<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19891
SCHULER HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 99-0293125
(State or jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
828 Fort Street Mall, Suite 400
Honolulu, Hawaii 96813-4321
(Address of principal executive offices) (Zip code)
(808) 521-5661
(Registrant's telephone number, including area code)
Not Applicable
(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock April 30, 1996
--------------------- --------------
$.01 par value 20,874,177
<PAGE>
SCHULER HOMES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report.......................... 3
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995........................................... 4
Consolidated Statements of Income - Three months
ended March 31, 1996 and 1995............................... 5
Consolidated Statements of Cash Flows - Three
months ended March 31, 1996 and 1995........................ 6
Notes to Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 10
PART II. OTHER INFORMATION.......................................... 16
SIGNATURES................................................................ 17
2
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
Schuler Homes, Inc.
We have reviewed the accompanying interim consolidated balance sheet of Schuler
Homes, Inc. as of March 31, 1996, and the related consolidated statements of
income and cash flows for the three-month periods ended March 31, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying interim consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles. See Note 1.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Schuler Homes, Inc. as of December
31, 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for the year then ended (not presented herein) and in our
report dated March 11, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1995, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
ERNST & YOUNG LLP
Honolulu, Hawaii
May 7, 1996
3
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
ASSETS
- - ------
<S> <C> <C>
Cash and cash equivalents.............................. $ 5,864,000 $ 6,147,000
Receivables........... 1,020,000 960,000
Prepaid income taxes................................... 414,000 557,000
Amount due from affiliate (Note 5)..................... 38,000 25,000
Real estate inventories (Note 3)....................... 254,996,000 246,478,000
Investments in unconsolidated joint ventures........... 12,006,000 11,390,000
Deposits............................................... 1,001,000 1,001,000
Deferred offering costs................................ 1,571,000 1,628,000
Notes receivable (Note 2).............................. 1,202,000 1,329,000
Deferred income taxes.................................. 1,318,000 1,818,000
Other assets........................................... 1,363,000 1,009,000
-------------- ------------
Total assets........................................... $280,793,000 $272,342,000
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Accounts payable....................................... $ 565,000 $ 1,013,000
Accrued expenses....................................... 1,982,000 3,197,000
Notes payable to bank (Note 4)......................... 45,947,000 36,781,000
6 1/2% convertible subordinated debentures due 2003.... 57,500,000 57,500,000
------------ ------------
Total liabilities...................................... 105,994,000 98,491,000
Commitments and contingencies (Notes 4 and 7)
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares
authorized; 20,874,177 shares issued and
outstanding at March 31, 1996 and
December 31, 1995................................. 209,000 209,000
Additional paid-in capital.......................... 93,096,000 93,096,000
Retained earnings................................... 81,494,000 80,546,000
------------ -------------
Total stockholders' equity............................. 174,799,000 173,851,000
------------ ------------
Total liabilities and stockholders' equity............. $280,793,000 $272,342,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
4
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Residential real estate sales........................... $19,965,000 $36,619,000
Costs and expenses
Residential real estate sales....................... 16,213,000 26,678,000
Selling and commissions............................. 1,543,000 1,748,000
General and administrative.......................... 906,000 978,000
----------- -----------
Total costs and expenses...................... 18,662,000 29,404,000
Income from unconsolidated joint ventures............... 88,000 318,000
----------- -----------
Operating income........................................ 1,391,000 7,533,000
Other income............................................ 161,000 105,000
----------- -----------
Income before provision for income taxes................ 1,552,000 7,638,000
Provision for income taxes (Note 6)..................... 604,000 2,979,000
----------- -----------
Net income.............................................. $ 948,000 $ 4,659,000
----------- -----------
----------- -----------
Net income per share (Note 8):
Primary............................................. $ 0.05 $ 0.22
----------- -----------
----------- -----------
Fully diluted....................................... $ 0.05 $ 0.21
----------- -----------
----------- -----------
</TABLE>
5
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1996 1995
----------- ----------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................... $ 948,000 $4,659,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense.................... 46,000 30,000
Income from unconsolidated joint venture
(undistributed)....................................... (85,000) (411,000)
Principal payments of notes receivable................... 127,000 80,000
Sales financed by Company................................ -- (127,000)
Changes in assets and liabilities:
(Increase) decrease in receivables....................... (60,000) 40,896,000
(Increase) decrease in prepaid income taxes.............. 143,000 (1,287,000)
(Increase) in real estate inventories.................... (8,518,000) (6,299,000)
Decrease in deposits..................................... -- 100,000
(Increase) decrease in other assets...................... (396,000) 114,000
(Decrease) in accounts payable........................... (448,000) (266,000)
(Decrease) in accrued expenses........................... (1,215,000) (2,747,000)
(Decrease) in contract restructuring cost payable........ -- (7,979,000)
Increase in deferred income taxes........................ 500,000 3,088,000
---------- ------------
Net cash provided by (used in) operating activities.......... (8,958,000) 29,851,000
INVESTING ACTIVITIES
Investments in unconsolidated joint ventures................. -- (41,000)
Advances to unconsolidated joint venture..................... (2,002,000) (123,000)
Repayments of advances to unconsolidated joint venture....... 1,447,000 105,000
Capital distributions from unconsolidated joint venture...... 24,000 119,000
Purchase of furniture, fixtures, and equipment............... (4,000) (18,000)
---------- ------------
Net cash provided by (used in) investing activities.......... (535,000) 42,000
FINANCING ACTIVITIES
Principal payments on note payable to other.................. -- (250,000)
Proceeds from bank borrowings................................ 84,933,000 19,541,000
Principal payments on bank borrowings........................ (75,767,000) (47,258,000)
Advances to affiliate........................................ (38,000) (24,000)
Repayment of advances to affiliate........................... 25,000 38,000
Net decrease in deferred offering costs...................... 57,000 58,000
---------- ------------
Net cash provided by (used in) financing activities.......... 9,210,000 (27,895,000)
---------- ------------
Increase (decrease) in cash.................................. (283,000) 1,998,000
Cash and cash equivalents (restricted) at beginning of period 6,147,000 7,855,000
---------- ------------
Cash and cash equivalents (restricted) at end of period...... $ 5,864,000 $ 9,853,000
---------- ------------
---------- ------------
</TABLE>
See accompanying notes.
6
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. General
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of 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 of normal recurring adjustments)
considered necessary for a fair presentation have been included.
These financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements for the year ended December 31, 1995
contained in the Company's 1995 annual report on Form 10-K.
Certain amounts in the consolidated statement of income for the three
months ended March 31, 1995 have been reclassified to conform to the 1996
presentation.
The Company has experienced, and expects to continue to experience,
significant variability in quarterly sales and net income. The results of
any interim period are not necessarily indicative of the results that can
be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Notes Receivable
Notes receivable consist primarily of notes receivable on seller financed
sales (recorded in accordance with FASB Statement 66, "Accounting for Sales
of Real Estate") of residential units and residential lots. The notes
provide for terms and conditions similar to those offered by financial
institutions and are collateralized by the residential units and
residential lots sold.
3. Real Estate Inventories
During the fourth quarter of 1995, the Company changed its method of
accounting for the carrying amount of its real estate inventories by
adopting FASB Statement No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of." Under the new
standard, inventories which are substantially completed are carried at the
lower of cost or fair value less cost to sell. Fair value is determined by
applying a risk adjusted discount rate to estimates of future cash flows,
resulting in a lower value than under the net realizable value method
previously required. In addition, land held for future development or
inventories under current development are adjusted to fair value, only if
an impairment to their value is indicated. There was no cumulative effect
of adopting FASB Statement No. 121.
7
<PAGE>
Approximately $81,899,000 of total inventory at March 31, 1996 represents
completed inventory. The remaining inventory represents construction in
progress and land held for future development.
4. Notes Payable to Bank
At March 31, 1996, $64,953,000 of the Company's line of credit is unused,
of which $986,000 is restricted as to withdrawal for project expenses and
$209,000 is restricted as to withdrawal for outstanding but unused letters
of credit.
In March 1996, the Company executed a new Credit Agreement, which replaced
the $50,000,000 line of credit with a $110,000,000 unsecured revolving line
of credit facility on March 29, 1996. The facility expires on July 1, 1998
and includes an option for the lenders to extend the term for an additional
year. The Company can select an interest rate of either LIBOR (1, 2, 3 or
6 month term) plus 1.75% or prime for each borrowing. If the Company's
leverage ratio, as defined, exceeds 1 to 1, the interest rate increases to
LIBOR plus 2.25% and prime plus 0.50%. The Company's ability to draw upon
its line of credit is dependent upon meeting certain financial ratios and
covenants.
The Company paid interest (relating to notes payable to bank and the
convertible subordinated debentures) of approximately $2,947,000 during the
quarter ended March 31, 1996. Interest incurred and capitalized to real
estate inventories during the quarter ended March 31, 1996 was
approximately $1,853,000. The difference between the amount of interest
paid and the amount capitalized is comprised of accrued interest payable.
5. Related Party Transactions
The Company charged $28,000 for the quarter ended March 31, 1996 to James
K. Schuler & Associates, Inc. (an affiliate) under the management agreement
entered into between the Company and James K. Schuler & Associates, Inc.,
pursuant to which certain management and administrative personnel of the
Company will perform certain functions for James K. Schuler & Associates,
Inc., to be reimbursed by James K. Schuler & Associates, Inc. At March 31,
1996, the $28,000 was included in Amount due from affiliate. Subsequent to
March 31, 1996, the receivable was paid in full.
6. Income Taxes
During the three months ended March 31, 1996, the Company paid income taxes
of $250,000.
7. Commitments and Contingencies
At March 31, 1996, the Company had under contract to purchase for
approximately $30,705,000, land for residential development. Such land
parcels were purchased in April 1996.
8
<PAGE>
The Company is from time to time involved in routine litigation or
threatened litigation arising in the ordinary course of its business.
Such matters, if decided adversely to the Company, would not, in the
opinion of management, have a material adverse effect on the financial
condition of the Company.
In April 1996, the Company was served with a class action lawsuit by owners
of units at Fairway Village at Waikele. The complaint alleges material
construction defects and deficiencies, misrepresentation regarding the cost
of insurance, breach of covenant of good faith and fair dealing, among
other allegations. The complaint does not specify an amount of damages,
but includes a claim for punitive damages, among other claims. The Company
is currently evaluating the merits of the complaint. If this lawsuit were
decided adversely to the Company, it could have a material adverse effect
on the Company's business, financial condition and operating results.
8. Net Income Per Share
Primary earnings per share for the quarters ended March 31, 1996 and 1995
were computed using the weighted average number of common shares
outstanding during the quarter of 20,874,177.
Fully diluted earnings per share for the quarters ended March 31, 1996 and
1995 were computed by adding to net income the interest charges of $209,000
and $369,000 (net of related income taxes), respectively, applicable to
convertible subordinated debentures, and dividing by 23,508,167, which
represents the weighted average number of shares assuming conversion of all
convertible subordinated debentures.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those risks discussed herein,
and other risks detailed in the Company's Annual Report on Form 10-K and other
documents filed by the Company with the Securities and Exchange Commission from
time to time.
OVERVIEW
For the quarter ended March 31, 1996, sales of residential real estate were
$20.0 million, compared to sales of $36.6 million during the 1995 first quarter.
Net income was $948,000, compared to net income of $4.7 million during the 1995
first quarter.
The financial results for the first quarter of 1996 as compared to the
first quarter of 1995 reflect fewer closings of home sales, lower average sales
prices of home sales closed, and lower profit margins. Cost of residential real
estate sales as a percentage of sales increased to 81.0% in the first quarter of
1996 from 73.0% in the first quarter of 1995, primarily as a result of an
increased level of price discounts to homebuyers, and higher construction and
inventory carrying costs. Sales and marketing costs represented approximately
7.5% and 4.6% of sales during the first quarter of 1996 and 1995, respectively.
The Company anticipates that this increased level of costs will continue to
affect its operating results throughout the balance of 1996.
During the first quarter of 1996, the rate of new home sales experienced by
the Company improved over the sales rate experienced during the latter part of
1995. This improvement resulted in the increase in backlog at March 31, 1996
(191 homes and lots with an aggregate sales value of $47.2 million) as compared
to backlog at December 31, 1995 (127 homes and lots with an aggregate sales
value of $29.5 million). However, it is uncertain as to whether or not these
improved sales rates will be sustainable. If sales rates persist at their
current levels or decline, the Company's financial results in 1996 will be
adversely affected by fewer closings of homes sales, lower revenues and
continued pressure on margins as compared to the Company's 1995 financial
results.
Due to the slowdown in the rate of new home sales experienced by the
Company in 1995, and the Company's contractual commitments to construct homes,
particularly at its Salt Lake project on Oahu, completed inventory currently
comprises a larger component of total inventory than in the past. In order to
enable the Company to postpone the construction of the third high-rise building
at the Salt Lake project until the completed inventory at this project is
reduced, the Company reached an agreement with the general contractor at this
project to delete the construction of this building (159 condominiums) from the
current construction contract. The first high-rise building of 230 condominiums
was completed in November, 1995. The second high-rise building of 239
condominiums is anticipated to be completed in mid-1996 and the last high-rise
building was scheduled to be completed in late-1996 or early-1997. It is
possible that the total construction costs eventually incurred on this building
could exceed the costs under the current construction contract. However, the
decision to postpone the construction of the last building at the Salt Lake
project preserves a portion of the Company's cash flow in 1996, mitigates the
potential impact that additional completed inventory would have on the sales of
the remaining unsold condominiums in the first two high-rise buildings, and is
anticipated to reduce the carrying costs of completed inventory at this project.
10
<PAGE>
The following table sets forth, for the periods indicated, the percentage
of the Company's sales represented by each income statement line item presented.
Certain amounts in the consolidated statement of income for the three months
ended March 31, 1995 have been reclassified to conform to the 1996 presentation.
