, National Association
Two Tower Center
18th Floor
East Brunswick, New Jersey 08816
Attn: Douglas G. Paul
Facsimile No.: (732) 220-3755
Telephone No.: (732) 220-3566
AS A CO-AGENT AND AS A BANK:
The First National Bank of Chicago
Real Estate Finance
One First National Plaza
Suite 0151
Chicago, Illinois 60670-0151
Attn: Gregory A. Gilbert, Vice President
Facsimile No.: (312) 732-1117
Telephone No.: (312) 732-2107
BANKS:
First American Bank Texas, SSB
The Princeton Tower
14651 Dallas Parkway
Suite 400
Dallas, Texas 75240
Attn: William L. Kinard
Facsimile No.: (972) 419-3394
Telephone No.: (972) 419-3413
- 69 -
<PAGE>
Harris Trust and Savings Bank
111 West Monroe
Chicago, Illinois 60603
Attn: Greg Bins
Facsimile No.: (312) 461-2968
Telephone No.: (312) 461-2203
Sanwa Bank California
Real Estate Industries
4041 MacArthur Boulevard
Suite 100
Newport Beach, California 92660
Attn: Russ Wakeham
Facsimile No.: (714) 852-1510
Telephone No.: (714) 632-6007
Norwest Bank Arizona, National Association
Commercial Real Estate Department
3300 N. Central Avenue, 2nd Floor
Phoenix, Arizona 85012
Attn: Kevin Kosan
Facsimile No.: (602) 248-3661
Telephone No.: (602) 248-3655
Summit Bank
3 Valley Square, Suite 280
512 Township Line Road
Blue Bell, Pennsylvania 19422
Attn: Brian Daniel
Facsimile No.: (215) 619-4840
Telephone No. (215) 619-4832
8.15 Final Agreement. THE WRITTEN LOAN DOCUMENTS REPRESENT
- 70 -
<PAGE>
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]
- 71 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year set forth
above.
BORROWER: D.R. HORTON, INC., a Delaware corporation
Date of Execution:
April 21, 1998 By:/s/ David J. Keller
- --------------------- --------------------------------------
Title: Chief Financial Officer
-----------------------------------
ADMINISTRATIVE AGENT,
SYNDICATION AGENT,
DOCUMENTATION AGENT, NATIONSBANK, N.A., as Administrative
MANAGING AGENTS, Agent, Issuing Bank and as a Bank
CO-AGENTS AND BANKS:
By:/s/ Henry A. Dyer, Jr.
Date of Execution: --------------------------------------
April 21, 1998 Title: Senior Vice President
- --------------------- -----------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Syndication Agent and as a Bank
Date of Execution:
April 21, 1998 By:/s/ Robert Dowling
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
FLEET NATIONAL BANK, as Documentation
Agent and as a Bank
Date of Execution:
April 20, 1998 By:/s/ Patrick Burns
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
<PAGE>
BANK UNITED, as a Managing Agent and as a
Bank
Date of Execution:
April 21, 1998 By:/s/ Carolynn Alexander
- --------------------- --------------------------------------
Title:
-----------------------------------
COMERICA BANK, as a Managing Agent and
as a Bank
Date of Execution:
April 20, 1998 By:/s/ David J. Campbell
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
CREDIT LYONNAIS NEW YORK BRANCH,
as a Managing Agent and as a Bank
Date of Execution:
April 21, 1998 By:/s/ Robert Ivosevich
- --------------------- --------------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE>
SOCIETE GENERALE, SOUTHWEST
AGENCY, as a Managing Agent and a Bank
Date of Execution:
April 21, 1998 By:/s/ David C. Oldani
- --------------------- --------------------------------------
Title: Assistant Treasurer
-----------------------------------
Date of Execution:
April 21, 1998 By:/s/ Christopher J. Speltz
- --------------------- --------------------------------------
Title: V.P. and Manager
-----------------------------------
AMSOUTH BANK, as a Co-Agent and a Bank
Date of Execution:
April 21, 1998 By:/s/ Ronny Hudspeth
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
BANK ONE, ARIZONA, NA, as a Co-Agent
and a Bank
Date of Execution:
April 21, 1998 By:/s/ Jenny Pescatore
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
PNC BANK, NATIONAL ASSOCIATION, as
a Co-Agent and as a Bank
Date of Execution:
April 21, 1998 By:/s/ Douglas G. Paul
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO, as a Co-Agent and as a Bank
Date of Execution:
April 21, 1998 By:/s/ Lynn Braun
- --------------------- --------------------------------------
Title: Corporate Banking Officer
-----------------------------------
FIRST AMERICAN BANK TEXAS, SSB, as a
Bank
Date of Execution:
April 21, 1998 By:/s/ William L. Kinard
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
HARRIS TRUST AND SAVINGS BANK, as a
Bank
Date of Execution:
April 21, 1998 By:/s/ Gregory M. Bins
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
SANWA BANK CALIFORNIA, as a Bank
Date of Execution:
April 21, 1998 By:/s/ Russ Wakeham
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
<PAGE>
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION, as a Bank
Date of Execution:
April 21, 1998 By:/s/ Kevin Kosan
- --------------------- --------------------------------------
Title: Vice President
-----------------------------------
SUMMIT BANK, as a Bank
Date of Execution:
April 21, 1998 By:/s/ Brian D. Daniel
- --------------------- --------------------------------------
Title: Vice President, Regional Manager
-----------------------------------
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.13
Multi-Level Pricing Grid
====================================================================================================================
Facility Fee
Leverage Ratio or S&P/Moody's Rating as of (multiply
the quarter end or most recently completed quarter Applicable Margin Commitments by)
=================================================================== ========== =============== ==================
LIBOR + Federal Funds +
<S> <C> <C> <C> <C>
Level I less than 1.00 to 1.00 and better than BBB- or Baa3 37.5 bps 52.5 bps 12.5 bps
Level II 1.0 or greater but not to exceed 1.25 and BBB- or Baa3 57.5 bps 72.5 bps 17.5 bps
Level III greater than 1.25 but not to exceed 1.75 75 bps 90.0 bps 20.0 bps
Level IV greater than 1.75 but not to exceed 2.00 90 bps 105.0 bps 25.0 bps
Level V greater than 2.00 but not to exceed 2.25 105 bps 120.0 bps 30.0 bps
Level VI greater than 2.25 but not to exceed 2.60 125 bps 140.0 bps 30.0 bps
=================================================================== ========== =============== ==================
</TABLE>
<PAGE>
SCHEDULE 1.55
Guarantors
DRHI, Inc., a Delaware corporation
D.R. Horton, Inc. - Minnesota, a Delaware corporation
Meadows I, Ltd., a Delaware corporation
Meadows II, Ltd., a Delaware corporation
Meadows IX, Ltd., a New Jersey corporation
Meadows X, Ltd., a New Jersey corporation
D.R. Horton Denver Management Company, Inc., a Colorado corporation
D.R. Horton Management Company, Ltd., a Texas limited partnership
D.R. Horton, Inc. - Sacramento, a California corporation
D.R. Horton Sacramento Management Company, Inc., a California corporation
D.R. Horton Los Angeles Holding Company, Inc., a California corporation
D.R. Horton, Inc. - Albuquerque, a Delaware corporation
D.R. Horton, Inc. - Birmingham, an Alabama corporation
D.R. Horton, Inc. - Denver, a Delaware corporation
D.R. Horton, Inc. - Greensboro, a Delaware corporation
D.R. Horton, Inc. - New Jersey, a New Jersey corporation
D.R. Horton Los Angeles Management Company, Inc., a California 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-Texas, Ltd., a Texas limited partnership
DRH Construction, Inc., a Delaware corporation
SGS Communities at Grande Quay, L.L.C., a New Jersey limited liability company
D.R. Horton, Inc. - Torrey, a Delaware corporation
S.G. Torrey Atlanta, Ltd., a Georgia corporation
C. Richard Dobson Builders, Inc., a Virginia corporation
Land Development, Inc., a Virginia corporation
Continental Homes of Florida, Inc., a Florida corporation
KDB Homes, Inc., a Delaware corporation
Continental Homes, Inc., a Delaware corporation
L&W Investments, Inc., a California corporation
Continental Ranch, Inc., a Delaware corporation
CHTEX of Austin, Inc., a Delaware corporation
CH Investments of Texas II, Inc., a Delaware corporation
CHI Construction Company, an Arizona company
Continental Homes of Austin, L.P., a Texas limited partnership
Continental Homes of San Antonio, L.P., a Texas limited partnership
Continental Homes of Dallas, L.P., a Texas limited partnership
DRH New Mexico Construction, Inc., a Delaware corporation
DRH Tucson Construction, Inc., a Delaware corporation
Exhibit 10.2
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of the
20th day of April, 1998, by and between D.R. Horton, Inc., a Delaware
corporation (the "Company"), and W. Thomas Hickcox, a director and officer of
the Company (the "Indemnitee").
RECITALS
A. The Indemnitee has been elected as a director and officer
of the Company and the Company desires the Indemnitee to serve in such
capacities. The Indemnitee is willing, subject to certain conditions including
without limitation the execution and performance of this Agreement by the
Company, to serve in such capacities.
B. In addition to the indemnification to which the Indemnitee
is entitled under the certificate of incorporation of the Company (the
"Certificate"), the Company may in its discretion obtain at its sole expense
insurance protecting its officers and directors including the Indemnitee against
certain losses arising out of actual or threatened actions, suits or proceedings
to which such persons may be made or threatened to be made parties. If such
-1-
<PAGE>
insurance is obtained, there can be no assurance that such insurance will not be
cancelled by the insurer or that the Company will elect not to continue or renew
such insurance.