<TABLE>
<CAPTION>
Three Months Ended March 31, Percentage Change in
---------------------------- Dollar Amounts From
1996 1995 1995 to 1996
------ ------ --------------------
<S> <C> <C> <C>
Residential real estate sales................ 100.0% 100.0% (45.5%)
Costs and expenses
Residential real estate sales............ 81.0 73.0 (39.2 )
Selling and commissions.................. 7.5 4.6 (11.7 )
General and administrative............... 5.0 2.7 (7.4 )
----- -----
Total costs and expenses.............. 93.5 80.3 (36.5 )
Income from unconsolidated
joint ventures............................ 0.4 0.8 (72.3 )
----- -----
Operating income............................. 6.9 20.5 (81.5 )
Other income................................. 0.8 0.3 53.3
----- -----
Income before provision for
income taxes.......................... 7.7 20.8 (79.7 )
Provision for income taxes................... 3.0 8.1 (79.7 )
----- -----
Net income................................... 4.7% 12.7% (79.7 )
----- -----
----- -----
</TABLE>
RESULTS OF OPERATIONS
SALES OF RESIDENTIAL REAL ESTATE
The Company's sales of residential real estate for the quarter ended March
31, 1996 were approximately $20.0 million as compared to approximately $36.6
million during the quarter ended March 31, 1995. This represents a decrease of
approximately $16.6 million or 45.5%.
This decrease in sales is attributable to lower average home sales prices
and a decreased number of home sales closed. The Company closed the sale of 82
homes (excluding the closing of 6 home sales, which represent 50% of the sales
in the Company's joint venture project, Iao Parkside) at an average sales price
of $233,000 during the quarter ended March 31, 1996 compared to the closing of
151 (excluding the closing of 13 home sales which represent 50% of the sales in
the Company's joint venture project, Iao Parkside) sales at an average price of
$239,000 during the quarter ended March 31, 1995. The decrease in the average
sales price of homes closed during the first quarter of 1996 as compared to the
first quarter of 1995, primarily relates to the different mix of projects in
which closings occurred during the corresponding quarters and to increases in
sales price discounts allowed in order to stimulate home sales activity. The
Company also closed the sale of 4 lots (excluding the closing of 1 lot sale
which represents 50% of the sales in the Company's joint venture project,
Waiakoa Kai Estates) during the first quarter of 1996, at an average sales price
of $219,000, as compared to 3 lots at an average sales price of $144,000 during
the first quarter of 1995.
11
<PAGE>
During the first quarter of 1996, the rate of new home sales experienced by
the Company improved over the sales rate experienced during the latter part of
1995. This improvement resulted in the increase in backlog at March 31, 1996
(191 homes and lots with an aggregate sales value of $47.2 million) as compared
to backlog at December 31, 1995 (127 homes and lots with an aggregate sales
value of $29.5 million). However, it is uncertain as to whether or not these
improved sales rates will be sustainable. If sales rates persist at their
current levels or decline, the Company's financial results in 1996 will be
adversely affected by fewer closings of homes sales, lower revenues and
continued pressure on margins as compared to the Company's 1995 financial
results.
Historically, Hawaii's unemployment rate has generally been lower than the
U.S. national average. However, in recent years Hawaii's unemployment rate has
been comparable to the national average. Any increases in Hawaii's unemployment
rate or lack of job growth may adversely affect future demand for new homes. In
addition, increases in mortgage rates impact the homebuyer's ability to qualify
for mortgage loans, which could adversely affect demand for new homes.
Increases in mortgage rates may also reduce the sales price ceilings established
on homes which are subject to governmentally imposed affordable housing
requirements. The affordable prices are generally determined at a price at
which a purchaser earning up to 140% of the local median income is able to
satisfy specified mortgage criteria.
COSTS AND EXPENSES - RESIDENTIAL REAL ESTATE SALES
Cost of residential real estate sales represents the acquisition and
development costs for a particular phase of a project attributable to the homes
sold in that phase. Acquisition and development costs primarily include land
acquisition costs, sitework and construction payments to contractors,
engineering and architectural costs, loan fees, interest and other indirect
costs attributable to development and project management activities and
miscellaneous construction costs.
Cost of residential real estate sales decreased to approximately $16.2
million during the quarter ended March 31, 1996 from approximately $26.7 million
during the same period in 1995, representing a decrease of approximately $10.5
million or 39.2%. This decrease in the first quarter of 1996 as compared to the
first quarter of 1995 is the result of fewer closings of home sales offset, in
part, by a higher cost of residential real estate sales as a percentage of
sales. Cost of residential real estate sales as a percentage of sales increased
to 81.0% in the first quarter of 1996 from 73.0% in the first quarter of 1995,
primarily as a result of an increased level of price discounts to homebuyers,
and higher construction and inventory carrying costs. The Company anticipates
this increased level of costs will continue to affect its operating results in
future periods and no assurances can be given that costs will not increase to
even greater levels than reached in the past.
Total interest incurred during each of the quarters ended March 31, 1996
and 1995 was approximately $1.9 million and $1.4 million, respectively.
Substantially all amounts incurred were capitalized to development projects.
Interest capitalized to projects is expensed through cost of residential real
estate sales as sales are closed and revenue is recognized in the particular
project.
Average debt outstanding was approximately $102.3 million and $81.3 million
during the first quarters of 1996 and 1995, respectively. The Company's average
interest rate on its debt for the quarters ended March 31, 1996 and 1995 was
approximately 7.3% and 7.1%, respectively. The Company's notes payable bear
interest based on prime or LIBOR. Changes in the prime or LIBOR rates will
affect the amount of interest being capitalized to inventory and subsequently
expensed through cost of residential real estate sales as sales are closed and
revenue is recognized.
12
<PAGE>
COST AND EXPENSES - SELLING AND COMMISSIONS
Sales and marketing costs represented approximately 7.5% and 4.6% of sales
of residential real estate during the quarters ended March 31, 1996 and 1995,
respectively. The increase is a result of increases in sales incentives offered
to buyers, and general increases in sales and marketing costs, specifically
relating to higher commissions and advertising costs incurred.
COSTS AND EXPENSES - GENERAL AND ADMINISTRATIVE
General and administrative expense includes salaries, office and other
administrative costs. Indirect costs attributable to specific projects are
capitalized and deducted as part of cost of residential real estate sales.
General and administrative expenses decreased by $72,000 during the first
quarter of 1996 as compared to the same period in 1995 primarily due to a
decrease in the accrual for employee bonuses, which is based on a percentage of
pretax income. As a percentage of sales, general and administrative expense
increased from 2.7% during the quarter ended March 31, 1995 to 5.0% during the
quarter ended March 31, 1996, which reflects the lower number of sales closed
during the 1996 first quarter, as compared to the same period in 1995.
INCOME FROM UNCONSOLIDATED JOINT VENTURES
Income from unconsolidated joint ventures primarily represents the
Company's 50% interest in the operations of Waiakoa Estates Subdivision Joint
Venture and Iao Partners, the joint ventures developing the Waiakoa Kai Estates
and Iao Parkside projects, respectively. The decrease in this income from
$318,000 during the first quarter of 1995 to $88,000 during the same period in
1996 is primarily the result of the closing of 13 homes at Iao Parkside during
the first quarter of 1996 as compared to 27 closings during the comparable
quarter in 1995, and lower profit margins realized in this project during the
first quarter of 1996 as compared to the first quarter of 1995.
OTHER INCOME
Other income is primarily composed of interest income earned on cash
balances and notes receivable.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate for the first quarters of 1996 and
1995 was 39%.
VARIABILITY OF RESULTS
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income. For example, the Company's
sales of residential real estate for each of the four quarters ended December
31, 1995, ranged from approximately $26.8 million to $39.5 million and for each
of the four quarters ended December 31, 1994, ranged from approximately $36.0
million to $80.8 million. The Company's net income (loss) for each of the four
quarters ended December 31, 1995, ranged from a loss of approximately $3.1
million (after giving effect to a $5.7 million after-tax charge
13
<PAGE>
relating to FASB 121 in the fourth quarter of 1995) to net income of $4.7
million and for each of the four quarters ended December 31, 1994, net income
ranged from approximately $6.3 million to $8.9 million. Factors that contribute
to variability of the Company's results include: (i) the timing of home
closings, a substantial portion of which historically have occurred in the last
month of each quarter; (ii) the Company's ability to continue to acquire
additional land on favorable terms for future developments; (iii) the condition
of Hawaii's real estate market and Hawaii's economy in general; (iv) the
cyclical nature of the homebuilding industry and changes in prevailing interest
rates; (v) cost of material and labor; and (vi) delays in construction schedules
caused by timing of inspections and approval by regulatory agencies, including
zoning approvals and receipt of entitlements, the timing of completion of
necessary public infrastructure, the timing of utility hookups and adverse
weather conditions. The Company's historical financial performance is not
necessarily a meaningful indicator of future results and, in general, the
Company's financial results will vary from development to development.
The Company has from time to time considered its possible expansion into
selected residential housing markets of the United States mainland and into
certain foreign countries and into other homebuilding related industries. The
Company anticipates that, should it elect to pursue this expansion, it would do
so through the acquisition of, or joint venture with, an existing company. No
assurances can be given that the Company will be able to successfully establish
operations outside of its existing Hawaiian markets or that such expansion will
not adversely affect its results of operations.
BACKLOG
The Company's homes are generally offered for sale in advance of their
construction upon applicable regulatory approval and sold pursuant to standard
sales contracts. The Company's standard sales contract may be cancelled by the
buyer at any time prior to closing. The Company does not recognize revenues on
homes covered by such contracts until the sales are closed. Homes covered by
such sales contracts are considered by the Company as its backlog.
The following table sets forth the Company's backlog (for both homes and
residential lots) at March 31, 1996 and 1995.
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------------------- --------------------------
Aggregate
Number Sales Value Number Sales Value
-------------------------- --------------------------
<S> <C> <C> <C> c
Homes......... 184 $46,153,000 194 $46,536,000
Lots.......... 7 1,010,000 12 1,565,000
--- ----------- --- -----------
191 $47,163,000 206 $48,101,000
--- ----------- --- -----------
--- ----------- --- -----------
</TABLE>
The Company has observed an increase in its historical cancellation rates,
which the Company believes to be attributable to uncertainty of prospective
homebuyers as to, and to their general lack of confidence in, the Hawaiian
economy. The Company's historical cancellation experience (which prior to 1995
had been nominal) may not be indicative of cancellations in future periods.
The average sales prices of the homes comprising backlog at March 31, 1996
and 1995 were $251,000 and $240,000, respectively. Due to the ability of buyers
to cancel their sales contracts, no assurances can be given that homes or
residential lots in backlog will result in actual closings. Backlog data
includes only the Company's ownership interest (50%) in Waiakoa Estates
Subdivision Joint Venture and Iao Partners, the Company's two joint ventures
developing the Waiakoa Kai Estates and Iao Parkside projects, respectively.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In March 1996, the Company executed a new Credit Agreement, which replaces
the $50 million line of credit with a $110 million unsecured revolving line of
credit facility on March 29, 1996. The lenders include First Hawaiian Bank
(arranger and agent), Bank of Hawaii, Bank of America, Bank of Boston, and
National Bank of Detroit. The facility expires on July 1, 1998 and includes an
option for the lenders to extend the term for an additional year. The Company
can select an interest rate of either LIBOR (1, 2, 3 or 6 month term) plus 1.75%
or prime for each borrowing. If the Company's leverage ratio, as defined,
exceeds 1 to 1, the interest rate increases to LIBOR plus 2.25% and prime plus
0.50%. The Company's ability to draw upon its line of credit is dependent upon
meeting certain financial ratios and covenants.
Companies in the homebuilding industry are generally highly leveraged and
require significant up-front expenditures. Accordingly, the Company incurs
substantial indebtedness to finance its homebuilding and development activities.
At March 31, 1996, the Company had bank notes payable of approximately $45.9
million. Peak outstanding debt, including bank borrowings and the Convertible
Subordinated Debentures, during the quarter ended March 31, 1996 was $112.2
million. In order to service these obligations and fund its ongoing operations,
the Company has used proceeds from its initial public offering, the offering of
convertible subordinated debentures, secondary offering of common stock, cash
flow from operations, its available bank credit facilities and financing by the
seller of land purchased. The Company's business and earnings are substantially
dependent on its ability to obtain debt financing on acceptable terms. To date,
all of the Company's bank borrowings have been from First Hawaiian Bank. With
the establishment of the new $110 million facility, the Company has expanded its
banking relationships to include four major banks in addition to First Hawaiian
Bank. Although the Company has in the past been able to obtain credit
facilities on acceptable terms and believes virtually all of its currently
planned construction projects will be funded by a combination of cash flow from
operations and bank or other financing, no assurance can be given that it will
be able to obtain such bank or other debt financing or that any such financing
will be on terms acceptable to the Company. Further, the availability of
borrowed funds to homebuilders, especially for land acquisition and construction
financing, has been severely restricted and in some cases eliminated entirely.
In compliance with federal guidelines, certain lenders are now requiring
increased equity commitments by borrowers in connection with both new loans and
the extension of existing loans.
During April 1996, the Company purchased two parcels of land located in
West Oahu for approximately $31 million, utilizing its line of credit. At April
30, 1996, the Company had bank notes payable of approximately $62.4 million.
The Company believes that cash flow from operations, and borrowings under
its credit facilities will provide adequate cash to fund the Company's
operations at least through 1996.
Certain of the Company's currently planned projects, as well as future
projects, are anticipated to be longer term in nature than those developed in
the past by the Company. The increased length of such projects further exposes
the Company to the risks inherent in the homebuilding industry, including
reductions in the value of land inventory.
15
<PAGE>
SCHULER HOMES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time involved in routine litigation or
threatened litigation arising in the ordinary course of its business. Such
matters, if decided adversely to the Company, would not, in the opinion of
management, have a material adverse effect on the financial condition of
the Company.
In April 1996, the Company was served with a class action lawsuit by owners
of units at Fairway Village at Waikele. The complaint alleges material
construction defects and deficiencies, misrepresentation regarding the cost
of insurance, breach of covenant of good faith and fair dealing, among
other allegations. The complaint does not specify an amount of damages,
but includes a claim for punitive damages, among other claims. The
Company is currently evaluating the merits of this complaint. If this
lawsuit were decided adversely to the Company, it could have a material
adverse effect on the Company's business, financial condition and
operating results.
Items 2 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Document Description
------ --------------------
10.1 Pledge and Security Agreement (CCV 5 Interim
Funding) between the Company and First Hawaiian
Bank, dated February 26, 1996.
10.2 Credit Agreement between the Company, certain
Banks, and First Hawaiian Bank, dated March 29,
1996.
10.3 Promissory Note between the Company, certain
Banks, and First Hawaiian Bank, dated March 29,
1996.
10.4 Negative Pledge Agreement between the Company,
certain Banks, and First Hawaiian Bank, dated
March 29, 1996.
(b) Reports on Form 8-K. There were no reports on Form 8-K for the
quarter ended March 31, 1996.
16
<PAGE>
SCHULER HOMES, INC.
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 thereto duly authorized.
SCHULER HOMES, INC.
Date: May 7, 1996 By: /s/ James K. Schuler
--------------------------------
James K. Schuler
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: May 7, 1996 By: /s/ Pamela S. Jones
--------------------------------
Pamela S. Jones
Senior Vice President of Finance,
Chief Financial Officer and
Director (principal financial
officer)
Date: May 7, 1996 By: /s/ Douglas M. Tonokawa
--------------------------------
Douglas M. Tonokawa
Vice President of Finance,
Chief Accounting Officer
(principal accounting officer)
17
<PAGE>
PLEDGE AND SECURITY AGREEMENT
(Assignment of Investment Management (Agency) Account)
This Agreement dated February 26, 1996, is made by SCHULER HOMES, INC., a
Delaware corporation, with principal place of business and mailing address at
828 Fort Street Mall, Honolulu, Hawaii 96813 (the "Pledgor") and FIRST
HAWAIIAN BANK, a Hawaii corporation, with principal place of business and
mailing address at 1132 Bishop Street, Honolulu, Hawaii 96813 (the "Lender").
BACKGROUND:
The Lender has made a loan to the Pledgor in the principal sum of
$71,500,000.00 (subject to a Maximum Outstanding Amount of $32,000,000.00 at any
one time) (the "Loan"), in accordance with that certain Loan Agreement dated
July 5, 1995 (the "Loan Agreement"), executed by the Pledgor and the Lender, in
connection with the construction and development of Phases 4, 5 and 6 of the
Country Club Village condominium project in Salt Lake, Hawaii (the "Project").
Section 5.11 of the Loan Agreement requires the Pledgor to satisfy the
"Pre-Sale Requirement", as defined therein, for Phase 5 of the Project, prior to
obtaining any Loan proceeds for the construction of Phase 5.
The Pledgor has not, as of the date of this Agreement, satisfied the "Pre-
Sale Requirement" for Phase 5, but wishes nevertheless to obtain $10,000,000 in
Loan proceeds for the construction of Phase 5 (the "Phase 5 Interim Funding").
The Pledgor has agreed to pledge the Account (defined in Section 1 below)
as an essential inducement to the Lender to allow the Pledgor to obtain the
Phase 5 Interim Funding in the amount of $10,000,000 prior to satisfying the
"Pre-Sale Requirement" for Phase 5.
AGREEMENT:
Section 1. PLEDGE AND ASSIGNMENT OF ACCOUNT. To secure the payment of
all principal, interest, charges and expenses payable by the Pledgor under Loan
Documents (as defined in the Loan Agreement), the Pledgor hereby assigns,
pledges, grants and delivers to the Lender, absolutely and forever, a Hawaii
Uniform Commercial Code security interest in and to the following account(s) as
collateral security upon the terms and conditions provided in this Agreement:
Name and Address
Principal Amount of Financial Institution
---------------- -------------------------
Investment Management $5,000,000.00 First Hawaiian Bank
(Agency) Account 1132 Bishop Street
91904104 Honolulu, HI 96813
1
<PAGE>
The above-described account(s) and certificate(s) of deposit, together with any
additional accounts, renewals or substitutions thereof and all proceeds thereof,
are hereinafter referred to individually and collectively as the "Account".
At the Lender's request the Pledgor shall execute and deliver such notices,
financing statements or other documents which the Lender shall deem necessary to
confirm or perfect the Lender's security interest in the Account.
If, for any reason, the Account is not subject to the provisions of the
Hawaii Uniform Commercial Code, all references to "security interest" herein
shall mean and refer to a contractual "lien" over the Account granted by the
Pledgor to the Lender, which lien shall be subject to the rights and obligations
of the parties set forth in this Agreement.
Section 2. LENDER'S RETENTION OF ACCOUNT. The Lender shall have the
right (a) to retain possession of the passbook, access card, certificate or
other physical identification evidencing the Account; (b) to cause a renewal or
renewals of any certificate evidencing the Account; and (c) to take all other
actions which the Lender shall deem necessary or desirable to protect the
Account and rights thereto.
Section 3. DEFAULT; THE LENDER'S RIGHT TO WITHDRAW FUNDS. The Pledgor
shall repay the Phase 5 Interim Funding upon the earlier to occur of: (a) the
closing date of the proposed $100,000,000 credit facility currently under
discussion between the Pledgor and the Secured Party or (b) July 31, 1996 (the
earlier of such dates being hereinafter called the "Repayment Date"). If the
Pledgor shall fail to repay the Phase 5 Interim Funding by the Repayment Date,
or if the Pledgor shall default in the payment of principal, interest, charges
and expenses under the Loan Documents when due, or in the performance of any
other term or condition of the Loan Documents, the Lender may charge the
Account, at the Lender's option, without demand upon the Pledgor, and without
notice of presentment, for payment of all amounts then due, and Pledgor hereby
authorizes the Lender, in its own name or as the irrevocably appointed attorney-
in-fact of the Pledgor, to withdraw any amount from the Account, including
principal and accrued interest, for the purpose of payment, in full or in part,
of all such amounts due to the Lender. This appointment of the Lender as the
Pledgor's attorney-in-fact is coupled with an interest and is irrevocable.
Any "withdrawal from the Account" shall mean and include a redemption of
any certificate, whether or not the same has matured; accordingly, if the
certificate has a fixed maturity date, the Lender may withdraw the funds in the
Account prior to such maturity date even if such withdrawal shall result in a
forfeiture of accrued interest on the Account.
Without limiting the foregoing, the Lender shall have the benefit of all
default remedies available to a secured party under the Hawaii Uniform
Commercial Code.
Section 4. WITHDRAWAL OF FUNDS BY PLEDGOR. The Pledgor will not
withdraw any amount from the Account without the Lender's consent until the
Phase 5 Interim Funding has been paid in full.
2
<PAGE>
Section 5. REPAYMENT. If the Pledgor shall repay the Phase 5 Interim
Funding on or before the Repayment Date, then this Agreement shall be void and
the security interest in the Account shall be cancelled and the passbook, access
card, certificate or other physical identification evidencing the Account shall
be returned to the Pledgor.
Section 6. REPRESENTATION AND WARRANTIES OF THE PLEDGOR. The Pledgor
represents and warrants to the Lender that (a) the Pledgor is the absolute and
sole owner of the Account with full right and title to assign the same to the
Lender as provided herein, and (b) the Account is free and clear of any lien or
right prior to, or on a parity with, the security interest created under this
Agreement.
Section 7. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Lender in exercising any right, power or remedy hereunder or under
the Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 8. RIGHT OF THE LENDER TO EXTEND TIME OF PAYMENT, ETC. Without
affecting the liability of any person, including the Pledgor, for the payment of
any indebtedness secured hereby, or the security interest created under this
Agreement, the Lender may, from time to time, without notice and without
affecting or impairing any of its rights under this Agreement, (a) release any
person from liability under the Loan Documents; (b) accept any person as a
guarantor or release any person as a guarantor; (c) extend the time or otherwise
alter the payment terms under the Loan Documents or extend the term of the Loan;
(d) accept additional security for the Loan of any kind; (e) alter, substitute
or release any security interest held by the Lender in any property securing the
Loan; (f) resort for the payment of the indebtedness secured hereby to any
security or collateral held by the Lender in such order and manner as the Lender
may deem fit; or (g) join in any extension, subordination or other agreement
affecting this Agreement.
Section 9. WAIVERS BY PLEDGOR. The Pledgor waives any right to require
the Lender to (a) proceed or exhaust any other security held from the Pledgor or
any third party; or (b) pursue any other remedy in the Lender's power
whatsoever, prior to the exercise by the Lender of its rights under this
Agreement. The Pledgor also waives presentment, demand, protest or notice of any
kind.
Section 10. COSTS OF ENFORCEMENT. The Pledgor shall pay reasonable
attorneys' fees and all other costs and expenses which may be incurred by the
Lender in the enforcement of this Agreement or in the protection of its rights
and security hereunder.
Section 11. NOTICES. Any notice or demand to be given or served shall
be in writing and personally delivered or sent by registered mail or certified
mail, to the addresses provided on the first page of this Agreement for the
Lender and the Pledgor. Such addresses may be changed from time to time by the
addressee by serving notice as above provided. Service of any notice or demand
shall be deemed complete on the earlier to occur of the actual date of delivery
or two days after the date of mailing.
3
<PAGE>
Section 12. ASSIGNMENTS. The Lender may assign its interest in this
Agreement to any subsequent holder of the Loan Documents without the prior
written consent of the Pledgor. The Pledgor may not assign its interest in the
Account without the prior written consent of the Lender.
Section 13. APPLICABLE LAWS; SEVERABILITY. This Agreement shall be
governed by the laws of the State of Hawaii as modified by federal laws and
regulations applicable to the Lender. If any provision of this Agreement is held
to be invalid or unenforceable, the validity or enforceability of the other
provisions of this Agreement shall remain unaffected.
Section 14. JOINT AND SEVERAL LIABILITY. The liability of each person
or entity executing this Agreement as Pledgor shall be joint and several.
Section 15. JURISDICTION OF HAWAII COURTS. The Pledgor irrevocably and
unconditionally submits, for purposes of any action or proceeding which the
Lender may bring to enforce this Agreement, to the jurisdiction and venue of the
State and Federal Courts located in the City and County of Honolulu. The
submission to such jurisdiction shall not prevent the Lender from commencing any
action or proceeding in any other court having jurisdiction.
Section 16. PARTIES IN INTEREST. As and when used herein, the terms
"Lender" and "Pledgor" shall mean and include the above-named Lender and Pledgor
and their respective heirs, personal representatives, successors and assigns.
This Agreement shall be binding upon and inure to the benefit of (a) the Lender
and the Lender's successors and assigns as well as (b) the Pledgor and the
Pledgor's heirs, personal representatives, successors and permitted assigns.
Section 17. SECTION HEADINGS. The headings of sections are inserted
only for convenience and shall in no way define, describe or limit the scope or
intent of any provision of this Agreement.
The Lender and the Pledgor have executed this Agreement as of the date
written above.
SCHULER HOMES, INC.
By /s/ Pamela S. Jones
-------------------------------------------
Its Senior Vice President
Chief Financial Officer "Pledgor"
FIRST HAWAIIAN BANK
By /s/ Alvin Takahashi
------------------------------------------
Its REAL ESTATE LOAN OFFICER
"Lender"
4
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of March 29, 1996, among
SCHULER HOMES, INC., a Delaware corporation (the "Company"), the banks from
time to time party to this Agreement (collectively referred to as the
"Banks", and individually referred to as a "Bank"), and FIRST HAWAIIAN BANK,
a Hawaii corporation, as agent for the Banks.
This Agreement concerns the establishment of a revolving credit facility in
the amount of U.S. ONE HUNDRED TEN MILLION AND NO/100 DOLLARS (U.S.
$110,000,000.00) to be made available to the Company by the Banks, pursuant to
which the Company may obtain Advances from the Banks, may obtain Swing-Line
Advances from the Agent, and may request the Agent to issue Letters of Credit
for the account of the Company, all upon the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINED TERMS. In addition to the terms defined elsewhere in this
Agreement, the following terms have the following meanings:
"ADVANCE" means a disbursement of loan proceeds in connection with a
Borrowing, as described in Section 2.03, or upon the conversion of a Swing-Line
Advance, as described in Section 2.04, or upon the negotiation of a Letter of
Credit, as described in Section 2.05, pursuant to the terms and conditions set
forth in Article II of this Agreement, and shall consist of Prime Rate Advances
and LIBO Rate Advances.
"AFFECTED BANK" has the meaning specified in Section 3.06.
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person
if the controlling Person possesses, directly or indirectly, the power to direct
or cause the direction of the management and policies of the other Person,
whether through the ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing, no Bank shall be deemed an "Affiliate" of the
Company, nor shall the Company be deemed an "Affiliate" of any Bank.
"AGENT" means First Hawaiian Bank, in its capacity as agent for the
Banks hereunder, and any successor agent.
-1-
<PAGE>
"AGENT-RELATED PERSONS" means First Hawaiian Bank and any successor
agent arising under Section 9.09, together with their respective Affiliates, and
the officers, directors, employees, agents, and attorneys-in-fact of such
Persons and Affiliates.
"AGENT'S PAYMENT OFFICE" means the address for payments set forth on
the signature page hereto in relation to the Agent or such other address as the
Agent may from time to time specify in accordance with Section 10.02.
"AGGREGATE COMMITMENT" means the combined Revolving Commitments of
the Banks, in the initial amount of U.S. ONE HUNDRED TEN MILLION DOLLARS (U.S.
$110,000,000.00), as such amount may be reduced from time to time pursuant to
this Agreement.
"AGREEMENT" means this Credit Agreement, as the same may be amended
from time to time in accordance with the terms hereof.
"APPLICABLE MARGIN" means: (i) for any Conforming Prime Rate Advance
- - -- 0.000%; (ii) for any Conforming LIBO Rate Advance -- 1.750%; (iii) for any
Nonconforming Prime Rate Advance -- 0.500%; and (iv) for any Nonconforming LIBO
Rate Advance -- 2.250%.
"BANK" has the meaning specified in the introductory clause hereto.
"BORROWING" means a borrowing hereunder consisting of Advances made
to the Company on the same day by the Banks pursuant to Section 2.03.
"BORROWING BASE" means, at any date, the GAAP consolidated net book
value, including all inventoriable costs as set forth as "Real Estate
Inventories" in the Company's financial statement, at such date, of: (i)
Unentitled Land x 0%; plus (ii) Unimproved Land x 65%; plus (iii) Land Under
Development x 65%; plus (iv) Unsold Homes Under Construction x 75%; plus (v)
Completed Unsold Homes x 75%; plus (vi) Completed Unsold Homes Over 180 Days x
0%; plus (vii) Contracted Homes x 90%, excluding, however, the entirety of
Country Club Village and Iao Parkside. All of such properties described in (i)
through (vii) above must be Unencumbered.
"BORROWING BASE CERTIFICATE" means a certificate described in
Section 6.02(c) of this Agreement.
"BUSINESS DAY" means any day other than a Saturday, Sunday, United
States federal holiday or other day on which commercial banks in Honolulu,
Hawaii, and any other jurisdiction in which any Bank maintains its Lending
Office, are authorized or required by law to close and, if the applicable
Business Day relates to any LIBO Rate Advance, means such a day on which
dealings are carried on in the London Interbank Market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or
-2-
<PAGE>
not having the force of law, in each case, regarding capital adequacy of any
bank or of any corporation controlling a bank.