Accordingly, and in order to induce the Indemnitee to serve in
his present capacities, the Company and Indemnitee agree as follows:
1. Continued Service: The Indemnitee will serve as a director
of the Company so long as he is duly elected and qualified in accordance with
the bylaws of the Company (the "Bylaws") or until he resigns in writing in
accordance with applicable law and will continue to serve as an officer of the
Company at the pleasure of its Board of Directors (the "Board") so long as he is
duly appointed or elected by the Board or until he resigns in writing in
accordance with applicable law.
2. Initial Indemnity. (a) The Company shall indemnify the
Indemnitee when he was or is a party or is threatened to be made a party to any
pending, threatened or completed action, suit or proceeding, whether civil,
administrative, investigative or criminal (other than an action by or in the
name of the Company), by reason of the fact that he is or was or had agreed to
become a director or officer of the Company, or is or was serving or had agreed
to serve at the written request of the Company as a director, officer, employee
-2-
<PAGE>
or agent of another corporation, partnership, joint venture, trust or other
enterprise, in any such case owned or controlled by the Company, or by reason of
any action alleged to have been taken or omitted in such capacity, against any
and all costs, charges and expenses, including without limitation, attorneys'
and others' fees and expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnitee in connection therewith and
any appeal therefrom if the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the Indemnitee did not satisfy the foregoing standard of
conduct to the extent applicable thereto.
(b) The Company shall indemnify the Indemnitee when he was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he is or was or had
-3-
<PAGE>
agreed to become a director or officer of the Company, or is or was serving or
had agreed to serve at the written request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in any such case owned or controlled by the Company,
against costs, charges and expenses (including attorneys' and others' fees and
expenses) actually and reasonably incurred by him in connection with the defense
or settlement thereof or any appeal therefrom if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and except that no indemnification shall be made in respect of any
claim, issue or matter as to which the Indemnitee shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
or the court in which such action, suit or proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
-4-
<PAGE>
(c) To the extent that the Indemnitee has been successful on
the merits or otherwise, including without limitation the dismissal of an action
without prejudice, in defense of any action, suit or proceeding referred to in
Sections 2(a) or 2(b) hereof or in defense of any claim, issue or matter
therein, he shall be indemnified against costs, charges and expenses (including
attorneys' and others' fees and expenses) actually and reasonably incurred by
him in connection therewith.
(d) Any indemnification under Sections 2(a) or 2(b) (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination in accordance with Section 4 hereof or any
applicable provision of the Certificate, Bylaws, other agreement, resolution or
otherwise. Such determination shall be made (i) by the Board, by a majority vote
of a quorum consisting of directors who were not parties to such action, suit or
proceeding or (ii) if such a quorum of disinterested directors is not available
or so directs, by independent legal counsel (designated in the manner provided
below in this subsection (d)) in a written opinion or (iii) by the stockholders
of the Company (the "Stockholders"). Independent legal counsel shall be
designated by vote of a majority of the disinterested directors; provided,
-5-
<PAGE>
however, that if the Board is unable or fails to so designate, such designation
shall be made by the Indemnitee subject to the approval of the Company (which
approval shall not be unreasonably withheld). Independent legal counsel shall
not be any person or firm who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or the Indemnitee in an action to determine the Indemnitee's
rights under this Agreement. The Company agrees to pay the reasonable fees and
expenses of such independent legal counsel and to indemnify fully such counsel
against costs, charges and expenses (including attorneys' and others' fees and
expenses) actually and reasonably incurred by such counsel in connection with
this Agreement or the opinion of such counsel pursuant hereto.
(e) All expenses (including attorneys' and others' fees and
expenses) incurred by the Indemnitee in his capacity as a director or officer of
the Company in defending a civil or criminal action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding in the manner prescribed by Section 4(b) hereof.
(f) The Company shall not adopt any amendment to the
Certificate or Bylaws the effect of which would be to deny, diminish or encumber
-6-
<PAGE>
the Indemnitee's rights to indemnity pursuant to the Certificate, Bylaws, the
General Corporation Law of the State of Delaware (the "DGCL") or any other
applicable law as applied to any act or failure to act occurring in whole or in
part prior to the date (the "Effective Date") upon which the amendment was
approved by the Board or the Stockholders, as the case may be. In the event that
the Company shall adopt any amendment to the Certificate or Bylaws the effect of
which is to so deny, diminish or encumber the Indemnitee's rights to indemnity,
such amendment shall apply only to acts or failures to act occurring entirely
after the Effective Date thereof unless the Indemnitee shall have voted in favor
of such adoption as a director or holder of record of the Company's voting
stock, as the case may be.
3. Additional Indemnification. (a) Pursuant to Section 145(f)
of the DGCL, without limiting any right which the Indemnitee may have pursuant
to Section 2 hereof, the Certificate, the Bylaws, the DGCL, any policy of
insurance or otherwise, but subject to the limitations on the maximum
permissible indemnity which may exist under applicable law at the time of any
request for indemnity hereunder determined as contemplated by Section 3(a)
hereof, the Company shall indemnify the Indemnitee against any amount which he
is or becomes legally obligated to pay relating to or arising out of any claim
-7-
<PAGE>
made against him because of any act, failure to act or neglect or breach of
duty, including any actual or alleged error, misstatement or misleading
statement, which he commits, suffers, permits or acquiesces in while acting in
his capacity as a director of the Company, or, at the written request of the
Company, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, in any such case owned or
controlled by the Company. The payments which the Company is obligated to make
pursuant to this Section 3 shall include without limitation damages, judgments,
settlements and charges, costs, expenses, expenses of investigation and expenses
of defense of legal actions, suits, proceedings or claims and appeals therefrom,
and expenses of appeal, attachment or similar bonds; provided, however, that the
Company shall not be obligated under this Section 3(a) to make any payment in
connection with any claim against the Indemnitee:
(i) to the extent of any fine or similar governmental
imposition which the Company is prohibited by applicable law
from paying which results in a final, nonappealable order; or
-8-
<PAGE>
(ii) to the extent based upon or attributable to the
Indemnitee gaining in fact a personal profit to which he was
not legally entitled, including without limitation profits
made from the purchase and sale by the Indemnitee of equity
securities of the Company which are recoverable by the Company
pursuant to Section 16(b) of the Securities Exchange Act of
1934, and profits arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the Securities
Exchange Act of 1934, including Rule l0b-5 promulgated
thereunder.
The determination of whether the Indemnitee shall be entitled to indemnification
under this Section 3(a) may be, but shall not be required to, be made in
accordance with Section 4(a) hereof. If that determination is so made, it shall
be binding upon the Company and the Indemnitee for all purposes.
(b) Expenses (including without limitation attorneys' and
others' fees and expenses) incurred by Indemnitee in defending any actual or
threatened civil or criminal action, suit, proceeding or claim shall be paid by
the Company in advance of the final disposition thereof as authorized in
accordance with Section 4(b) hereof.
-9-
<PAGE>
4. Certain Procedures Relating to Indemnification and
Advancement of Expenses. (a) Except as otherwise permitted or required by the
DGCL, for purposes of pursuing his rights to indemnification under Sections
2(a), 2(b) or 3(a) hereof, as the case may be, the Indemnitee may, but shall not
be required to, (i) submit to the Board a sworn statement of request for
indemnification substantially in the form of Exhibit 1 attached hereto and made
a part hereof (the "Indemnification Statement") averring that he is entitled to
indemnification hereunder; and (ii) present to the Company reasonable evidence
of all indemnification amounts for which payment is requested. Submission of an
Indemnification Statement to the Board shall create a presumption that the
Indemnitee is entitled to indemnification under Sections 2(a), 2(b) or 3(a)
hereof, as the case may be, and the Board shall be deemed to have determined
that the Indemnitee is entitled to such indemnification unless within 30
calendar days after submission of the Indemnification Statement the Board shall
determine by vote of a majority of the directors at a meeting at which a quorum
is present, based upon clear and convincing evidence (sufficient to rebut the
foregoing presumption) and the Indemnitee shall have received notice within such
period in writing of such determination that the Indemnitee is not so entitled
-10-
<PAGE>
to indemnification, which notice shall disclose with particularity the evidence
in support of the Board's determination. The foregoing notice shall be sworn to
by all persons who participated in the determination and voted to deny
indemnification. The provisions of this Section 4(a) are intended to be
procedural only and shall not affect the right of the Indemnitee to
indemnification under this Agreement and any determination by the Board that the
Indemnitee is not entitled to indemnification and any failure to make the
payments requested in the Indemnification Statement shall be subject to judicial
review as provided in Section 6 hereof.
(b) For purposes of determining whether to authorize
advancement of expenses pursuant to Section 2(e) hereof, the Indemnitee shall
submit to the Board a sworn statement of request for advancement of expenses
substantially in the form of Exhibit 2 attached hereto and made a part hereof
(the "Undertaking"), averring that (i) he has reasonably incurred or will
reasonably incur actual expenses in defending an actual civil or criminal
action, suit, proceeding or claim and (ii) he undertakes to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company under this Agreement or otherwise. For purposes of requesting
advancement of expenses pursuant to Section 3(b) hereof, the Indemnitee may, but
-11-
<PAGE>
shall not be required to, submit an Undertaking or such other form of request as
he determines to be appropriate (an "Expense Request"). Upon receipt of an
Undertaking or Expense Request, as the case may be, the Board shall within 10
calendar days authorize immediate payment of the expenses stated in the
Undertaking or Expense Request, as the case may be, whereupon such payments
shall immediately be made by the Company. No security shall be required in
connection with any Undertaking or Expense Request and any Undertaking or
Expense Request shall be accepted without reference to the Indemnitee's ability
to make repayment.