"CLOSING DATE" means the date on which all conditions precedent set
forth in Section 4.01 are satisfied or waived by all of the Banks.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated thereunder.
"COMMITMENT PERCENTAGE" means, as to any Bank, the percentage
equivalent of such Bank's Revolving Commitment divided by the Aggregate
Commitment. Each Bank's initial Commitment Percentage is set forth opposite
such Bank's name in SCHEDULE 1 attached hereto.
"COMPLETED UNSOLD HOMES" means all condominium units and one-to-four
family residences (including Model Homes) in the State of Hawaii owned by the
Company or any of its Subsidiaries as part of its real estate development
business, for which construction has been "completed" less than 180 days before
such date, but for which there is in existence no written Contract for Sale.
Construction will be considered "completed" for a condominium unit when the
temporary certificate of occupancy for such unit has been issued; construction
will be considered "completed" for a one-to-four family residence when all
electrical and plumbing fixtures have been installed and utility services in
connection therewith have been connected. Notwithstanding the foregoing, Model
Homes will continue to be considered Completed Unsold Homes until the date which
is 180 days after the last production unit in the particular real estate project
(for which such Model Home is used as a model) has been sold.
"COMPLETED UNSOLD HOMES OVER 180 DAYS" means Completed Unsold Homes
which have been completed 180 days or more before such date. Notwithstanding
the foregoing, Model Homes will not be considered Completed Unsold Homes Over
180 Days until the date which is 180 days after the last production unit in the
particular real estate project (for which such Model Home is used as a model)
has been sold.
"CONFORMING LIBO RATE ADVANCE" means a LIBO Rate Advance that is
outstanding at a time when the Leverage Ratio is less than or equal to 1.0 to 1.
"CONFORMING PRIME RATE ADVANCE" means a Prime Rate Advance that is
outstanding at a time when the Leverage Ratio is less than or equal to 1.0 to 1.
"CONSOLIDATED NET EARNINGS" means consolidated gross revenues of the
Company and its Subsidiaries less all operating and non-operating expenses of
the Company and its Subsidiaries (including current and deferred taxes on
income, provision for taxes on unremitted foreign earnings which are included in
gross revenues, current additions to reserves, and other similar charges); all
determined in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means the Tangible Net Worth of
the Company and its Subsidiaries, determined, on a consolidated basis, in
accordance with GAAP.
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<PAGE>
"CONTINUATION DATE" means the effective date, at the end of an
Interest Period, on which a LIBO Rate Advance shall be continued as a LIBO Rate
Advance, as provided in Section 2.06(a)(iii).
"CONTRACT FOR SALE" means a sale and purchase agreement between the
Company or any of its Subsidiaries and an unrelated third party purchaser, who
has made an earnest money deposit of not less the $250.00 and who has been pre-
qualified by the Company or an institutional lender; PROVIDED, that such
agreement shall not contain any contingency clause, conditioning such
purchaser's obligation upon the sale of such purchaser's property.
"CONTRACTED HOMES" means all condominium units and one-to-four
family residences (including Model Homes) in the State of Hawaii owned by the
Company or any of its Subsidiaries as part of its real estate development
business, on which a building permit has been issued and construction has begun,
and for which the Company (or its Subsidiary if such Subsidiary is the owner)
has entered into a written Contract for Sale.
"CONTROLLED GROUP" means the Company and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Company pursuant to Section 414(b), (c), (m) or (o) of the Code.
"CONVERSION DATE" means the effective date on which a Prime Rate
Advance shall be converted into one or more LIBO Rate Advances, or on which one
or more LIBO Rate Advances shall be converted into a Prime Rate Advance, as
provided in Section 2.06(a)(i) or 2.06(a)(ii).
"COUNTRY CLUB VILLAGE" means the Country Club Village condominium
project, Phases I through VI, located in Salt Lake, Oahu, Hawaii, which is being
developed, or which is to be developed, by the Company.
"COUNTRY CLUB VILLAGE LOAN FACILITY" means the Company's existing
$52,800,434.79 construction loan facility with First Hawaiian Bank (with a
maximum advance at any time of $21,000,000.00) for the construction and
development of Country Club Village, Phases IV, V and VI.
"COUNTRY CLUB VILLAGE SUBORDINATE MORTGAGE" means the Subordinate
Mortgage, Security Agreement and Financing Statement dated February 9, 1993,
filed in the Office of the Assistant Registrar of the Land Court of the State of
Hawaii as Document No. 1996140, as amended by Amended and Restated Subordinate
Mortgage, Security Agreement and Financing Statement dated April 7, 1994, filed
in said Office as Document No. 2149634, in favor of HCI (America) Inc., which
encumbers Lots 3878 and 3879 in Country Club Village.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DEVELOPMENT RATIO" means Real Estate Development Assets of the
Company and its Subsidiaries, divided by Real Estate Indebtedness of the Company
and its Subsidiaries.
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<PAGE>
"ENTITLED LAND" means all land in the State of Hawaii owned by the
Company or any of its Subsidiaries as part of its real estate development
business, which does have residential zoning and the provision of potable water,
sewage and other utilities available at the boundary of such land.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated thereunder.
"EQUITY OFFERING" means the raising of capital by the Company
through a public or private issuance and sale of stock of the Company not
previously offered for sale.
"EVENT OF DEFAULT" means any of the events or circumstances
specified in Section 8.01.
"FEDERAL FUNDS RATE" means, for any period, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotations") for such day under the caption "Federal Funds Effective Rate". If
on any relevant day the appropriate rate for such previous day is not yet
published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate
for such day will be the arithmetic mean as determined by the Agent of the rates
for the last transaction in overnight Federal Funds arranged prior to 9:00 a.m.
(New York time) on that day by each of three leading brokers of Federal Funds
transactions in New York selected by the Agent.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System, or any entity succeeding to any of its principal functions.
"FIXED CHARGES RATIO" means, with respect to the Company and its
Subsidiaries, earnings before impairment loss recognized pursuant to Financial
Accounting Standards Board Statement No. 121, interest expensed, depreciation,
taxes and amortization, divided by total interest incurred plus any required
principal amortization due during the applicable period.
"FORM 1001" has the meaning specified in subsection 3.01(f).
"FORM 4224" has the meaning specified in subsection 3.01(f).
"GAAP" means generally accepted accounting principles set forth from
time to time in statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
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"GOVERNMENTAL AUTHORITY" means any nation or government, any state
or other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTY OBLIGATION" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary obligations") of
another Person (the "primary obligor"), including any obligation of that Person,
whether or not contingent (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof; in each case (a), (b), (c)
or (d), including arrangements wherein the rights and remedies of the holder of
the primary obligation are limited to repossession or sale of certain property
of such Person. The amount of any Guaranty Obligation shall be deemed equal to
the stated or determinable amount of the primary obligation in respect of which
such Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof. Notwithstanding
the foregoing, if the primary obligor is a Subsidiary of the Company, the term
"Guaranty Obligation" shall not include any direct or indirect liability of the
Company with respect to any primary obligation of such Subsidiary, which the
Company itself would not otherwise be prohibited from assuming or limited in
undertaking, pursuant to the terms of this Agreement.
"IAO PARKSIDE" means the 480-unit low-rise condominium project being
developed by Iao Partners on 28 acres of land located in Wailuku, Hawaii.
"IAO PARTNERS" means the joint venture, registered as a Hawaii
general partnership, formed by and between the Company (with a 50% general
partnership interest) and C. Brewer Homes, Inc. (with a 50% general partnership
interest).
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money (including Subordinated Debt); (b) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business pursuant to ordinary terms); (c) all non-contingent
reimbursement or payment obligations with respect to Surety Instruments; (d) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses; (e) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by such Person (even
though the rights and remedies of the seller under such agreement in the event
of default are limited to repossession or sale of such property); (f) all
capital lease obligations; (g) all net obligations with
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respect to Rate Contracts; and (h) all indebtedness referred to in clauses (a)
through (g) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any lien upon or
in property (including accounts and contracts rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness, but does not include any indebtedness referred to in clauses (a)
through (g) above incurred by a Person as a joint venture partner of any Joint
Venture.
"INDEMNIFIED PERSON" has the meaning specified in Section 10.05.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section
10.05.
"INSOLVENCY PROCEEDINGS" means, in respect of any Person (a) any
case, action or proceeding before any court or other Governmental Authority
relating to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors, or (b) any general assignment for
the benefit of creditors, composition, marshalling of assets for creditors, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; in each case (a) and (b) undertaken under
U.S. Federal, State or foreign law, including the Bankruptcy Code (11 U.S.C.
Section 101, ET SEQ.).
"INTER-BANK AGREEMENT" means an agreement executed by and among the
Agent, as agent for the Banks, and the Banks, which shall supplement the
provisions of Article IX hereof, relative to the administration of the credit
facility established by this Agreement.
"INTEREST PAYMENT DATE" means, with respect to any Prime Rate
Advance, the first day of each calendar month; with respect any LIBO Rate
Advance having an Interest Period of 30 days, the last day of the Interest
Period applicable to such Advance; and, with respect to any other LIBO Rate
Advance, the first day of each calendar month, AND the last day of each Interest
Period applicable to such Advance.
"INTEREST PERIOD" means, with respect to any LIBO Rate Advance, the
period commencing on the Business Day such LIBO Rate Advance is disbursed or
continued or on the Conversion Date on which a Prime Rate Advance is converted
to a LIBO Rate Advance and ending on the date thirty (30), sixty (60), ninety
(90) or one hundred eighty (180) days thereafter, as selected by the Company in
its Notice of Borrowing or Notice of Conversion/Continuation;
PROVIDED THAT:
(i) if any Interest Period pertaining to a LIBO Rate
Advance would otherwise end on a day which is not a Business Day,
that Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Business
Day;
(ii) any Interest Period pertaining to a LIBO Rate Advance
that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest
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Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Termination
Date.
"ISSUANCE" means the issuance of a Letter of Credit hereunder at the
request of and for the account of the Company, pursuant to Section 2.05.
"JOINT VENTURE" means a general partnership, duly registered and
validly existing under the laws of the State of Hawaii, which is formed for the
purpose of developing one or more specific real estate projects.
"KAPOLEI KNOLLS PROPERTY" means Lot 2545-B-1-C, area 77.287 acres,
more or less, as shown on Map 828 of Land Court Application No. 1069, situate in
Honouliuli, Ewa, Hawaii.
"KAPOLEI LAND" means up to 800 acres of land in Kapolei, Hawaii,
bearing Tax Map Key Nos. 9-1-17:04 (por.); 9-1-18:01 (por.); 9-2-02:01 (por.);
9-2-04:05 (por.); and 9-1-10:02 (por.).
"KULALEI PROPERTY" means 193 improved subdivided lots in the Ewa by
Gentry development in Ewa, Oahu, Hawaii.
"LAND UNDER DEVELOPMENT" means all land in the State of Hawaii owned
by the Company or any of its Subsidiaries as part of its real estate development
business, on which grading or construction of on-site infrastructure
improvements has begun, and for which all necessary zoning and large-lot
subdivision approvals have been obtained and are in full force and effect, but
for which construction of the residential improvements thereon has not begun.
"LENDING OFFICE" means, with respect to any Bank, the office or
offices of such Bank specified as its "Lending Office" or "Domestic Lending
Office" or "LIBO Lending Office", as the case may be, opposite its name on the
applicable signature page hereto, or such other office or offices of such Bank
as it may from time to time notify the Company and the Agent.
"LETTERS OF CREDIT" means standby letters of credit issued by the
Agent, at the request of and for the account of the Company, pursuant to the
terms and conditions set forth in Article II of this Agreement.
"LEVERAGE RATIO" means total Indebtedness of the Company and its
Subsidiaries, divided by Consolidated Tangible Net Worth of the Company and its
Subsidiaries. The initial Leverage Ratio will be determined by the Banks at the
Closing Date and such determination shall be effective for the next two (2)
Quarters following the Closing Date; thereafter, the Leverage Ratio for each
succeeding Quarter will be determined as of the end of the preceding Quarter
(such determination to be made no later than seventy-five (75) days after the
end of such preceding Quarter, based upon the Leverage Ratio Certificate
provided to the Agent by the Company pursuant to Section 6.02(d) of this
Agreement, and verified by the Agent to its
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satisfaction). The Agent shall promptly notify the Company and each Bank of
each determination of the Leverage Ratio. Any determination of the Leverage
Ratio shall be conclusively deemed to be correct unless objected to by the
Company or the Majority Banks within five (5) Business Days after receipt of
such notification.
"LEVERAGE RATIO CERTIFICATE" means a certificate more particularly
described in Section 6.02(d) of this Agreement.
"LIBO RATE" means, for each Interest Period in respect of LIBO Rate
Advances comprising part of the same Borrowing, an interest rate per annum
(rounded upward to the nearest 1/16th of 1%) equal to the average of the rates
of interest per annum which appear on the Telerate Screen LIBO Page as of 11:00
a.m. London Time on the day that is two (2) Business Days prior to the day on
which the applicable Interest Period is to begin, for deposits, in U.S. Dollars,
for the applicable Interest Period.
"LIBO RATE ADVANCE" means an Advance that bears interest based on
the LIBO Rate.
"LOAN DOCUMENTS" means this Agreement, the Note, the Negative Pledge
Agreement, and all documents delivered to the Agent in connection herewith or
therewith.
"MAJORITY BANKS" means at any time Banks then holding 75% or more of
the Aggregate Commitment.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Federal Reserve Board.
"MATERIAL ADVERSE EFFECT" means (a) a material impairment of the
ability of the Company to perform under any Loan Document and avoid any Event of
Default; or (b) a material adverse effect upon the legality, validity, binding
effect or enforceability of any Loan Document.
"MODEL HOMES" means all condominium units and one-to-four family
residences in the State of Hawaii owned by the Company or any of its
Subsidiaries as part of its real estate development business, which are used as
models to market a particular real estate development project.
"MULTI-EMPLOYER PLAN" means a "multi-employer plan" (within the
meaning of Section 4001(a)(3) of ERISA) to which any member of the Controlled
Group makes, is making, or is obligated to make, contributions or, during the
preceding three calendar years, has made, or been obligated to make,
contributions.
"NEGATIVE PLEDGE AGREEMENT" has the meaning specified in Section
7.09.
"NONCONFORMING LIBO RATE ADVANCE" means a LIBO Rate Advance that is
outstanding at a time when the Leverage Ratio is greater than 1.0 to 1.
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"NONCONFORMING PRIME RATE ADVANCE" means a Prime Rate Advance that
is outstanding at a time when the Leverage Ratio is greater than 1.0 to 1.
"NOTE" means the promissory note dated the date of this Agreement,
executed by the Company in favor of the Agent (as agent for the Banks),
evidencing the Company's agreement to repay all amounts outstanding under the
Aggregate Commitment, together with all interest thereon, as provided therein.
"NOTICE OF BORROWING" means a notice given by the Company to the
Agent pursuant to Section 2.03, in substantially the form of EXHIBIT A-1.
"NOTICE OF CONVERSION/CONTINUATION" means a notice given by the
Company to the Agent pursuant to Section 2.06, in substantially the form of
EXHIBIT B.
"NOTICE OF SWING-LINE BORROWING" means a notice given by the Company
to the Agent pursuant to Section 2.04, in substantially the form of EXHIBIT A-2.
"OBLIGATIONS" means all Advances, Swing-Line Advances and other
Indebtedness, loans, debts, fees, charges, liabilities, obligations, covenants
and duties owing by the Company to any Bank, the Agent, or any other Person
required to be indemnified, that arises under this Agreement or any Loan
Document, whether or not for the payment of money, whether arising by reason of
an extension of credit, loan, guaranty, indemnification or in any other manner,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due now existing or hereafter arising and however
acquired.
"OTHER TAXES" has the meaning specified in subsection 3.01(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any of its principal functions under ERISA.
"PARTICIPANT" has the meaning specified in subsection 10.08(a).
"PERMITTED INDEBTEDNESS" means:
(i) the Country Club Village Loan Facility, and the
Country Club Village Subordinate Mortgage;
(ii) the existing Indebtedness and obligations of the
Company as a joint venture partner in Iao Partners (including any
Indebtedness of Iao Partners for which there is recourse to the Company);
PROVIDED, HOWEVER, that the Company shall be permitted, after the Closing
Date, (A) to incur additional Indebtedness as a joint venture partner of
Iao Partners, (B) to make additional net investments in Iao Partners, and
(C) to make additional net advances to Iao Partners, in amounts which shall
not exceed $5,000,000.00, in the aggregate, for all such indebtedness,
investments and advances described in (A), (B) and (C) above; AND PROVIDED,
FURTHER, HOWEVER, that if Iao Partners develops the Kulalei Property, then
the $5,000,000.00 aggregate limitation described above shall be increased
to $30,000,000.00;
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(iii) the existing Subordinated Debt of the Company
(including the Company's existing subordinated convertible debentures) in
the amount of $57,500,000.00;
(iv) Indebtedness, not to exceed $5,000,000 in the
aggregate, created or arising under a conditional sale or other title
retention agreement, or incurred as purchase money financing, with respect
to property acquired by the Company or any of its Subsidiaries; provided
that the rights and remedies of the seller under such agreement in the
event of default are limited to repossession or sale of such property;
(v) Indebtedness to the extent incurred upon the
indorsement of an instrument in order to negotiate the same, and for taxes,
assessments, governmental charges, or levies to the extent that payment
thereof shall not at the time be required to be made;
(vi) Indebtedness and Guaranty Obligations, not to exceed
$5,000,000 in the aggregate, incurred in the ordinary course of the
Company's real estate development business, or in the ordinary course of
any of the Company's Subsidiary's real estate development business;
(vii) Premium Payments; and
(viii) Indebtedness in respect of the Aggregate Commitment
hereunder.
"PERMITTED INVESTMENT" means (a) the creation of or investment in a
wholly-owned Subsidiary of the Company which is used exclusively as an exchange
vehicle to facilitate a like-kind exchange under Section 1031 of the Code; and
(b) any one of the following dollar denominated investments, maturing within one
year from the date of acquisition, selected by the Company:
(i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United
States;
(ii) marketable direct obligations issued by any state of
the United States or any political subdivision of any such state or any
public instrumentality thereof and, at the time of acquisition, having the
highest credit rating obtainable from either Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. ("S&P") or Moody's Investors
Service, Inc. ("Moody's");
(iii) commercial paper or corporate promissory notes bearing
at the time of acquisition the highest credit rating either of S&P or
Moody's issued by United States, Australian, Canadian, European or Japanese
bank holding companies or industrial or financial companies (other than an
Affiliate of the Company);
(iv) certificates of deposit issued by and bankers
acceptances of and interest bearing deposits with any Bank, or any
commercial bank having capital and
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surplus of at least $500,000,000 or the equivalent and which issues (or the
parent of which issues) commercial paper or other short term securities
bearing the highest credit rating obtainable from either S&P or Moody's;
and
(v) money market funds organized under the laws of the
United States or any state thereof that invest solely in any of the
foregoing investments permitted under clauses (i), (ii), (iii) and (iv).
"PERSON" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture or
Governmental Authority.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Company or any member of the Controlled Group sponsors or
maintains or to which the Company or any member of the Controlled Group makes,
is making or is obligated to make contributions.
"PREMIUM PAYMENTS" means (i) payments that are to be made by the
Company to Amfac Property Development Corp., if the average sales price for
or number of homes built by the Company on parcels of land in the Waikele
master-planned community exceeds the applicable amount set forth in the
purchase agreement between the Company and Amfac Property Development Corp.
for such parcels; (ii) payments that are to be made by the Company or Iao
Partners to Gentry Homes, Ltd., if the Company or Iao Partners sells certain
homes located on the Kulalei Property at a premium over the price of certain
other homes located elsewhere at the Kulalei Property, pursuant to that
certain Amended and Restated Purchase and Sale Agreement dated November 20,
1995; and (iii) payments that are to be made by the Company to HCI (America)
Inc., in the event the Company constructs more than 580 units in Country Club
Village.
"PRIME RATE" means, for any day, the lending rate of interest
announced publicly from time to time by First Hawaiian Bank as its "prime
interest rate", which rate shall not necessarily be the best or lowest rate
charged by First Hawaiian Bank from time to time. Any change in the prime
interest rate announced by First Hawaiian Bank shall take effect at the opening
of business on the day specified in the public announcement of such change.
"PRIME RATE ADVANCE" means an Advance or a Swing-Line Advance that
bears interest based on the Prime Rate.
"QUARTER" means any one of the following three-calendar-month
periods in any calendar year: April 1 through June 30; July 1 through September
30; October 1 through December 31; and January 1 through March 31.
"RATE CONTRACTS" means swap agreements (as such term is defined in
Section 101 of the Bankruptcy Code (11 U.S.C. Section 101 ET SEQ.) and any other
agreements or arrangements designed to provide protection against fluctuations
in interest or currency exchange rates.
"REAL ESTATE DEVELOPMENT ASSETS" means, at any date, the GAAP
consolidated book value of inventories, at such date, as set forth as "Real
Estate Inventories" in the
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Company's financial statement, including Unentitled Land, Unimproved Land, Land
Under Development, Unsold Homes Under Construction, Completed Unsold Homes,
Completed Unsold Homes Over 180 Days, and Contracted Homes.
"REAL ESTATE INDEBTEDNESS" means the amount of all Indebtedness
incurred by or made available to the Company or any of its Subsidiaries, in
connection with the development of any Real Estate Development Assets.
"REPLACEMENT BANK" has the meaning specified in Section 3.06.
"REPORTABLE EVENT" means, as to any Plan, (a) any of the events set
forth in Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been waived
in regulations issued by the PBGC, (b) a withdrawal from a Plan described in
Section 4063 of ERISA, or (c) a cessation of operations described in Section
4062(e) of ERISA.
"REQUEST FOR ISSUANCE OF LETTER OF CREDIT" means a notice given by
the Company to the Agent pursuant to Section 2.05, in substantially the form of
EXHIBIT C.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"RESPONSIBLE OFFICER" of the Company means the chief executive
officer, the president, or the chief financial officer of the Company, or any
other officer having substantially the same authority and responsibility; or,
with respect to compliance with financial covenants, the chief financial
officer, the controller, or the treasurer of the Company, or any other officer
having substantially the same authority and responsibility.
"REVOLVING COMMITMENT", with respect to each Bank, has the meaning
specified in Section 2.01.
"SOLVENT" means, as to any Person at any time, that (a) the fair
value of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code (11 U.S.C. Section 101 ET SEQ.) and, in the
alternative, for purposes of the Hawaii Uniform Fraudulent Transfer Act; (b) the
present fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person is able to realize
upon its property and pay its debts and other liabilities (including disputed,
contingent and unliquidated liabilities) as they mature in the normal course of
business; (d) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small capital.
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"SUBSIDIARY" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof; but
does not include a Joint Venture.
"SUBORDINATED DEBT" means Indebtedness of the Company (including
subordinated debentures and subordinated convertible debentures) to another
lender or creditor who has expressly agreed by virtue of documents or
instruments acceptable to the Majority Banks, that the Indebtedness of the
Company to such lender or creditor is subordinated to the Obligations of the
Company hereunder, and that such lender or creditor will not demand or assert
payment of any portion of such lender's or creditor's Indebtedness until the
Obligations of the Company hereunder have been paid in full.
"SURETY INSTRUMENTS" means all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds and similar instruments.
"SWING-LINE ADVANCE" means a disbursement of loan proceeds in
connection with a Swing-Line Borrowing, pursuant to the terms and conditions set
forth in Article II of this Agreement, and shall consist of Prime Rate Advances
only.
"SWING-LINE BORROWING" means a borrowing hereunder consisting of
Swing-Line Advances made to the Company on the same day by the Agent pursuant to
Section 2.04.
"TANGIBLE NET WORTH" of a Person means such Person's total assets
(exclusive of goodwill, patents, trademarks, trade names, organization expense,
treasury shares, unamortized debt discount and premium, and other like
intangibles), less all liabilities (including accrued and deferred income taxes
and subordinated liabilities).
"TAXES" has the meaning specified in subsection 3.01(a).
"TERMINATION DATE" means July 1, 1998.
"UNENCUMBERED" when used to describe real property owned by the
Company or any of its Subsidiaries, means property which is not subject to any
lien, whether the same is recorded, unrecorded, springing, resulting from a
court judgment or arbitration award, or otherwise; PROVIDED, (i) that the filing
of an application for mechanic's or materialman's lien on such real property
under Chapter 507, Hawaii Revised Statutes, shall not prevent such property from
being Unencumbered, as long as the Company is diligently defending or causing
another party in interest to defend such application; (ii) that the attachment
of any such lien to any such property shall not prevent such property from being
Unencumbered, as long as the Company has filed a bond, sufficient to discharge
such lien, with the clerk of the applicable circuit court, as provided in
Section 507-43, Hawaii Revised Statutes; and (iii) that the recording of any
lien by the obligee of any Premium Payment against property for which a Premium
Payment is required and has not been paid, shall not prevent such property from
being Unencumbered, as long as
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the Company has filed a bond, in form and substance satisfactory to the Majority
Banks, in an amount equal to no less than 125% of the claimed amount of the
lien.
"UNENTITLED LAND" means all land in the State of Hawaii owned by the
Company or any of its Subsidiaries as part of its real estate development
business, that does not have residential zoning, or that does have residential
zoning but does not have the provision of potable water, sewage, or other
utilities available at the boundary of such land.
"UNFUNDED PENSION LIABILITIES" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used by that Plan's
actuaries for funding that Plan pursuant to Section 412 of the Code for the
applicable plan year.
"UNIMPROVED LAND" means all Entitled Land in the State of Hawaii
owned by the Company or any of its Subsidiaries as part of its real estate
development business, on which no construction of on-site infrastructure
improvements has begun.
"UNSOLD HOMES UNDER CONSTRUCTION" means all condominium units and
one-to-four family residences (including Model Homes) in the State of Hawaii
owned by the Company or any of its Subsidiaries as part of its real estate
development business, for which building permits have been issued and
construction has commenced (and not been abandoned), but not completed, and for
which there is no written contract of sale with an unrelated third party
purchaser. Construction will be considered to have "commenced" when the slab or
foundation for the condominium building or one-to-four family residence has been
completed.
1.02 OTHER INTERPRETIVE PROVISIONS.
(a) DEFINED TERMS. Unless otherwise specified herein or therein,
all terms defined in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto. The
meaning of defined terms shall be equally applicable to the singular and plural
forms of the defined terms. Terms (including uncapitalized terms) not otherwise
defined herein and that are defined in the Uniform Commercial Code of Hawaii
shall have the meanings therein described.
(b) THE AGREEMENT. The words "hereof", "herein", "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
subsection, section, schedule and exhibit references are to this Agreement
unless otherwise specified.
(c) CERTAIN COMMON TERMS.
(i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
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(d) PERFORMANCE; TIME. Whenever any performance obligation
hereunder (other than a payment obligation) shall be stated to be due or
required to be satisfied on a day other than a Business Day, such performance
shall be made or satisfied on the next succeeding Business Day. In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but excluding", and the word "through" means "to and including." If any
provision of this Agreement refers to any action taken or to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
interpreted to encompass any and all means, direct or indirect, of taking, or
not taking. such action.
(e) CONTRACTS. Unless otherwise expressly provided herein,
references to agreements and other contractual instruments shall be deemed to
include all subsequent amendments and other modifications thereto, but only to
the extent such amendments and other modifications are not prohibited by the
terms of any Loan Document.
(f) LAWS. References to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or regulation.
(g) CAPTIONS. The captions and headings of this Agreement are
for convenience of reference only and shall not affect the interpretation of
this Agreement.
(h) INDEPENDENCE OF PROVISIONS. The parties acknowledge that
this Agreement and the other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters, and
that such limitations, tests and measurements are cumulative and must each be
performed, except as expressly stated to the contrary in this Agreement.
(i) INTERPRETATION. This Agreement is the result of negotiations
among and has been reviewed by counsel to the Agent, the Company and other
parties, and is the product of all parties hereto. Accordingly, this Agreement
and the other Loan Documents shall not be construed against the Banks or the
Agent merely because of the Agent's or Banks' involvement in the preparation of
such documents and agreements.
1.03 ACCOUNTING PRINCIPLES.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer
to such fiscal periods of the Company.