5. Subrogation; Duplication of Payments. (a) In the event of
payment under this Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of the Indemnitee, who shall
execute all papers required and shall do everything that may be necessary to
secure such rights, including the execution of such documents necessary to
enable the Company effectively to bring suit to enforce such rights.
(b) The Company shall not be liable under this Agreement to
make any payment in connection with any claim made against the Indemnitee to the
-12-
<PAGE>
extent the Indemnitee has actually received payment (under any insurance policy,
the Certificate, the Bylaws or otherwise) of the amounts otherwise payable
hereunder.
6. Enforcement. (a) If a claim for indemnification made to the
Company pursuant to Section 4 hereof is not paid in full by the Company within
30 calendar days after a written claim has been received by the Company, the
Indemnitee may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim.
(b) In any action brought under Section 6(a) hereof, it shall
be a defense to a claim for indemnification pursuant to Sections 2(a) or 2(b)
hereof (other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the
Undertaking, if any is required, has been tendered to the Company) that the
Indemnitee has not met the standards of conduct which make it permissible under
the DGCL for the Company to indemnify the Indemnitee for the amount claimed, but
the burden of proving such defense shall be on the Company. Neither the failure
of the Company (including the Board, independent legal counsel or the
Stockholders) to have made a determination prior to commencement of such action
that indemnification of the Indemnitee is proper in the circumstances because he
-13-
<PAGE>
has met the applicable standard of conduct set forth in the DGCL, nor an actual
determination by the Company (including the Board, independent legal counsel or
the Stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct.
(c) It is the intent of the Company that the Indemnitee not be
required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Indemnitee hereunder. Accordingly, if it should appear to the
Indemnitee that the Company has failed to comply with any of its obligations
under the Agreement or in the event that the Company or any other person takes
any action to declare the Agreement void or unenforceable, or institutes any
action, suit or proceeding designed (or having the effect of being designed) to
deny, or to recover from, the Indemnitee the benefits intended to be provided to
the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from
time to time to retain counsel of his choice, at the expense of the Company as
hereafter provided, to represent the Indemnitee in connection with the
initiation or defense of any litigation or other legal action, whether by or
-14-
<PAGE>
against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges and expenses, including without limitation attorneys' and others' fees
and expenses, reasonably incurred by the Indemnitee (i) as a result of the
Company's failure to perform this Agreement or any provision thereof or (ii) as
a result of the Company or any person contesting the validity or enforceability
of this Agreement or any provision thereof as aforesaid.
7. Merger or Consolidation. In the event that the Company
shall be a constituent corporation in a consolidation, merger or other
reorganization, the Company, if it shall not be the surviving, resulting or
other corporation therein, shall require as a condition thereto the surviving,
resulting or acquiring corporation to agree to indemnify the Indemnitee to the
full extent provided in Section 3 hereof. Whether or not the Company is the
resulting, surviving or acquiring corporation in any such transaction, the
Indemnitee shall also stand in the same position under this Agreement with
respect to the resulting, surviving or acquiring corporation as he would have
with respect to the Company if its separate existence had continued.
-15-
<PAGE>
8. Nonexclusivity and Severability. (a) The right to
indemnification provided by this Agreement shall not be exclusive of any other
rights to which the Indemnitee may be entitled under the Certificate, Bylaws,
the DGCL, any other statute, insurance policy, agreement, vote of Stockholders
or of directors or otherwise, both as to actions in his official capacity and as
to actions in another capacity while holding such office, and shall continue
after the Indemnitee has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his heirs, executors and administrators.
(b) If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid and legal.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflict of laws thereof.
-16-
<PAGE>
10. Modification; Survival. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof. This Agreement
may be modified only by an instrument in writing signed by both parties hereto.
The provisions of this Agreement shall survive the death, disability, or
incapacity of the Indemnitee or the termination of the Indemnitee's service as a
director of the Company and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators.
11. Certain Terms. For purposes of this Agreement, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on Indemnitee with respect to
any employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee or agent of
the Company which imposes duties on, or involves services by, the Indemnitee
with respect to an employee benefit plan, its participants or beneficiaries;
references to the masculine shall include the feminine; references to the
singular shall include the plural and vice versa; and if the Indemnitee acted in
good faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan he shall be deemed to
-17-
<PAGE>
have acted in a manner "not opposed to the best interests of the Company" as
referred to herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
D.R. HORTON, INC.
By /s/ Donald R. Horton
--------------------------------------
Donald R. Horton
President
/s/ W. Thomas Hickcox
--------------------------------------
W. Thomas Hickcox
-18-
<PAGE>
Exhibit 1
INDEMNIFICATION STATEMENT
STATE OF TEXAS ss.
ss. SS.
COUNTY OF TARRANT ss.
I, ______________________________, being first duly sworn, do
depose and say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated as of ____________________, 199__, between D.R.
Horton, Inc., a Delaware corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against charges, costs,
expenses (including attorneys' and others' fees and expenses), judgments, fines
and amounts paid in settlement, all of which (collectively, "Liabilities") have
been or will be incurred by me in connection with an actual or threatened
action, suit, proceeding or claim to which I am a party or am threatened to be
made a party.
3. With respect to all matters related to any such action,
suit, proceeding or claim, I am entitled to be indemnified as herein
contemplated pursuant to the aforesaid Indemnification Agreement.
4. Without limiting any other rights which I have or may have,
I am requesting indemnification against Liabilities which
-19-
<PAGE>
have or may arise out of
-------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------.
--------------------------------
Name:
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this _____ day of _________________, 19___.
--------------------------------
[Seal]
My commission expires the ______ day of _____________________,
19___.
-20-
<PAGE>
Exhibit 2
UNDERTAKING
STATE OF TEXAS ss.
ss. SS
COUNTY OF TARRANT ss.
I, ___________________________, being first duly sworn do
depose and say as follows:
1. This Undertaking is submitted pursuant to the
Indemnification Agreement, dated as of ____________________, 199___, between
D.R. Horton, Inc., a Delaware corporation (the
"Company"), and the undersigned.
2. I am requesting advancement of certain costs, charges and
expenses which I have incurred or will incur in defending an actual or pending
civil or criminal action, suit, proceeding or claim.
3. I hereby undertake to repay this advancement of expenses if
it shall ultimately be determined that I am not entitled to be indemnified by
the Company under the aforesaid Indemnification Agreement or otherwise.
4. The costs, charges and expenses for which advancement is
requested are, in general, all expenses related to
-----------------------------
-21-
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------.
--------------------------------
Name:
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ______ day of ___________________, 19___.
--------------------------------
[Seal]
My commission expires the _______ day of __________________, 19___.
-22-
EXHIBIT 10.3
CONTINENTAL HOMES HOLDING CORP.
1988 STOCK INCENTIVE PLAN
(As amended and restated June 20, 1997)
1. Purposes:
The purposes of the Continental Homes Holding Corp. 1988 Stock Incentive
Plan (the "Plan") are (a) to provide incentives to those key employees of
Continental Homes Holding Corp. (the "Company") and its subsidiaries whose
performance will contribute to the long-term success and growth of the Company,
(b) to strengthen the ability of the Company to attract and retain employees of
high competence, (c) to increase the identity of interests of such employees
with those of the Company's stockholders, and (d) to help build loyalty to the
Company through recognition and the opportunity for stock ownership.
2. Elements of the Plan
The Plan provides the Company's Board of Directors (the "Board") with the
discretion to grant or award participants incentives relating to the Company's
common stock utilizing (a) incentive stock options, (b) nonqualified stock
options which may be coupled with stock appreciation rights and/or (c)
restricted stock. These benefits may be granted to participants singly or in any
combination which the Board deems appropriate.
3. Shares Subject to the Plan
The maximum aggregate number of shares as to which awards or options may at
any time be granted under this Plan shall be 1,000,000 shares of common stock,
par value $.01 per share (the "Common Shares"), subject to adjustment in
accordance with Section 9 hereof. Such Common Shares may be either authorized
but unissued shares or shares previously issued and reacquired by the Company.
If and to the extent options granted under the Plan terminate, expire or are
canceled without having been exercised, or if any shares of restricted stock are
forfeited, the shares subject to such option or award shall again be available
for purposes of the Plan. The maximum number of Common Shares with respect to
which stock options or stock appreciation rights may be granted to any
participant during any fiscal year shall be 100,000. The maximum number of
Common Shares which may be issued under the Plan as restricted stock shall be
100,000.
4. Plan Administration
The Plan shall be administered by the Board. The Board may delegate this or
any other authority granted to it hereunder to a committee which shall consist
of at least three members of the Board (the "Stock Incentive Committee").
Members of the Stock Incentive Committee shall be eligible to participate in the
Plan, so long as grants to such members are ratified by the Company's Board of
Directors other than the members of such Committee (any references herein to the
"Board" shall be deemed to refer to either the Board or the Stock Incentive
Committee if the Board has delegated administrative authority to such
Committee). The Board shall have the sole authority to determine (a) the
employees to whom options and awards shall be granted under the Plan; (b) the
type, size and terms of the options and awards to be granted to each employee
selected; (c) the time when options and awards will be granted and the duration
of the exercise period; and (d) any other matters arising under the Plan. The
Board shall have full power and authority to administer and interpret the Plan
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for conduct of its business as it deems necessary or
<PAGE>
advisable. The Board's interpretations of the Plan and all determinations made
by the Board pursuant to the powers vested in it hereunder shall be conclusive
and binding on all persons having any interest in the Plan or in any options or
awards granted hereunder.
A majority of the Board shall constitute a quorum for purposes of meetings
which may be held at such times and places and on such notice as the Board deems
appropriate. All actions and determinations of the Board shall be made by not
less than a majority of its members and may be made at a meeting or by written
consent in lieu of a meeting.
5. Eligibility for Participation
Officers, directors and other key employees of the Company or any
subsidiary (as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code")), of the Company (a "Subsidiary") shall be eligible to
participate in the Plan (the "Participants"). Nothing contained in this Plan
shall be construed to limit the right of the Company or any Subsidiary to grant
options otherwise than under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation, or otherwise, of the business or assets
of any corporation, firm or association, including options granted to employees
thereof who become employees of the Company or a Subsidiary, or for other proper
corporate purposes.
6. Granting of Options
(a) As of the effective date set forth in Section 23 hereof, the Board
shall have the right to grant Participants options that are intended to be
"Incentive Stock Options" within the meaning of Section 422 of the Code until
the tenth anniversary of the date on which the Board approved the Plan and/or
other stock options on the terms and conditions set forth herein ("Nonqualified
Stock Options") or any combination of Incentive Stock Options and Nonqualified
Stock Options. The Purchase price of each Common Share to an Incentive Stock
Option shall be the Fair Market Value (as hereinafter defined) of a share of
such stock on the date the Incentive Stock Option is granted, provided, however,
that any Incentive Stock Option granted to a Participant who owns more than 10%
of the total combined voting power of all classes of stock of the Company or any
Subsidiary (a "10% Stockholder") shall not be less than 110% of such Fair Market
Value. The purchase price of each Common Share subject to a Nonqualified Stock
Option shall be determined by the Board on or before the date such Nonqualified
Stock Option is granted, but may not be less than 85% of the Fair Market Value
of the Common Shares on the date of grant. For purposes of this Plan, Fair
Market Value shall be deemed to be equal to the last reported sales price on the
applicable date, or if no sales price is available for such date, the average of
the closing bid and asked prices for such date, on (i) the New York Stock
Exchange ("NYSE"), if the Common Shares are then listed on such exchange, (ii)
if the Common Shares are not listed on the NYSE, on the principal national stock
exchange on which the Common Shares are then listed, or (iii) if not listed on
any national stock exchange, as reported by NASDAQ. If the Common Shares are not
then listed on any national stock exchange or reported by NASDAQ (or if no
current bid and asked price is available), then the Fair Market Value shall be
determined in any reasonable manner approved by the Board.
(b) The aggregate Fair Market Value (determined as of the date of grant) of
the Common Shares subject to Incentive Stock Options that first become
exercisable by a Participant in any calendar year under this Plan or any other
plan maintained by the Company or any Subsidiary may not exceed $100,000.
(c) The Board may prescribe such other terms as it deems desirable or as
may be necessary to qualify the options granted hereunder as Incentive Stock
Options under the provisions of Section 422 of the Code. The Board may also
authorize acceleration of the exercise of an option or installment thereof.
<PAGE>
7. Term of Options
Unless the option agreement pursuant to which options are granted (the
"Option Agreement") provides otherwise, options granted hereunder shall be
exercisable for a term of ten years from the date of grant (the "Expiration
Date"); provided, however, that any Incentive Stock Option granted to a 10%
Stockholder may not be exercisable for a term of more than five years from the
date of grant.
8. Exercise of Options
(a) Unless the Board provides otherwise and such provision is reflected in
the terms of the Option Agreement, Incentive Stock Options will become
exercisable in installments on a cumulative basis at a rate of twenty-five
percent (25%) each year beginning on the first anniversary of the date of grant.
No Nonqualifed Stock Option will become exercisable prior to six months after
the date of grant; thereafter, Nonqualified Stock Options will become
exercisable at such time and for such number of Common Shares as the Board, in
its sole discretion, shall determine.
(b) Unless the option agreement provides otherwise, options granted
hereunder shall be exercisable for cash or any other property (including Common
Shares or promissory notes) deemed acceptable by the Board; provided that, in
the case of payment by a promissory note, the Participant shall pay in cash or
other property an amount equal to at least the par value of the Common Shares
being purchased, and, if the option is an Incentive Stock Option, the note shall
bear a sufficient rate of interest so that the exercise price for the purposes
of the Code shall be no less than the Fair Market Value of the Common Shares
being purchased.
(c) Except as otherwise provided herein, no option may be exercised at any
time, unless the holder is then a regular employee of the Company or a
Subsidiary and has continuously remained an employee at all times (other than on
an absence for an approved leave of absence or service in the Armed Forces)
since the date of grant of such option.
(d) Options shall be exercised by a Participant giving written notice of
such exercise to the Company, provided that an option may not be exercised at
any one time as to less than 100 Common Shares ( or such number of Common Shares
as to which the option is then exercisable if less than 100). No fractional
shares, or cash in lieu thereof shall be issued under this Plan or under any
option granted hereunder.
(e) An Incentive Stock Option shall be exercisable during a Participant's
lifetime only by the Participant, or if the Participant has become disabled, by
his legal representative.
9. Adjustments for Certain Events
The total number of Common Shares available for options or awards under the
Plan and option rights (both as to the number of Common Shares and the per share
option price) shall be appropriately adjusted for any increase or decrease in
the number of outstanding Common Shares resulting from payment of a stock
dividend on the Common Shares, a subdivision or combination of Common Shares, or
a reclassification of the Common Shares, and (in accordance with the provisions
contained in the next paragraph) in the event of a recapitalization of the
Company or a consolidation or merger in which the Company shall be the surviving
corporation.
After any merger of one or more corporations into the Company in which the
Company shall be the surviving corporation, or after any consolidation of the
Company and one or more corporations, or after any recapitalization of the
Company, each Participant shall, at no additional cost, be entitled, upon any
exercise of his option, to receive (subject to any required action by
stockholders), in lieu of the number of shares as
<PAGE>
to which such option shall then be so exercised, the number and class of shares
of stock or other securities to which such Participant would have been entitled
pursuant to the terms of the agreement of merger or consolidation or the plan of
recapitalization if at the time of such merger or consolidation or
recapitalization such Participant had been a holder of record of a number of
Common Shares equal to the number of shares as to which such option shall then
be so exercised. Comparable rights shall accrue to each Participant in the event
of successive recapitalizations, mergers, or consolidations of the character
described above.
In the event of any sale of all or substantially all of the assets of the
Company, or any merger of the Company into another corporation in which the
Company is not the surviving corporation, or any merger in which the holders of
capital stock of the Company receive cash or other consideration in exchange for
their shares, or any dissolution or liquidation of the Company or, in the
discretion of the Board, any consolidation or other reorganization in which it
is impossible or impracticable to continue in effect options granted under the
Plan, the Company shall, at least 20 days prior to the scheduled closing of such
event, send a written notice to each Participant by registered or certified mail
or personal delivery stating that if such Participant's option is not exercised
by the close of business on the business day immediately preceding the date of
the scheduled closing of such event it shall terminate and the Board may, in its
discretion, determine (and if it does so the Company's notice shall so state)
that options granted under the Plan shall be exercisable in full during such
20-day period; provided that the Company has given the foregoing notice, any
portion of such Participant's option remaining unexercised at the close of
business on such day shall terminate unless the closing of such event shall not
occur (whether it occurs on the scheduled date or a later date), in which case
the Company's notice shall be of no further effect. However, the Board may, in
its discretion, require instead, if any corporation acquiring the stock or
assets of the Company or into which the Company merged is willing and able to
assume all outstanding options granted under the Plan and such options shall not
thereby lose their character as Incentive Stock Options, that such options to
the extent not previously exercised shall be assumed by such other corporation
and the preceding sentence shall not apply.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Board in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an option, and, provided that any such adjustment
with respect to an Incentive Stock Option in connection with a transaction to
which Section 424(a) of the Code applies shall be done in accordance with the
provisions of such Section 424(a) unless the Board specifically determines
otherwise.
10. Exercise on Termination of Employment
(a) Incentive Stock Options
Except as provided in the next sentence, if a Participant ceases to be an
employee any unexercised Incentive Stock Option shall terminate. If prior to the
Expiration Date a Participant ceases to be an employee by reason of (i) death or
disability within the meaning of Section 22 (e)(3) of the Code, he (or, in the
event of the Participant's death, his estate) may exercise any Incentive Stock
Options he holds for a period of one year after the date of cessation of
employment or (ii) termination by the Company other than "for cause," he may
exercise any Incentive Stock Options he holds for a period of three months after
the date of cessation of employment, in either case, to the extent that such
options were exercisable at the date of such cessation. Thereafter, any
unexercised portion of the option shall terminate. Notwithstanding the
foregoing, in no event shall Incentive Stock Options be exercisable after the
Expiration Date. For purposes of this Plan, termination "for cause" shall mean
cessation of employment due to (i) the Participant's failure to perform his
duties, (ii) the commission by the participant of an act of gross dishonesty or
willful and deliberate disloyalty in connection with this employment, or (iii)
the conviction of the Participant of any felony, whether or not involving or in
connection with his employment.