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ARTICLE II
THE CREDITS
2.01 AMOUNTS AND TERMS OF COMMITMENTS. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make Advances to the Company
from time to time on any Business Day during the period from the Closing Date to
the Termination Date (as the same may be extended pursuant to Section 2.09
hereof); and the Agent agrees, on the terms and conditions hereinafter set
forth, to make Swing-Line Advances to the Company from time to time on any
Business Day during the period from the Closing Date to the Termination Date (as
the same may be extended pursuant to Section 2.09 hereof); and the Agent agrees,
on the terms and conditions hereinafter set forth, to issue Letters of Credit
for the account of the Company from time to time on any Business Day during the
period from the Closing Date to the Termination Date (as the same may be
extended pursuant to Section 2.09 hereof). The aggregate amount of each Bank's
obligation to make Advances, together with such Bank's share of funding for any
Letter of Credit upon negotiation by the beneficiary thereof, shall not exceed
at any time the amount set forth opposite such Bank's name in SCHEDULE 1 under
the heading "Commitment", and the aggregate amount of the Agent's obligation to
make Advances and Swing-Line Advances, together with the Agent's share of
funding for any Letter of Credit upon negotiation by the beneficiary thereof,
shall not exceed at any time the amount set forth opposite the Agent's name in
SCHEDULE 1 under the heading "Commitment" (such amount, as the same may be
reduced pursuant to the terms of this Agreement, being such Bank's "Revolving
Commitment"); PROVIDED, HOWEVER, that, after giving effect to any Borrowing, any
Swing-Line Borrowing or any Issuance, the aggregate principal amount of all
outstanding Advances, all outstanding Swing-Line Advances, and all outstanding
Letters of Credit shall not exceed the amount of the Aggregate Commitment.
Within the limits of the Aggregate Commitment, and subject to the other terms
and conditions hereof, the Company may borrow, prepay, and reborrow.
2.02 DETERMINATION OF BORROWING BASE; RESTRICTION ON ADVANCES, SWING-LINE
ADVANCES AND LETTERS OF CREDIT. The Agent will determine the initial Borrowing
Base at the Closing Date, calculated as of February 29, 1996, and evidenced by a
Borrowing Base Certificate delivered by the Company to the Agent no later than
March 27, 1996. Such determination shall be effective for the first month
following the Closing Date. Thereafter, the Borrowing Base for each succeeding
month will be determined by the Agent, calculated as of the end of the preceding
month (such determination to be made no later than twenty (20) days after the
end of such preceding month), evidenced by the Borrowing Base Certificate
provided to the Agent by the Company pursuant to Section 6.02(c) of this
Agreement, and verified by the Agent to its satisfaction. The Agent shall
promptly notify the Company and each Bank of each determination by the Agent of
the Borrowing Base. Any determination of the Borrowing Base by the Agent shall
be conclusively deemed to be correct unless objected to by the Company or the
Majority Bank within five (5) Business Days of the receipt of such
determination. The aggregate amount of all Advances and Swing-Line Advances
outstanding hereunder, and all Letters of Credit issued and outstanding
hereunder, shall not exceed the Borrowing Base as determined by the Agent for
any succeeding month, and shall in no event exceed the amount of the Aggregate
Commitment. In the event the Borrowing Base for any month, as determined by the
Agent hereunder, is less than the aggregate amount of all outstanding Advances
and Swing-Line Advances and all issued and outstanding Letters of Credit at the
date of such determination, the
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Company shall, within fifteen (15) Business Days of the receipt of notification
by the Agent, repay Advances or Swing-Line Advances in such amounts as may be
necessary to reduce the aggregate amount of all outstanding Advances and Swing-
Line Advances and all issued and outstanding Letters of Credit, to the amount of
the newly-determined Borrowing Base.
2.03 PROCEDURE FOR BORROWING.
(a) Each Borrowing shall be made upon the Company's irrevocable
written notice delivered to the Agent in accordance with Section 10.02 in the
form of a Notice of Borrowing (which notice must be received by the Agent prior
to 10:00 a.m. Honolulu, Hawaii time) (i) four Business Days prior to the
requested Borrowing date, in the case of LIBO Rate Advances; and (ii) one
Business Day prior to the requested Borrowing date, in the case of Prime Rate
Advances, specifying:
(A) whether the Borrowing is to be comprised of LIBO Rate
Advances and/or Prime Rate Advances;
(B) the amount of the Borrowing; PROVIDED that LIBO Rate
Advances shall be in an aggregate minimum principal amount of Two Million
Dollars ($2,000,000) or any integral multiple of One Hundred Thousand
Dollars ($100,000) in excess thereof; and that Prime Rate Advances shall be
in an aggregate minimum principal amount of One Hundred Thousand Dollars
($100,000) or any integral multiple of One Hundred Thousand Dollars
($100,000) in excess thereof;
(C) the requested Borrowing date, which shall be a
Business Day; and
(D) if the requested Borrowing consists of one or more
LIBO Rate Advances, the duration of the Interest Period applicable thereto;
PROVIDED HOWEVER, that if the Notice of Borrowing shall fail to specify the
duration of the Interest Period for any such LIBO Rate Advances, such
Interest Period shall be ninety (90) days.
(b) Upon receipt of the Notice of Borrowing, the Agent will
promptly notify each Bank thereof and of the amount of such Bank's Commitment
Percentage of the Borrowing.
(c) Each Bank will make the amount of its Commitment Percentage
of the Borrowing available to the Agent for the account of the Company at the
Agent's Payment Office by 11:00 a.m. Honolulu, Hawaii time on the Borrowing date
requested by the Company in funds immediately available to the Agent. The
proceeds of all such Advances will then be made available to the Company by the
Agent at such office by crediting the account of the Company on the books of
First Hawaiian Bank with the aggregate of the amounts made available to the
Agent by the Banks and like funds as received by the Agent.
(d) The proceeds from Advances shall be used for general
corporate purposes, including working capital and land acquisition in the State
of Hawaii, and not in contravention of any provision of this Agreement or any
Requirement of Law.
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(e) Unless the Majority Banks shall otherwise agree, during the
existence of a Default or Event of Default, all LIBO Rate Advances shall
automatically be converted into Prime Rate Advances. The Company shall
reimburse each Bank and hold each Bank harmless from any loss or expense which
such Bank may sustain or incur as a consequence of any such conversion of a LIBO
Rate Advance to a Prime Rate Advance on a day that is not the last day of the
Interest Period for such LIBO Rate Advance, as provided in Section 3.04 below.
(f) After giving effect to any Borrowing, there shall not be more
than seven (7) LIBO Rate Advances in effect.
2.04 PROCEDURE FOR SWING-LINE BORROWING.
(a) Each Swing-Line Borrowing shall be made upon the Company's
irrevocable written notice delivered to the Agent in accordance with Section
10.02 in the form of a Notice of Swing-Line Borrowing (which notice must be
received by the Agent prior to 11:00 a.m. Honolulu, Hawaii time) on or before
the requested Swing-Line Borrowing date, specifying:
(A) the amount of the Swing-Line Borrowing, which shall be
in an aggregate minimum principal amount of Ten Thousand Dollars ($10,000);
and
(B) the requested Swing-Line Borrowing date, which shall
be a Business Day.
(b) All Swing-Line Advances shall be made by the Agent alone, for
its own account, and no other Bank shall be required or permitted to participate
in, or otherwise disburse any portion of, any Swing-Line Advance; provided,
however, that (i) the Company shall repay (from its own funds or through a
Borrowing) each Swing-Line Advance no later than thirty (30) days after the date
of the Swing-Line Borrowing therefor, (ii) any Swing-Line Advance may be
converted by the Agent's election into an Advance, upon one (1) Business Day's
written notice given by the Agent to each Bank (with a copy of such notice being
given to the Company), and (iii) all Swing-Line Advances shall automatically be
converted into Advances upon the occurrence of a Default or an Event of Default.
(c) The Agent will notify each Bank of a Swing-Line Borrowing
upon receipt of the Notice of Swing-Line Borrowing therefor, and will notify
each Bank of any repayment of a Swing-Line Borrowing by the Company, from its
own funds, as described in subsection 2.04(b)(i) above.
(d) If the Agent shall elect to convert a Swing-Line Advance into
an Advance, the Agent will notify each Bank of such election, of the amount of
such Bank's Commitment Percentage therein, and the date (which shall be not less
than one (1) Business Day after the date of such notification) for such
conversion (with a copy of such notification being given to the Company). Each
Bank will thereupon make the amount of its Commitment Percentage therein
available to the Agent at the Agent's Payment Office by 11:00 a.m. Honolulu,
Hawaii time, on the date specified in such notice, in funds immediately
available to the Agent. The proceeds
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received from the Banks will be used by the Agent to reimburse itself for the
former Swing-Line Advance so converted.
(e) The proceeds from Swing-Line Advances shall be used for
general corporate purposes, including working capital and land acquisition in
the State of Hawaii, and not in contravention of any provision of this Agreement
or any Requirement of Law.
(f) The aggregate amount of all Swing-Line Advances outstanding
at any one time may not exceed Five Million Dollars ($5,000,000), and the amount
available to the Company for Advances shall be reduced by the aggregate amount
of all Swing-Line Advances outstanding at any one time.
(g) All Swing-Line Advances shall be Prime Rate Advances. All
Swing-Line Advances that have been converted into Advances as described in
subsection 2.04(d) above, shall be Prime Rate Advances, unless and until the
Company has converted the same into LIBO Rate Advances, in accordance with
Section 2.06(a)(i) hereof.
2.05 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT.
(a) Each Issuance shall be made upon the Company's irrevocable
written request delivered to the Agent in accordance with Section 10.02 in the
form of a Request for Issuance of Letter of Credit (which request must be
received by the Agent prior to 11:00 a.m. Honolulu, Hawaii time), together with
an Application and Agreement for Standby Letter of Credit in the form attached
hereto as EXHIBIT D (as the same may be revised by the Agent from time to time)
five (5) Business Days prior to the requested Issuance date.
(b) Upon receipt of the Request for Issuance of Letter of Credit,
the Agent will promptly notify each Bank thereof.
(c) Upon any negotiation of an outstanding Letter of Credit by
the beneficiary thereof, the Agent will promptly notify each Bank of such
negotiation, and of the amount of such Bank's Commitment Percentage thereof.
Each Bank will make the amount of its Commitment Percentage of the negotiated
Letter of Credit available to the Agent at the Agent's Payment Office by 11:00
a.m. Honolulu, Hawaii time on the date requested by the Agent in funds
immediately available to the Agent. The proceeds received from the Banks will
be used by the Agent to pay the beneficiary of the Letter of Credit upon such
negotiation, or to reimburse the Agent for such amounts if payment to such
beneficiary has already been made.
(d) Unless all of the Banks shall otherwise agree, (i) no Letter
of Credit shall have an expiry date later than the Termination Date; (ii) no
Letter of Credit shall contain an automatic renewal clause or feature; and (iii)
no Letter of Credit shall be issued for credit enhancement.
The aggregate amount of all Letters of Credit issued and outstanding at any
one time may not exceed Five Million Dollars ($5,000,000), and the amount
available to the Company for Advances and Swing-Line Advances shall be reduced
by the aggregate amount of all Letters of Credit issued and outstanding at any
one time. In addition to the Letter of Credit Fee payable
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by the Company pursuant to Section 2.11(d) of this Agreement, the Company shall,
at the time of the Issuance of each Letter of Credit, pay to the Agent its
standard letter of credit issuance fee. Upon the negotiation of any Letter of
Credit by the beneficiary thereof, the amount drawn thereunder shall become and
be deemed an Advance under and subject to the terms and provisions of this
Agreement relating to Advances. Upon the occurrence of an Event of Default
hereunder, the Company shall deposit with the Agent cash in an amount sufficient
to fully collateralize all outstanding Letters of Credit as of such date, and if
the Company shall fail to do so, the full amount of such outstanding Letters of
Credit shall become and be deemed an Advance under and subject to the terms and
provisions of this Agreement relating to Advances. The Letters of Credit shall
be issued to support performance requirements and obligations of the Company in
connection with its real estate development business in the State of Hawaii
(including any required deposits for like-kind exchanges under Section 1031 of
the Code), not in contravention of any provision of this Agreement or any
Requirement of Law.
2.06 CONVERSION AND CONTINUATION ELECTIONS.
(a) The Company may upon irrevocable written notice to the Agent
in accordance with subsection 2.06(b):
(i) elect to convert on any Business Day, any Prime Rate
Advance (other than a Swing-Line Advance), or any part thereof in an amount
not less than $2,000,000, or that is an integral multiple of $100,000 in
excess thereof, into LIBO Rate Advances; or
(ii) elect to convert on the last day of any Interest
Period applicable thereto any LIBO Rate Advances (or any part hereof in an
amount not less than $100,000, or that is an integral multiple of $100,000
in excess thereof) into a Prime Rate Advance; or
(iii) elect to continue on the last day of any Interest
Period applicable thereto any LIBO Rate Advances (or any part thereof in an
amount not less than $2,000,000, or that is an integral multiple of
$100,000 in excess thereof);
PROVIDED, that if the aggregate amount of any LIBO Rate Advance in respect of
any Borrowing shall have been reduced, by payment, prepayment, or conversion of
part thereof to be less than $2,000,000, such LIBO Rate Advance shall
automatically convert into a Prime Rate Advance, and on and after such date the
right of the Company to continue such Advance as, and convert such Advance into,
a LIBO Rate Advance, shall terminate.
(b) The Company shall deliver a Notice of Conversion/Continuation
in accordance with Section 10.02 to be received by the Agent no later than 10:00
a.m.. Honolulu, Hawaii time at least (i) four Business Days prior to the
Conversion Date or Continuation Date, if the Advances are to be converted into
or continued as LIBO Rate Advances; and (ii) one Business Day in advance of the
Conversion Date, if the Advances are to be converted into Prime Rate Advances,
specifying:
(i) the proposed Conversion Date or Continuation Date;
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(ii) the aggregate amount of Advances to be converted or
continued;
(iii) the nature of the proposed conversion or continuation;
and
(iv) if applicable, the duration of the requested Interest
Period.
(c) If upon the expiration of any Interest Period applicable to
LIBO Rate Advances, the Company has failed to select timely a new Interest
Period to be applicable to such LIBO Rate Advances, or if any Default or Event
of Default shall then exist, the Company shall be deemed to have elected to
convert such LIBO Rate Advances into Prime Rate Advances effective as of the
expiration date of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation, the
Agent will promptly notify each Bank thereof, or, if no timely notice is
provided by the Company, the Agent will promptly notify each Bank of the details
of any automatic conversion. All conversions and continuations shall be made
pro rata among the Banks according to the respective outstanding principal
amounts of the Advances held by each Bank with respect to which the notice was
given.
(e) Notwithstanding any other provision contained in this
Agreement, after giving effect to any conversion or continuation of any
Advances, there shall not be more than seven (7) LIBO Rate Advances in effect.