<PAGE>
(b) Nonqualified Stock Options
(i) If a Participant ceases to be an employee by reason of his retirement
at or after age 65, permanent and total disability (as determined by the Board)
or termination by the Company other than "for cause", any unexercised portion of
his Nonqualified Stock Option shall expire three months after such retirement,
disability or termination, as the case may be, and during such three months'
period, the Participant shall have the same rights to exercise the unexercised
portion of his Nonqualified Stock Option as he would have had if he were still
an employee of the Company. Notwithstanding the foregoing, in no event shall
Nonqualified Stock Options be exercisable after the Expiration Date.
(ii)If, prior to the expiration of any Nonqualified Stock Option, a
Participant shall die while an employee of the Company, any unexercised portion
of such option shall expire one year after his death and during such one-year
period his legal representative, heirs or legatees shall have the same rights to
exercise the unexercised portion of the option as the Participant would have had
if he were still an employee of the Company. Notwithstanding the foregoing, in
no event shall nonqualifed Stock Options be exercisable after the Expiration
Date.
(iii)Except as provided in clauses (i) and (ii) of this Section 10(b), if a
Participant ceases employment for any reason prior to the Expiration Date of any
Nonqualified Stock Option, the unexercised portion of such option shall
automatically terminate, unless the Board in its sole discretion shall determine
otherwise.
11. Stock Appreciation Rights
(a) Concurrently with each grant of a Nonqualified Stock Option under this
Plan, the Board may grant a Participant a "Stock Appreciation Right" which shall
provide the Participant the right to receive cash or, subject to the provisions
of Section 11(c) hereof, Common Shares or a combination of cash and Common
Shares in lieu of the purchase of Common Shares under such option. Such rights
shall only be granted in conjunction with Nonqualified Stock Options and may not
be granted alone.
(b) The amount to which a Participant shall be entitled upon the exercise
of any Stock Appreciation Right shall be determined by multiplying (i) the
number of Common Shares with respect to which the Stock Appreciation Right is
exercised by (ii) the amount, if any, by which the Fair Market Value of a Common
Share on the exercise date exceeds the exercise price of the related
Nonqualified Stock Option. Subject to the provisions of Section 11(c) hereof,
such amount shall be paid, in either cash, Common Shares (valued at their Fair
Market Value on the date the Stock Appreciation Rights are exercised), or a
combination of cash and Common Shares, in the manner specified by the Board in
its sole discretion.
(c) Unless the Board, in its sole discretion, provides otherwise, Stock
Appreciation Rights shall be exercisable upon the same conditions as the related
Nonqualifed Stock Option is exercisable under Sections 7, 8 and 10(b) hereof;
provided, however, that a Participant wishing to exercise a Stock Appreciation
Right shall give written notice of such exercise to the Board stating the number
of a Nonqualified Stock Options and Stock Appreciation Rights he wishes to
exercise at such time and the form of payment for the Stock Appreciation Rights
he wishes to receive. The Board, in its sole discretion, shall determine whether
to honor the Participant's request to receive cash upon the exercise of his
Stock Appreciation Rights. The Board (i) may condition exercise of Stock
Appreciation Rights on the Participant's written agreement to hold all Common
Shares received upon exercise of the related Nonqualified Stock Option for a
period of one year, (ii) in the case of any Participant whose status as a
director, officer or shareholder of the Company would subject him to liability
for "short swing" profits pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended, to the extent then in force, shall limit the period
<PAGE>
during which Stock Appreciation Rights may be exercised (in whole or in part)
for cash to the extent necessary to exempt the exercise of Stock Appreciation
Rights for cash from such liability and (iii) may impose any other term or
condition on exercise which the Board deems appropriate.
(d) The exercise of any Stock Appreciation Right shall reduce the number of
Common Shares subject to the related Nonqualified Stock Option.
12. Restricted Stock Awards
(a) The Board shall have the authority to award Participants Common Shares
which shall be restricted as provided herein to avoid immediate taxation under
the Code.
(b)Such restricted stock may not be sold, transferred or otherwise disposed
of and shall not be pledged or otherwise hypothecated by a Participant, except
as provided below. As a condition to the receipt of any Common Shares awarded
under this Plan, a Participant shall execute and deliver to the Company an
instrument in writing, in form approved by the Board, wherein he agrees to the
above restrictions and the legending of the certificates representing his Common
Shares with respect thereto. Notwithstanding such restrictions, however, a
Participant shall be entitled to receive all dividends declared on and to vote
any Common Shares held by him and to all other rights of a stockholder with
respect thereto.
(c) If a Participant terminates his employment for any reason, his rights
with respect to any Common Shares which remain restricted hereunder shall be as
provided in a written agreement between the Participant and the Company relating
to the award and forfeiture of shares hereunder.
(d) Subject to subsection (c) hereof or to the extent provided in any
written agreement between the Participant and the Company relating to the award
of Common Shares hereunder, the restrictions set forth in this Section 12 on the
sale, transfer or other disposition and on the pledge or other hypothecation of
Common Shares awarded under this Plan shall lapse ratably over a period of five
years from the date of award.
13. Forfeiture of Benefits
Notwithstanding any other provision of this Plan, no payment of any unpaid
award shall be made, and any and all unexercised options and all rights under
the Plan of a Participant who received such award or option grant (or his
designated beneficiary or legal representatives) to the payment or exercise
thereof, shall be forfeited if, prior to the time of such payment or exercise,
the Participant shall (i) be employed by a competitor of, or shall be engaged in
any activity in competition with, the Company without the Company's consent,
(ii) divulge without the Company's consent any secret or confidential
information belonging to the Company, or (iii) engage in any other activities
which would constitute grounds for termination "for cause," as defined in
Section 10 of this Plan.
14. Payments on Death
If a Participant dies before receiving full payment of all amounts to which
he is entitled under this Plan, the remaining payments shall be paid when due to
his designated beneficiary, as designated in such Participant's Option
Agreement, or, in the absence of such designation, to his estate.
15. Transferability of Options and Awards
A Participant's rights and interest under the Plan (including the right to
payment of unpaid installments of awards or the exercise of unexercised options)
<PAGE>
may not be assigned or transferred except, in the case of a Participant's death,
to the person or persons to whom the option shall have been transferred by will
or the laws of descent and distribution.
16. Amendment and Termination
The Board may at any time and from time to time terminate, modify or amend
the Plan in any respect; provided, however, that unless also approved or
ratified by a vote of the holders of the outstanding shares of the capital stock
of the Company entitled to a majority of the voting power of the Company, any
such modification or amendment shall not (subject, however, to the provisions of
Section 9 hereof); (i) increase the maximum number of Common Shares for which
options and awards may be granted under the Plan; (ii) reduce the option price
at which options may be granted; (iii) extend the period during which options
may be granted or exercised beyond the times originally prescribed; (iv) change
the persons eligible to participate in the Plan; or (v) increase the number of
options or awards that may be granted to a Participant or materially increase
the benefits accruing to Participants under the Plan. No such termination,
modification or amendment may affect the rights of a Participant under an
outstanding option or the grantee of an award. Nevertheless, with the consent of
the Participant affected, the Committee may amend outstanding options and awards
in a manner not inconsistent with the terms of the Plan.
17. Funding of Plans
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any option or award under this Plan and payment of options
and awards shall be subordinate to the claims of the Company's general
creditors. In no event shall interest be paid or accrued on any option or award,
including unpaid installments of options or awards.
18. Rights of Participant
No Participant or other person shall have any claim or right to be granted
an option or award under this Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any Participant any right to be retained
in the employ of the Company.
19. Rights as a Stockholder
A Participant or a transferee of an option shall have no rights as a
stockholder with respect to any Common Share covered by his option until he
shall have become the holder of record of such share, and except for stock
dividends as provided in Section 9 hereof, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights in respect of such share for which
the record date is prior to the date on which he shall become the holder of
record thereof.
20. Agreements with Participants
Each award or grant made under this Plan shall be evidenced by a written
instrument containing such terms and conditions as the Board shall approve. Each
such agreement shall provide that, as a condition to the award or grant
evidenced thereby, the Participant agrees that the Company shall arrange to
deduct from any payments of any kind otherwise due to the Participant from the
Company or a Subsidiary, the aggregate amount of federal, state or local taxes
of any kind required by law to be withheld with respect thereto, or if no such
payments are due or become due to the Participant, that the Participant shall
<PAGE>
pay to the Company, or make arrangements satisfactory to the Company regarding
the payment to it of, the aggregate amount of such taxes.
21. Requirements for Issuance of Shares
No Common Shares shall be issued or transferred hereunder unless and until
all legal requirements applicable to the issuance or transfer of such shares
have been complied with to the satisfaction of the Board. The Board shall have
the right to condition any award or the issuance of Common Shares made to any
Participant hereunder on such Participant's undertaking in writing to comply
with such restrictions on his subsequent disposition of such shares as the Board
shall deem necessary or advisable as a result of any applicable law, regulation
or official interpretation thereof, and certificates representing such shares
may be legended to reflect any such restrictions.
22. Headings
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
23. Effective Date and Designation of the Board
Subject to the approval of the Company's stockholders entitled to vote
hereon, this Plan shall be effective as of September 1, 1988 and shall continue
in effect thereafter until terminated or suspended by the Board.