(f) The Company shall reimburse each Bank and hold each Bank
harmless from any loss or expense which such Bank may sustain or incur as a
consequence of any conversion of a LIBO Rate Advance to a Prime Rate Advance on
a day that is not the last day of the Interest Period for such LIBO Rate
Advance, as provided in Section 3.04 below.
2.07 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The Company may,
after December 31, 1996, and thereafter at the end of any Quarter, upon not less
than five Business Days' prior notice to the Agent (which shall promptly notify
each Bank thereof), terminate the Aggregate Commitment or permanently reduce the
Aggregate Commitment by an aggregate minimum amount of $10,000,000 or any
integral multiple of $1,000,000 in excess thereof; PROVIDED that no such
reduction or termination shall be permitted if, after giving effect thereto and
to any prepayments of the Advances or Swing-Line Advances made on the effective
date thereof, the then outstanding principal amount of all Advances, Swing-Line
Advances and Letters of Credit issued and outstanding would exceed the amount of
the Aggregate Commitment then in effect and, PROVIDED, FURTHER, that once
reduced in accordance with this Section, the Aggregate Commitment may not be
increased without the written approval of the Agent and each Bank. Any
reduction of the Aggregate Commitment shall be applied to each Bank's Revolving
Commitment in accordance with such Bank's Commitment Percentage. All accrued
interest, and all accrued fees described in Section 2.11 hereof, to, but not
including, the effective date of any reduction or termination of the Aggregate
Commitment, shall be paid on the effective date of such reduction or
termination. The Company shall reimburse each Bank and hold each Bank harmless
from any loss or expense which such Bank may sustain or incur as a consequence
of any termination or reduction of the Aggregate Commitment which is effective,
with respect to
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a LIBO Rate Advance, on a day that is not the last day of the Interest Period
for such LIBO Rate Advance, as provided in Section 3.04 below.
2.08 OPTIONAL PREPAYMENTS. Subject to Section 3.04, the Company may, at
any time or from time to time, (i) prepay LIBO Rate Advances in whole or in
part, upon at least three Business Days' prior notice to the Agent, in amounts
of $1,000,000 or any integral multiple of $100,000 in excess thereof (PROVIDED
that after any such prepayment, the balance of any such LIBO Rate Advance shall
be $2,000,000 or any integral multiple of $100,000 in excess thereof), (ii)
prepay Prime Rate Advances (other than Swing-Line Advances) in whole or in part,
upon at least one Business Day's prior notice to the Agent, in any amounts, and
(iii) prepay Swing-Line Advances in whole or in part without prior notice to the
Agent. Any such notice of prepayment shall specify the date and amount of such
prepayment and whether such prepayment is of Prime Rate Advances, or LIBO Rate
Advances, or any combination thereof. Such notice shall not thereafter be
revocable by the Company, and the Agent will promptly notify each Bank thereof
and of such Bank's Commitment Percentage of such prepayment. If such notice is
given by the Company, the Company shall make such prepayment, and the payment
amounts specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the amount prepaid
and any amounts required pursuant to Section 3.04. The Company shall reimburse
each Bank and hold each Bank harmless from any loss or expense which such Bank
may sustain or incur as a consequence of any prepayment of a LIBO Rate Advance,
on a day that is not the last day of the Interest Period for such LIBO Rate
Advance, as provided in Section 3.04 below.
2.09 REPAYMENT. The Company shall, on the Termination Date, repay to the
Banks in full the aggregate principal amount of all outstanding Advances, and
all accrued interest thereon, and shall repay to the Agent in full the aggregate
principal amount of all outstanding Swing-Line Advances, and all accrued
interest thereon, shall pay to the Banks all fees, charges and other sums
outstanding hereunder on the Termination Date. Notwithstanding the foregoing,
upon the request of the Company made not earlier than June 1, 1997 and not later
than June 30, 1997, and the concurrence of all of the Banks, in their sole and
absolute discretion, the Termination Date may be extended to July 1, 1999. As a
condition to such extension, the Banks may require the Company to pay an
extension fee in an amount to be determined by the Banks.
2.10 INTEREST.
(a) Subject to subsection (c) of this Section, each Conforming
LIBO Rate Advance, each Conforming Prime Rate Advance, each Nonconforming LIBO
Rate Advance, and each Nonconforming Prime Rate Advance shall bear interest on
the outstanding principal amount thereof, from the date when made until it
becomes due, at a rate per annum equal to the LIBO Rate or the Prime Rate, as
the case may be, PLUS, the Applicable Margin.
(b) Interest on each Advance and on each Swing-Line Advance shall
be paid in arrears on each Interest Payment Date. Interest shall also be paid
on the date of any prepayment of Advances or Swing-Line Advances pursuant to
Sections 2.07 and 2.08 for the portion of the Advances or Swing-Line Advances so
prepaid and upon payment (including prepayment) in full thereof and, during the
existence of any Event of Default, interest shall be paid on demand.
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(c) If any amount of principal or interest on any Advance or any
Swing-Line Advance, or any other amount payable hereunder or under any of the
other Loan Documents is not paid in full when due (whether at stated maturity,
by acceleration, demand or otherwise), the Company agrees to pay interest on
such unpaid principal or other amount, from the date such amount becomes due
until the date such amount is paid in full, and after as well as before any
entry of judgment thereon to the extent permitted by law, payable on demand, at
a fluctuating rate per annum equal to the Prime Rate PLUS four percent (4%).
(d) Anything herein to the contrary notwithstanding, the
obligations of the Company hereunder shall be subject to the limitation that
payments of interest shall not be required, for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by the respective Bank would be contrary to the
provisions of any law applicable to such Bank limiting the highest rate of
interest which may be lawfully contracted for, charged or received by such Bank,
and in such event the Company shall pay such Bank interest at the highest rate
permitted by law applicable to such Bank.
2.11 FEES.
(a) ORIGINATION FEES. The Company shall pay to the Agent on the
Closing Date, for the account of each Bank, an origination fee equal to three-
tenths of one percent (0.30%) of the amount of such Bank's Revolving Commitment
(for an aggregate origination fee of $330,000.00).
(b) COMMITMENT FEE. The Company shall pay to the Agent for the
account of each Bank a commitment fee equal to one-fourth of one percent (0.25%)
per annum of the amount of such Bank's Revolving Commitment, computed on a
Quarterly basis in advance, commencing on the Closing Date, and continuing on
the first Business Day of each Quarter until the Termination Date.
(c) UNUSED FACILITY FEES. The Company shall pay to the Agent for
the account of each Bank an unused facility fee equal to one-half of one percent
(0.50%) per annum of the amount equal to the difference between (i) such Bank's
Revolving Commitment (less such Bank's Commitment Percentage of any issued and
outstanding Letters of Credit) and (ii) such Bank's Commitment Percentage of the
outstanding principal balance of all Advances made hereunder, computed on a
daily balance basis in arrears, commencing as of the Closing Date, and becoming
due and payable on the last Business Day of each Quarter, with the final payment
to be made on the Termination Date; PROVIDED HOWEVER that in the case of the
Agent, the unused facility fee shall be equal to one-half of one percent (0.50%)
of the amount equal to the difference between (i) the Agent's Revolving
Commitment (less the Agent's Commitment Percentage of any issued and outstanding
Letters of Credit) and (ii)(A) the Agent's Commitment Percentage of the
outstanding principal balance of all Advances made hereunder and (B) 100% of the
outstanding principal balance of all Swing-Line Advances made hereunder,
computed on a daily balance basis in arrears, commencing as of the Closing Date
and becoming due and payable on the last Business Day of each Quarter, with the
final payment to be made on the Termination Date.
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(d) LETTER OF CREDIT FEES. The Company shall pay to the Agent,
upon the Issuance hereunder of each new Letter of Credit, or upon the extension
hereunder of each existing Letter of Credit, a letter of credit fee in an amount
equal to one and one-fourth percent (1.25%) of the amount of such Letter of
Credit. The Agent will retain 20% of such fee (i.e., .25% of the amount of such
Letter of Credit) for its own account, and will remit the balance of such fee to
each Bank (including the Agent) pro rata in accordance with such Bank's
Revolving Commitment.
(e) AGENCY FEE. The Company shall pay to the Agent for the
Agent's own account an agency fee in the amount and at the times set forth in a
letter agreement between the Company and the Agent dated March 26, 1996.
2.12 COMPUTATION OF FEES AND INTEREST.
(a) The fees described in Section 2.11 above shall be calculated
on the basis year of 365 days, and actual days elapsed.
(b) All computations of interest payable in respect of Prime Rate
Advances shall be made on the basis of a year of 365 days, and actual days
elapsed. All computations of interest payable in respect of LIBO Rate Advances
shall be made on the basis of a 360-day year and actual days elapsed. Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
(c) The Agent will, with reasonable promptness, notify the
Company and the Banks of each determination of the Borrowing Base and of the
Leverage Ratio; PROVIDED that any failure to do so shall not relieve the Company
of any liability hereunder or provide the basis for any claim against the Agent.
Any change in the interest rate on an Advance or a Swing-Line Advance resulting
from a change in the Prime Rate shall become effective as of the opening of
business on the day on which such change in the Prime Rate becomes effective.
Any change in the interest rate on an Advance or a Swing-Line Advance resulting
from a change in the Leverage Ratio (and the resultant Applicable Margin) shall
become effective as of the opening of business on the first day of the Quarter
following the determination of the Leverage Ratio. The Agent will with
reasonable promptness notify the Company and the Banks of the effective date and
the amount of each such change; PROVIDED that any failure to do so shall not
relieve the Company of any liability hereunder or provide the basis for any
claim against the Agent.
2.13 PAYMENTS BY THE COMPANY.
(a) All payments (including prepayments) to be made by the
Company on account of principal, interest, fees and other amounts required
hereunder shall be made without set-off, recoupment or counterclaim; shall,
except with respect to payments relating to Swing-Line Advances, and as
otherwise expressly provided herein, be made to the Agent for the ratable
account of the Banks at the Agent's Payment Office; and shall be made in U.S.
Dollars and in immediately available funds, no later than 9:00 a.m. Honolulu,
Hawaii time on the date specified herein for payments on, or of, Advances, and
no later than 11:00 a.m. Honolulu, Hawaii time on the date specified herein for
payments on, or of, Swing-Line Advances.. The Agent will promptly distribute to
each Bank its Commitment Percentage (or other applicable share as
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expressly provided herein) of such principal, interest, fees or other amounts,
in like funds as received; provided however that the Agent shall retain all
payments made by the Company on, or of, Swing-Line Advances for the Agent's own
account. Any payment which is received by the Agent later than 9:00 a.m.
Honolulu, Hawaii time and any payment on, or of, Swing-Line Advances which is
received by the Agent later than 11:00 a.m. Honolulu, Hawaii time, shall be
deemed to have been received on the immediately succeeding Business Day and any
applicable interest or fee shall continue to accrue.
(b) Whenever any payment hereunder shall be stated to be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be; subject to the provisions
set forth in the definition of "Interest Period" herein.
(c) Unless the Agent shall have received notice from the Company
prior to the date on which any payment is due to the Banks hereunder that the
Company will not make such payment in full as and when required hereunder, the
Agent may assume that the Company has made such payment in full to the Agent on
such date in immediately available funds and the Agent may (but shall not be so
required), in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent the Company shall not have made such payment in full to the Agent,
each Bank shall repay to the Agent on demand such amount distributed to such
Bank, together with interest thereon for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate as in effect for each such day.
2.14 PAYMENTS BY THE BANKS TO THE AGENT.
(a) Unless the Agent shall have received notice from a Bank at
least one Business Day prior to the date of any proposed Borrowing, conversion
of a Swing-Line Advance to an Advance, or negotiation of a Letter of Credit,
that such Bank will not make available to the Agent as and when required
hereunder the amount of that Bank's Commitment Percentage thereof, the Agent may
assume that each Bank has made such amount available to the Agent in immediately
available funds on such date and the Agent may (but shall not be so required),
in reliance upon such assumption, make available to the appropriate party on
such date a corresponding amount. If and to the extent any Bank shall not have
made its full amount available to the Agent in immediately available funds and
the Agent in such circumstances has made available to the appropriate party such
amount, that Bank shall on the next Business Day following such date make such
amount available to the Agent, together with interest at the Federal Funds Rate
for and determined as of each day during such period. A notice of the Agent
submitted to any Bank with respect to amounts owing under this subsection shall
be conclusive, absent manifest error. If such amount is so made available, such
payment to the Agent shall constitute such Bank's Advance on such date for all
purposes of this Agreement. If, with respect to a Borrowing, such amount is not
made available to the Agent on the next Business Day following the date of such
Borrowing, the Agent shall notify the Company of such failure to fund and, upon
demand by the Agent, the Company shall pay such amount to the Agent for the
Agent's account, together with interest thereon for each day elapsed since the
date
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of such Borrowing, at a rate per annum equal to the interest rate applicable at
the time to the Advances comprising such Borrowing.
(b) The failure of any Bank to make any Advance on the date of
any proposed Borrowing, conversion of Swing-Line Advance to an Advance, or
negotiation of a Letter of Credit, shall not relieve any other Bank of any
obligation hereunder to make an Advance on the date thereof, but no Bank shall
be responsible for the failure of any other Bank to make the Advance to be made
by such other Bank on the date thereof. The Agent shall take such action as the
Agent deems advisable, or as the Agent may be directed by the Majority Banks,
pursuant to the Inter-Bank Agreement, to cause such Bank to make such Advance,
or to cause one or more of the other Banks to acquire and assume such Bank's
Advances and Revolving Commitment, or to designate a replacement bank or
financial institution to acquire and assume such Bank's Advances and Revolving
Commitment.
2.15 SHARING OF PAYMENTS, ETC. If, other than with respect to Swing-Line
Advances made by the Agent, or other than as expressly provided elsewhere
herein, any Bank shall obtain on account of the Advances made by it any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) in excess of its Commitment Percentage of payments on account of
the Advances obtained by all the Banks, such Bank shall forthwith (a) notify the
Agent of such fact, and (b) purchase from the other Banks such participations in
the Advances made by them as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them; PROVIDED, HOWEVER, that if
all or any portion of such excess payment is thereafter recovered from the
purchasing Bank, such purchase shall to that extent be rescinded and each other
Bank shall repay to the purchasing Bank the purchase price paid therefor,
together with an amount equal to such paying Bank's Commitment Percentage
(according to the proportion of (i) the amount of such paying Bank's required
repayment to (ii) the total amount so recovered from the purchasing Bank) of any
interest or other amount paid or payable by the purchasing Bank in respect of
the total amount so recovered. The Company agrees that any Bank so purchasing a
participation from another Bank pursuant to this Section may, to the fullest
extent permitted by law, exercise all its rights of payment (including the right
of set-off but subject to Section 10.09) with respect to such participation as
fully as if such Bank were the direct creditor of the Company in the amount of
such participation. The Agent will keep records (which shall be conclusive and
binding in the absence of manifest error) of participations purchased pursuant
to this Section and will in each case notify the Banks following any such
purchases or repayments.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 TAXES.