EXHIBIT 10.4
RESTATED
CONTINENTAL HOMES HOLDING CORP.
1986 STOCK INCENTIVE PLAN
1. Purposes
The purposes of the 1986 Stock Incentive Plan (the "Plan") are (i) to
provide incentives to those key employees whose performance will contribute to
the long-term success and growth of Continental Homes Holding Corp. (the
"Company"), (ii) to strengthen the ability of the Company to attract and retain
employees of high competence, (iii) to increase the identity of interests of
such employees with those of the Company's stockholders, and (iv) to help build
loyalty to the Company through recognition and the opportunity for stock
ownership.
2. Elements of the Plan
The Plan provides the Company's Board of Directors (the "Board") with
the discretion to grant or award participants incentives relating to the
Company's common stock, par value $.10 per share ("Common Stock"), utilizing (1)
incentive stock options, (2) nonqualified stock options which may be coupled
with stock appreciation rights and/or (3) restricted stock. These benefits may
be granted to participants singly or in any combination which the Board deems
appropriate.
3. Shares Subject to the Plan
The maximum aggregate number of shares as to which awards or options
may at any time be granted under this Plan shall be 200,000 shares of Common
Stock, subject to adjustment after the effective date set forth in Section 24
hereof as provided in Section 22 hereof. Such shares of Common Stock may be
either authorized but unissued shares, or shares previously issued and
reacquired by the Company. If and to the extent options granted under the Plan
terminate, expire or are canceled without having been exercised, or if any
1
<PAGE>
shares of restricted stock are forfeited, the shares subject to such option or
award shall again be available for purposes of the Plan.
4. Plan Administration
The Plan shall be administered by the Board. The Board may delegate
this or any other authority granted to it hereunder to a committee which shall
consist of at least three members of the Board (the "Incentive Compensation
Committee"). No member of the Incentive Compensation Committee shall be eligible
to participate in the Plan, if authority to administer the Plan has been
delegated to the Committee (any references herein to the "Board" shall be deemed
to refer to either the Board or the Incentive Compensation Committee if the
Board has delegated administrative authority to such committee). The Board shall
have the sole authority to determine (a) the employees to whom options and
awards shall be granted under the Plan; (b) the type, size and terms of the
awards to be made to each employee selected; (c) the time when awards will be
granted and the duration of the exercise period; and (d) any other matters
arising under the Plan. The Board shall have full power and authority to
administer and interpret the Plan and to adopt or amend such rules, regulations,
agreements and instruments for implementing the Plan and for conduct of its
business as it deems necessary or advisable. The Board's interpretations of the
Plan and all determinations made by the Board pursuant to the powers vested in
it hereunder shall be conclusive and binding on all persons having any interest
in the Plan or in any awards granted hereunder.
A majority of the Board shall constitute a quorum for purposes of
meetings which may be held at such times and places and on such notice as the
Board deems appropriate. All actions and determinations of the Board shall be
made by not less than a majority of its members and may be made at a meeting or
by written consent in lieu of a meeting.
5. Eligibility for Participation
2
<PAGE>
Officers and other key employees of the Company or any subsidiary (as
defined in Section 425(f) of the Internal Revenue Code, as amended (the "Code"))
of the Company (a "Subsidiary") shall be eligible to participate in the Plan
(the "Participants"). A director of the Company or any Subsidiary who is not
also an employee of the Company or a Subsidiary will not be eligible to
participate in the Plan. Nothing contained in this Plan shall be construed to
limit the right of the Company or any Subsidiary to grant options otherwise than
under this Plan in connection with the acquisition, by purchase, lease, merger,
consolidation, or otherwise, of the business or assets of any corporation, firm
or association, including options granted to employees thereof who become
employees of the Company or a Subsidiary, or for other proper corporate
purposes.
6. Granting of Options
(a) The Board shall have the right to grant Participants "Incentive
Stock Options" within the meaning of Section 422A of the Code and/or other stock
options on the terms and conditions set forth herein ("Nonqualified Stock
Options") or any combination of Incentive Stock Options and Nonqualified Stock
Options. The purchase price of each share of Common Stock subject to an
Incentive Stock Option shall be the fair market value of a share of such stock
on the date the Incentive Stock option is granted, provided, however, that any
Incentive Stock Option granted to a Participant who owns more than 10% of the
total combined voting power of all classes of stock of the Company or any
Subsidiary shall not be less than 110% of such fair market value. The purchase
price of each share of Common Stock subject to a Nonqualified Stock Option shall
be determined by the Board on or before the date such Nonqualified Stock Option
is granted, but may not be less than 85% of the fair market value of the shares
of Common Stock on the date of grant. The fair market value of a share of Common
Stock on any date shall be its closing price on such date (or, if no closing
3
<PAGE>
price is so reported, the average of the "bid" and "ask" prices) as reported in
the Wall Street Journal or other comparable source identified by the Board.
(b) The aggregate fair market value (determined as of the date of
grant) of the shares of Common Stock for which a Participant may be granted
Incentive Stock Options in any calendar year under this Plan or any other plan
maintained by the Company or any Subsidiary may not exceed $100,000 plus any
"unused limit carryover" applicable to such year. Such unused limit carryover
shall be determined in accordance with the provisions of Section 422A)(c)(4) of
the Code.
(c) The Board may prescribe such other terms as it deems desirable or
as may be necessary to qualify the grant of Incentive Stock Options under the
provisions of Section 422A of the Code. The Board may also authorize
acceleration of the exercise of an option or installment thereof.
(d) The Board may grant at any time new Incentive Stock Options to a
Participant who has previously received Incentive Stock Options or other options
whether such prior Incentive Stock Options or other options are still
outstanding, have previously been exercised in whole or in part, or are canceled
in connection with the issuance of new Incentive Stock Options. However, no
Incentive Stock Option shall be exercisable by a Participant while there is
outstanding any Incentive Stock Option previously granted to such Participant to
purchase shares of Common Stock in the Company, until such option is exercised
in full or expires by reason of lapse of time.
7. Term of Options
Unless the option agreement pursuant to which options are granted (the
"Option Agreement") provides otherwise, options granted hereunder shall be
exercisable for a term of ten years from the date of grant (the "Expiration
Date").
4
<PAGE>
8. Exercise of Options
(a) Unless the Option Agreement provides otherwise, options granted
hereunder shall be exercisable for cash (or any other property (including shares
of Common Stock or promissory notes) deemed acceptable by the Board). Unless the
Board provides otherwise and such provision is reflected in the terms of the
Option Agreement, Incentive Stock Options will become exercisable in
installments, on a cumulative basis at a rate of twenty-five percent (25%) each
year, beginning at the first anniversary of the date of grant. No Nonqualified
Stock Option will become exercisable prior to six months after the date of
grant; thereafter, Nonqualified Stock Options will become exercisable at such
time and for such number of shares of Common Stock as the Board, in its sole
discretion, shall determine. No fractional shares, or cash in lieu thereof,
shall be issued under this Plan or under any option granted hereunder. Except as
otherwise provided herein, no option may be exercised at any time, unless the
holder is then a regular employee of the Company or a Subsidiary and has
continuously remained an employee at all times (other than on an absence for an
approved leave of absence or service in the Armed Forces) since the date of
grant of such option.
(b) Options shall be exercised by a Participant giving written notice
of such exercise to the Company, provided that an option may not be exercised at
any one time as to less than 100 shares of Common Stock (or such number of
shares of Common Stock as to which the option is then exercisable if less than
100).
(c) An Incentive Stock Option shall be exercisable during a
Participant's lifetime only by the Participant.
(d) Options shall be exercisable for cash or its equivalent in value
acceptable to the Company at the time of exercise.
5
<PAGE>
9. Merger, etc.
In the event of a corporate merger or consolidation in which the
Company is the surviving corporation, or the acquisition by the Company of
property or stock of another corporation or any reorganization or other
transaction qualifying under Section 425(a) of the Code, the Board may, with
respect to outstanding options under this Plan (1) permit the immediate exercise
of such options, whether or not such options are then exercisable under the
terms of this Plan or (2) in accordance with the provisions of that Section of
the Code, substitute for such options, options under a plan of the acquired
corporation, provided that (a) the excess of the aggregate fair market value of
the shares of Common stock subject to option immediately after the substitution
over the aggregate option price of such shares is not more than the similar
excess immediately before such substitution and (b) the new option does not give
the Participant additional benefits, including any extension of the exercise
period.
6
<PAGE>
10. Exercise on Termination of Employment
(a) Incentive Stock Options
If a Participant ceases to be an employee (other than by
reason of death or disability within the meaning of Section 105(d)(4) of the
Code), any unexercised portion of his Incentive Stock Option shall terminate.
If, prior to the Expiration Date, a Participant shall cease to be an employee by
reason of death or disability within the meaning of Section 105(d)(4) of the
Code, he (or, in the event of the Participant's death, his estate) may exercise
any Incentive Stock Options he holds for a period of one year after the date of
cessation of employment to the extent that it was exercisable at the time of
such cessation. Thereafter, any unexercised portion of the option shall
terminate. In no event shall Incentive Stock Options be exercised after the
Expiration Date.
(b) Nonqualified Stock Options
(i) If a Participant terminates employment prior to the
expiration of a Nonqualified Stock Option by reason of his retirement at or
after age 65 or permanent and total disability (as determined by the Board), any
unexercised portion of his Nonqualified Stock Option shall expire three months
after such retirement or disability, as the case may be, and during such three
months' period, the Optionee shall have the same rights to exercise the
unexercised portion of his Nonqualified Stock Option as he would have had if he
were still an employee of the Company.
(ii) If, prior to the expiration of any Non-qualified Stock
Option, a Participant shall die while an employee of the Company, any
unexercised portion of such option shall expire one year after his death and
during such one-year period his legal representatives, heirs or legatees shall
have the same rights to exercise the unexercised portion of the option as the
Participant would have had if he were still an employee of the Company.
7
<PAGE>
(iii) Except as provided in clauses (i) and (ii) of this
Section 10(b), if a Participant terminates employment for any reason prior to
the expiration of any Nonqualified Stock Option, the unexercised portion of such
option shall automatically terminate, unless the Board in its sole discretion
shall determine otherwise.
11. Stock Appreciation Rights
(a) Concurrently with each Nonqualified Stock Option granted
under this Plan, the Board may grant a Participant a "Stock Appreciation Right"
which shall provide the Participant the right to receive cash in lieu of the
purchase of shares of Common Stock under such option. Such rights shall only be
granted in conjunction with Nonqualified Stock Options and may not be granted
alone.
(b) The amount to which a Participant shall be entitled upon
the exercise of any Stock Appreciation Right shall be determined by multiplying
(i) the number of shares of Common Stock with respect to which the Stock
Appreciation Right is exercised by (ii) the amount, if any, by which the fair
market value of a share of Common Stock on the exercise date exceeds the
exercise price of the related Nonqualified Stock Option.
(c) Unless the Board, in its sole discretion , provides
otherwise, Stock Appreciation Rights shall be exercisable upon the same
conditions as the related Nonqualified Stock Option is exercisable under
Sections 7, 8 and 10(b) hereof. The Board, in its sole discretion, shall
determine whether to honor the Participant's exercise of his Stock Appreciation
Rights. The Board (i) may condition exercise of Stock Appreciation Rights on the
Participant's written agreement to hold all shares of Common Stock received upon
exercise of the related Nonqualified Stock Option for a period of one year, (ii)
in the case of any Participant whose status as a director, officer or
8
<PAGE>
stockholder of the Company would subject him to liability for "short swing"
profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as
amended, to the extent then in force, shall limit the period during which Stock
Appreciation Rights may be exercised (in whole or in part) for cash to the
extent necessary to exempt the exercise of Stock Appreciation Rights for cash
from such liability and (iii) may impose any other term or condition on exercise
which the Board deems appropriate.
(d) The exercise of any Stock Appreciation Right shall reduce
the number of shares of Common Stock subject to the related Nonqualified Stock
Option.
12. Restricted Stock Awards
(a) The Board shall have the authority to award Participants
shares of Common Stock which shall be restricted as provided herein to avoid
immediate taxation under the Code.
(b) Such restricted stock may not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise hypothecated by a
Participant, except as provided below. As a condition to the receipt of any
shares of Common stock awarded under this Plan, a Participant shall execute and
deliver to the Company an instrument in writing, in form approved by the Board,
wherein he agrees to the above restrictions and the legending of the
certificates representing his shares of Common Stock with respect thereto.
Notwithstanding such restrictions, however, a Participant shall be entitled to
receive all dividends declared on and to vote any shares of Common Stock held by
9
<PAGE>
him and to all other rights of a stockholder with respect thereto.
(c) If a Participant terminates his employment for any reason,
his rights with respect to any shares of Common Stock which remain restricted
hereunder shall be as provided in a written agreement between the Participant
and the Company relating to the award and forfeiture of shares hereunder.
(d) Subject to subsection (c) hereof or to the extent provided
in any written agreement between the Participant and the Company relating to the
award of shares of Common Stock hereunder, the restrictions set forth in this
Section 12 on the sale, transfer or other disposition and on the pledge or other
hypothecation of shares of Common Stock awarded under this Plan shall lapse
ratably over a period of five years from the date of award.
13. Forfeiture of Benefits
Notwithstanding any other provision of this Plan, no payment of any
unpaid award shall be made and any and all unexercised options and all rights
under the Plan of Participant who received such award or option grant (or his
designated beneficiary or legal representatives) to the payment or exercise
thereof shall be forfeited if, prior to the time of such payment or exercise,
the Participant shall (i) be employed by a competitor of, or shall be engaged in
any activity in competition with the Company without the Company's consent, (ii)
divulge without the consent of the Company any secret or confidential
information belonging to the Company, or (iii) engage in any other activities
which would constitute grounds for his discharge by the Company for cause.
10
<PAGE>
14. Payments on Death
If a former Participant whose employment has been terminated dies
before receiving full payment of all amounts to which he is entitled under this
Plan, the remaining payments shall be paid when due to his designated
beneficiary or, in the absence of such designation, to his estate.
15. Transferability of Options and Awards
A Participant's rights and interests under the Plan (including the
right to payment of unpaid installments of awards or the exercise of unexercised
options) may not be assigned or transferred except, in the case of a
Participant's death, to his designated beneficiary as provided in the Plan or,
in the absence of such designation, by will or the laws of descent and
distribution.
16. Amendment and Termination
The Board may at any time and from time to time terminate, modify or
amend the Plan in any respect; provided, however, that unless also approved or
ratified by a vote of the majority of the holders of the outstanding shares of
the capital stock of the Company entitled to vote thereon, any such modification
or amendment shall not (subject, however, to the provisions of Sections 9 and 22
hereof): (i) increase the maximum number of shares of Common Stock for which
options and awards may be granted under the Plan; (ii) reduce the option price
at which options may be granted; (iii) extend the period during which options
may be granted or exercised beyond the times originally prescribed; (iv) change
the persons eligible to participate in the Plan; or (v) increase the number of
options or awards that may be granted to a Participant. No such termination,
modification or amendment may affect the rights of an Optionee under an
outstanding option or the grantee of an award. Nevertheless, with the consent of
the Participant affected, the Board may amend outstanding options or awards in a
manner not inconsistent with the terms of the Plan.
11
<PAGE>
17. Funding of Plans
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any award under this Plan and payment of awards
shall be subordinate to the claims of the Company's general creditors. In no
event shall interest be paid or accrued on any award, including unpaid
installments of awards.
18. Rights of Participants
No Participant or other person shall have any claim or right to be
granted an award under this Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any Participant any rights to be retained
in the employ of the Company.
19. Withholding of Taxes
The Company shall have the right to deduct from all awards paid in
cash any federal, state or local taxes required by law to be withheld with
respect to such cash awards and, in the case of awards paid in shares of Common
Stock, the Participant or other person receiving such shares shall be required
to pay to the Company the amount of any such taxes which the Company is required
to withhold with respect to such stock awards.
20. Agreements with Participants
Each award or grant made under this Plan shall be evidenced by a
written instrument containing such terms and conditions as the Board shall
approve.
21. Requirements for Issuance of Shares
No shares of Common Stock shall be issued or transferred upon payment
of any award payable hereunder unless and until all legal requirements
applicable to the issuance or transfer or such shares have been complied with to
12
<PAGE>
the satisfaction of the Board. The Board shall have the right to condition any
award or issuance of shares of Common Stock made to any Participant hereunder on
such Participant's undertaking in writing to comply with such restrictions on
his subsequent disposition of such shares as the Board shall deem necessary or
advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
22. Effect of Certain Changes
(a) If there is any change in the number of shares of Common Stock
through the declaration of stock dividends, or through the declaration of stock
dividends, or through recapitalization resulting in stock splits, or
combinations or exchanges of such shares, the number of shares of Common Stock
available for options or awards and the number of such shares covered by
outstanding options or awards, and the price per share of such options or the
applicable market value of awards, shall be proportionately adjusted by the
Board to reflect any increase or decrease in the number of issued shares of
Common Stock; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.
(b) In the event of a dissolution or liquidation of the Company, or in
the event of any corporate separation or division, including, but not limited
to, split-up, split-off or spin-off, or any merger or consolidation in which the
Company is not the surviving corporation or in which the outstanding shares of
Common Stock are converted into a right to receive cash, the Board may provide
that the holder of each option or award then exercisable shall have the right to
exercise such option (at its then option price) or award solely for the kind and
amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such dissolution, liquidation, or corporate
13
<PAGE>
separation or division by a holder of the number of shares of Common Stock for
which such option or award might have been exercised immediately prior to such
dissolution, liquidation, or corporate separation or division; or the Board may
provide, in the alternative, that each option and award granted under the Plan
shall terminate as of a date to be fixed by the Board; provided, however, that
not less than thirty (30) days preceding such termination (i) to exercise the
options as to all or any part of the shares of Common Stock covered thereby,
including shares of Common Stock as to which such options would not otherwise be
exercisable, and (ii) to exercise any or all of such awards, including awards
which would not otherwise be exercisable.
23. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
24. Effective Date and Designation of the Board
Subject to the approval of the Company's stockholders, this Plan shall
be effective as of May 31, 1986 and shall continue in effect thereafter until
terminated or suspended by the Board.
14
<PAGE>
FIRST
AMENDMENT TO THE
1986 RESTATED CONTINENTAL HOMES HOLDING CORP.
STOCK INCENTIVE PLAN
-----------------------------------------------
WHEREAS, Continental Homes Holding Corp. (the "Company") maintains the
Restated 1986 Stock Incentive Plan, a copy of which is attached hereto (the
"Plan"); and
WHEREAS, the Tax Reform Act of 1986 (the "1986 Act") amended the
requirements under the Internal Revenue Code of 1986 (the "Code"), pertaining to
"incentive stock options;" and
WHEREAS, the Company desires to amend the Plan as hereinafter provided
in order to assure the continued qualification of options under the Plan under
Section 422A of the Code;
NOW, THEREFORE, the Plan is hereby amended, effective as of January 1,
1987, as follows:
FIRST
Section 6(b) of the Plan is hereby amended to read in its entirety as
follows:
"(b) The aggregate fair market value (determined as of the
date of grant) of the shares of Common Stock subject to Incentive Stock
Options granted on or after January 1, 1987 that are exercisable for
the first time by any Participant in any calendar year (under all
incentive stock option plans of the Company and any Subsidiary) shall
not exceed $100,000."
SECOND
Section 6(d) of the Plan is hereby amended by deleting the last
sentence thereof.
1
<PAGE>
THIRD
Section 10(a) of the Plan is hereby amended by substituting reference
to "Section 22(e)(3)" for the reference to "Section 10.5(d)(4)," as the
latter appears in the third and seventh line thereof.
FOURTH
Except as amended herein, the Plan is hereby ratified and confirmed and
shall continue in full force and effect. This Amendment shall be
effective as of January 1, 1987.
IN WITNESS WHEREOF, the Company has executed this Amendment as evidence
of its adoption this 17th day of June, 1987.
----
CONTINENTAL HOMES HOLDING CORP.
By:/s/ Donald R. Loback
-----------------------------------
2
EXHIBIT 10.5
NON-QUALIFIED STOCK OPTION AGREEMENT
____________________ (the "Participant") and Continental Homes Holding
Corp., a Delaware corporation (the "Company"), agree:
1. This Non-Qualified Stock Option Agreement evidences a stock option
granted under the Continental Homes Holding Corp. 1986/1988 Stock Incentive Plan
(the "Plan"), the terms and provisions of which are incorporated herein by
reference.
2. Subject to the terms of the Plan and this Agreement, the committee
of the Board of Directors of the Company which administers the Plan (the
"Committee") hereby grants the Participant as of _________________ an option
(the "Option"), to purchase all or any part of ____________ shares of the
Company's common stock, par value of $.01 per share ("Common Stock") at a price
of ____________ per share (the "Option Price"), which is the fair market value
per share of the Common Stock on the date of grant specified above.
3. (a) The Option evidenced by this Agreement shall commence on
____________, shall be exercisable beginning twelve months after the date of
grant of the Option, and subject to the provisions of paragraph (c) below, shall
terminate on ____________ (the "Expiration Date"). The Option shall be
exercisable by the Optionee in cumulative installments of twenty five percent
(25%) of the shares covered by the Option, as follows:
CUMULATIVE
NUMBER OF
SHARES AS TO
WHICH THE OPTION
DATE IS EXERCISABLE
On or after
----------------- --------------------------------
On or after
----------------- --------------------------------
On or after
----------------- --------------------------------
On or after
----------------- --------------------------------
(b) During this period, the Option may be exercised in whole
or part from time to time, provided that the Option may not be exercised at any
one time as to less than 100 shares (or such number of shares as to which the
Option is then exercisable if less than 100).
(c) To the extent that an Option is not exercised when it
becomes initially exercisable, it shall be carried forward and be exercisable
until the expiration of the term of such Option.
<PAGE>
(d) Except as provided, in clauses (i) and (ii) below, if the
Participant ceases to be an employee of the Company, any unexercised portion of
his Option shall automatically terminate.
(i) In the Event that a Participant terminates employment
prior to the Expiration Date by reason of retirement at or after age
65, any unexercised portion of his Option shall expire three months
after such retirement, and during such three months' period the
Participant shall have the same rights to exercise the portion of his
Option as he would have had if he were an employee of the Company.
(ii) If prior to the Expiration Date a Participant shall cease
to be an employee by reason of death or disability, any unexercised
portion of his Option shall expire 12 months after his death or
disability, and during such 12 month period he (or in the event of the
Participant's death, his estate or the person who acquires the right to
exercise such option by bequest or inheritance or by reason of his
death) may exercise any unexercised portion of his Option to the extent
it was exercisable at the time of such cessation. Thereafter, any
unexercised portion of the Option shall expire.
In no event shall the Option be exercised after the Expiration Date.
4. The Option shall be exercised by written notice delivered to the
Secretary of the Company at the Company's principal office in Scottsdale,
Arizona. The notice shall specify the number of shares for which the Option is
being exercised and, if the Option is being exercised for cash, shall be
accompanied by a check, cash or money order in the full amount of the purchase
price.
5. (a) The Option shall be nontransferable except, in the case of
the Participant's death, to his designated beneficiary as provided in the Plan
or, in the absence of such designation, by will or the laws of descent and
distribution, and shall be exercisable during the Participant's lifetime only by
him.
(b) Except as otherwise provided in this Agreement or the
Plan, the Option may not be exercised, unless the Participant is then a regular
employee of the Company and has continuously remained an employee at all times
(other than on an absence for an approved leave of absence or service in the
Armed Forces) since the date of grant of the Option.
(c) Notwithstanding any other provision of this Agreement or
the Plan, the Participant (or his beneficiary or legal representative) shall
forfeit any unexercised part of the Option and all rights under this Agreement
or the Plan to the exercise thereof if, prior to the time of such exercise, the
Participant shall (i) be employed by a competitor of, or shall be engaged in any
activity in competition with the Company without the Company's consent, (ii)
divulge any secret or confidential information belonging to the Company without
the Company's consent, or (iii) engage in any other activities which would
constitute grounds for his discharge by the Company for cause.
<PAGE>
(d) Nothing contained in this Agreement or in the Plan shall
confer upon the Participant any right to be employed by, or to be continued in
the employ of, the Company or interfere in any way with the right of the Company
to terminate his employment at any time.
6. (a) In the event of a corporate merger or consolidation, or
the acquisition by the Company of property or stock of another corporation or
any reorganization or other transaction qualifying under Section 425(a) of the
Code, the Committee may (1) permit the immediate exercise of the Option, whether
or not the Option is then exercisable under the terms of this Agreement and the
Plan or (2) in accordance with the provisions of the Code, substitute for the
Option, an option under a plan of the acquired corporation, provided that (a)
the excess of the aggregate fair market value of the shares subject to option
immediately after the substitution over the aggregate option price of such
shares is not more than the similar excess immediately before such substitution
and (b) the new option does not give the Participant additional benefits,
including any extension of the Expiration Date.
(b) If there is any change in the number of shares of Common
Stock through the declaration of stock dividends, or through recapitalization
resulting in stock splits, or combinations or exchanges of such shares, the
number of such shares covered by the Option, and the price per share of the
Option, shall be proportionately adjusted by the Committee to reflect any
increase or decrease in the number of issued shares of Common Stock; provided
however, that any fractional shares resulting from such adjustment shall be
eliminated.
(c) In the event of a dissolution or liquidation of the
Company, or in the event of any corporate separation or division, including, but
not limited to, split-up, split-off or spin-off, the Committee may provide that
the Participant shall have the right to exercise the Option if it was then
exercisable (at its then option price) solely for the kind and amount of shares
of stock and other securities, property, cash or any combination thereof
receivable upon such dissolution, liquidation, or corporate separation or
division by a holder of the number of shares of Common Stock for which the
Option might have been exercised immediately prior to such dissolution,
liquidation, or corporate separation or division; or the Committee may provide,
in the alternative, that the Option shall terminate as of a date to be fixed by
the Committee; provided, however, that not less than thirty (30) days' written
notice of the date so fixed shall be given to the Participant and the
Participant shall have the right, during the period of thirty (30) days
preceding such termination, to exercise the Option as to all or any part of the
Common Stock covered thereby, including shares as to which the Option would not
otherwise be exercisable.
(d) No Common Stock shall be issued under the Plan unless and
until all legal requirements applicable to the issuance of such shares have been
complied with to the satisfaction of the Committee. The Committee shall have the
right to condition any issuance of Common Stock to the Participant on the
Participant's undertaking in writing to comply with such restrictions on his
subsequent disposition of such shares as the Committee shall deem necessary or
advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
<PAGE>
7. The Company shall not be liable in the event it is unable to issue
or sell shares of Common Stock pursuant to this Agreement if such issuance or
sale would be unlawful, nor shall the Company be liable if the issuance or sale
of shares of Common Stock pursuant to this Agreement is subsequently
invalidated.
PARTICIPANT
------------------------------------
CONTINENTAL HOMES HOLDING CORP.
By
----------------------------------
Dated: ______________, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Income found on
pages 3 and 4 of the Company's Form 10-Q for the year-to-date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 112,747
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,291,283
<CURRENT-ASSETS> 1,470,338
<PP&E> 24,264
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,621,868
<CURRENT-LIABILITIES> 219,783
<BONDS> 0
0
0
<COMMON> 533
<OTHER-SE> 492,034
<TOTAL-LIABILITY-AND-EQUITY> 1,621,868
<SALES> 1,475,857
<TOTAL-REVENUES> 1,490,020
<CGS> 1,210,117
<TOTAL-COSTS> 1,210,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,497
<INCOME-PRETAX> 101,506
<INCOME-TAX> 40,602
<INCOME-CONTINUING> 60,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,904
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.02
</TABLE>