(a) Subject to subsection 3.01(g), any and all payments by the
Company to each Bank or the Agent under this Agreement shall be made free and
clear of, and without deduction or withholding for, any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, such taxes (including income taxes or franchise taxes) as are imposed on
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or measured by each Bank's net income by the jurisdiction under the laws of
which such Bank or the Agent, as the case may be, is organized or maintains a
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").
(b) In addition, the Company shall pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Subject to subsection 3.01(g), the Company shall indemnify
and hold harmless each Bank and the Agent for the full amount of Taxes and Other
Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 3.01) paid by any Bank or the Agent and any liability
(including penalties, interest, additions to tax and expenses) arising therefor
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. Payment under this indemnification shall be made within 30
days from the date any Bank or the Agent makes written demand therefor. If any
Taxes or Other Taxes for which the Company has provided an indemnity to any Bank
or the Agent under this subsection 3.01(c) are found to be incorrectly or
illegally assessed, then, upon the request of the Company, such Bank or Agent
will take such action, if any, as such Bank or the Agent may determine in its
discretion, exercised in good faith, to be commercially reasonable to obtain a
refund of such Taxes or Other Taxes and shall promptly remit to the Company any
refund which the Bank or the Agent receives, after deducting from such refund
all costs and expenses incurred (including reasonable attorneys' fees and
expenses and allocated costs of internal legal services) in collecting such
refund.
(d) If the Company shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Bank or the Agent, then, subject to subsection 3.01(g):
(i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this Section 3.01) such Bank or the Agent,
as the case may be, receives an amount equal to the sum it would have
received had no such deductions been made;
(ii) the Company shall make such deductions; and
(iii) the Company shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law.
(e) Within 30 days after the date of any payment by the Company
of Taxes or Other Taxes, the Company shall furnish to the Agent the original or
a certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
(f) Each Bank which is a foreign person (i.e., a person other
than a United States Person for United States Federal income tax purposes)
agrees that:
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(i) it shall, no later than the Closing Date (or, in the
case of a Bank which becomes a party hereto pursuant to Section 10.08 after
the Closing Date, the date upon which the Bank becomes a party hereto)
deliver to the Company through the Agent two accurate and complete signed
originals of Internal Revenue Service Form 4224 or any successor thereto
("Form 4224"), or two accurate and complete signed originals of Internal
Revenue Service Form 1001 or any successor thereto ("Form 1001"), as
appropriate, in each case indicating that the Bank is on the date of
delivery thereof entitled to receive payments of principal, interest and
fees under this Agreement free from withholding of United States Federal
income tax;
(ii) if at any time the Bank makes any changes
necessitating a new Form 4224 or Form 1001, it shall with reasonable
promptness deliver to the Company through the Agent in replacement for, or
in addition to, the forms previously delivered by it hereunder, two
accurate and complete signed originals of Form 4224; or two accurate and
complete signed originals of Form 1001, as appropriate, in each case
indicating that the Bank is on the date of delivery thereof entitled to
receive payments of principal, interest and fees under this Agreement free
from withholding of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence of
any event (including the passing of time but excluding any event mentioned
in (ii) above) requiring change in or renewal of the most recent Form 4224
or Form 1001 previously delivered by such Bank, deliver to the Company
through the Agent two accurate and complete original signed copies of Form
4224 or Form 1001 in replacement for the forms previously delivered by the
Bank; and
(iv) it shall, promptly upon the Company's or the Agent's
reasonable request to that effect, deliver to the Company or the Agent (as
the case may be) such other forms or similar documentation as may be
required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Bank's tax status for withholding
purposes.
(g) The Company will not be required to pay any additional
amounts in respect of United States Federal income tax pursuant to subsection
3.01(d) to any Bank for the account of any Lending Office of such Bank:
(i) if the obligation to pay such additional amounts would
not have arisen but for a failure by such Bank to comply with its
obligations, if any, under subsection 3.01(f) in respect of such Lending
Office;
(ii) if such Bank shall have delivered to the Company a
Form 4224 in respect of such Lending Office pursuant to subsection 3.01(f),
and such Bank shall not at any time be entitled to exemption from deduction
or withholding of United States Federal income tax in respect of payments
by the Company hereunder for the account of such Lending Office for any
reason other than a change in United States law or regulations or in the
official interpretation of such law or regulations by any
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governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law) after the date of delivery
of such Form 4224; or
(iii) if the Bank shall have delivered to the Company a Form
1001 in respect of such Lending Office pursuant to subsection 3.01(f), and
such Bank shall not at any time be entitled to exemption from deduction or
withholding of United States Federal income tax in respect of payments by
the Company hereunder for the account of such Lending Office for any reason
other than a change in United States law or regulations or any applicable
tax treaty or regulations or in the official interpretation of any such
law, treaty or regulations by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force
of law) after the date of delivery of such Form 1001.
(h) If the Company is required to pay additional amounts to any
Bank or the Agent pursuant to subsection 3.01(d), then such Bank shall use its
reasonable best efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Company which may thereafter accrue if such change in
the judgment of such Bank is not otherwise disadvantageous to such Bank.
3.02 ILLEGALITY.
(a) If any Bank shall determine that the introduction of any
Requirement of Law, or any change in any Requirement of Law or in the
interpretation or administration thereof, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its Lending Office to make LIBO Rate Advances, then, on notice
thereof by the Bank to the Company through the Agent, the obligation of that
Bank to make LIBO Rate Advances shall be suspended until that Bank shall have
notified the Agent and the Company that the circumstances giving rise to such
determination no longer exists.
(b) If a Bank shall determine that it is unlawful to maintain any
LIBO Rate Advance, the Company shall prepay in full all LIBO Rate Advances of
that Bank then outstanding, together with interest accrued thereon, either on
the last day of the Interest Period thereof if that Bank may lawfully continue
to maintain such LIBO Rate Advances to such day, or immediately, if that Bank
may not lawfully continue to maintain such LIBO Rate Advances, together with any
amounts required to be paid in connection therewith pursuant to Section 3.04.
(c) If the Company is required to prepay any LIBO Rate Advance
immediately as provided in subsection 3.02(b), then concurrently with such
prepayment, the Company shall borrow from the Affected Bank, in the amount of
such repayment, a Prime Rate Advance.
(d) If the obligation of any Bank to make or maintain LIBO Rate
Advances has been terminated, the Company may elect, by giving notice to that
Bank through the Agent that all Advances which would otherwise be made by that
Bank as LIBO Rate Advances shall be instead Prime Rate Advances.
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3.03 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If any Bank shall determine that, due to either (i) the
introduction of or any change (other than any change by way of imposition of or
increase in reserve requirements to the extent included the calculation of the
LIBO Rate) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), enacted after
the Closing Date, there shall be any increase in the cost to such Bank of
agreeing to make or making, funding or maintaining any LIBO Rate Advances, then
the Company shall be liable for, and shall from time to time, upon demand
therefor by such Bank (with copy of such demand to the Agent), pay to the Agent
for the account of such Bank, additional amounts as are sufficient to compensate
such Bank for such increased costs.
(b) If any Bank shall have determined that (i) the introduction
of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
such Bank (or its Lending Office) or any corporation controlling such Bank, with
any Capital Adequacy Regulation affects or would affect the amount of capital
required or expected to be maintained by such Bank or any corporation
controlling such Bank and (taking into consideration such Bank's or such
corporation's policies with respect to capital adequacy and such Bank's desired
return on capital) such Bank determines that the amount of such capital is
increased as a consequence of its commitment to extend credit under this
Agreement, or loans, advances, credits or obligations under this Agreement,
then, upon demand of such Bank (with a copy to the Agent), the Company shall
upon demand pay to such Bank, from time to time as specified by such Bank,
additional amounts sufficient to compensate such Bank for such increase.
Notwithstanding the above, the Company shall not be required to pay to any Bank
any amount under this subsection 3.03(b) which reflects compensation for such
increased capital requirement which was effective more than 180 days prior to
the date of such demand, unless such increased capital requirement is made
retroactive by such (i) Capital Adequacy Regulation, (ii) change therein, (iii)
change in the interpretation or administration thereof, or (iv) compliance with
any Capital Adequacy Regulation.
(c) Any Bank claiming reimbursement or compensation pursuant to
this Section 3.03 shall deliver to the Company (with a copy to the Agent) a
certificate setting forth in reasonable detail the amount payable to such Bank
under this Section 3.03 and the basis therefor and such certificate shall be
rebuttable presumptive evidence of such amount.
3.04 FUNDING LOSSES. The Company agrees to reimburse each Bank and to
hold each Bank harmless from any loss or expense which such Bank may sustain or
incur as a consequence of:
(a) the failure of the Company to make any payment or mandatory
prepayment of principal of any LIBO Rate Advance (including payments made after
any acceleration thereof);
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(b) the failure of the Company to borrow, continue or convert an
Advance after the Company has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Company to make any prepayment after the
Company has given a notice in accordance with Section 2.08;
(d) the conversion pursuant to Section 2.03(e) or Section 2.06 of
any LIBO Rate Advance to a Prime Rate Advance on a day that is not the last day
of the respective Interest Period;
(e) the termination or reduction in the Aggregate Commitment
which is effective, with respect to a LIBO Rate Advance, on a day that is not
the last day of the Interest Period for such LIBO Rate Advance, as provided in
Section 2.07; or
(f) the prepayment (including pursuant to Section 2.08) of a LIBO
Rate Advance on a day which is not the last day of the Interest Period with
respect thereto;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBO Rate Advances hereunder or from
fees payable to terminate the deposits from which such funds were obtained, such
amount or amounts to include, without limitation, an amount equal to the excess,
if any, of (i) the amount of interest which would have accrued on the amount so
prepaid, not prepaid, not paid, not borrowed, not continued or converted, or
converted at the time of such action or failure to act for the period from the
date of such action or failure to act to the last day of the then current
Interest Period (or, in the case of a failure to borrow, continue or convert,
the Interest Period which would have commenced on the date of such failure) at
the LIBO Rate in effect for such Interest Period over (ii) the amount of
interest which would accrue to such Bank on such amount by placing such amount
on deposit for a comparable period with leading banks in the London Interbank
Market. Such Bank shall deliver to the Company (with a copy to the Agent) a
certificate setting forth in reasonable detail the amount of such loss, cost or
expense and the basis therefor which shall be rebuttable presumptive evidence of
the amount of such loss, cost or expense. Solely for purposes of calculating
amounts payable by the Company to the Banks under this Section 3.04 and under
subsection 3.03(a), each LIBO Rate Advance made by a Bank (and each related
reserve, special deposit or similar requirement) shall be conclusively deemed to
have been funded at the LIBO Rate plus the Applicable Margin for such LIBO Rate
Advance by a matching deposit or other borrowing in the London Interbank Market
for a comparable amount and for a comparable period, whether or not such LIBO
Rate Advance is in fact so funded.
3.05 INABILITY TO DETERMINE RATES. If the Majority Banks shall have
determined that for any reason adequate and reasonable means do not exist for
ascertaining the LIBO Rate for any requested Interest Period with respect to a
proposed LIBO Rate Advance or that the LIBO Rate applicable pursuant to
subsection 2.10(a) for any requested Interest Period with respect to a proposed
LIBO Rate Advance does not adequately and fairly reflect the cost to such Banks
of funding such Advance, the Agent will forthwith give notice of such
determination to the Company and each Bank. Thereafter, the obligation of the
Banks to make or maintain LIBO Rate Advances hereunder shall be suspended until
the Agent upon the instruction of the Majority
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Banks revokes such notice in writing. Upon receipt of such notice, the Company
may revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If the Company does not revoke such notice, the Banks shall
make, convert or continue the Advances, as proposed by the Company, in the
amount specified in the applicable notice submitted by the Company, but such
Advances shall be made, converted or continued as Prime Rate Advances instead of
LIBO Rate Advances.
3.06 SUBSTITUTION OF BANKS. Upon the receipt by the Company from any
Bank (an "AFFECTED BANK") of a claim for compensation pursuant to Section 3.01
or Section 3.03, or a notice to the Company through the Agent under Section
3.02(a), unless the Company and the Affected Bank have reached an agreement or
are negotiating toward reaching an agreement relative to alleviating the impact
of such claim for compensation or such notice on the Company, the Company may:
(i) request one or more of the other Banks to acquire and assume all or part of
such Affected Bank's Advances and Revolving Commitment, which request may be
granted or denied in such Bank's sole discretion; or (ii) designate a
replacement bank or financial institution to acquire and assume all or part of
such Affected Bank's Advances and Revolving Commitment (a "REPLACEMENT BANK").
Any such designation of a Replacement Bank under clause (ii) shall be subject to
the prior written consent of the Agent (which consent shall not be unreasonably
withheld). In the event of the replacement of an Affected Bank, such Affected
Bank agrees to assign without recourse its rights and obligations hereunder to
the Replacement Bank upon payment by the Replacement Bank to the Affected Bank
of the principal amount of such Affected Banks's outstanding Advances and any
accrued and unpaid interest thereon, and any other amounts owed to such Affected
Bank and to execute and deliver to the Agent an assignment and acceptance in
form and substance reasonably satisfactory to the Agent and such Affected Bank
evidencing such assignment and the acceptance by the Replacement Bank of such
Affected Bank's obligations hereunder. The designation of a Replacement Bank
shall not affect the Company's obligations to such Affected Bank hereunder.
3.07 SURVIVAL. The agreements and obligations of the Company in this
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO CLOSING. The obligation of each Bank to make its
Revolving Commitment available to the Company hereunder is subject to the
condition that the Agent shall have received on or before the Closing Date all
of the following, in form and substance satisfactory to the Agent and each Bank
and in sufficient copies for each Bank:
(a) CREDIT AGREEMENT. This Agreement executed by the Company,
the Agent and each of the Banks.
(b) OTHER LOAN DOCUMENTS. The Note and the Negative Pledge
Agreement, executed by the Company, in favor of the Agent, as agent for the
Banks.
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(c) RESOLUTIONS: INCUMBENCY.
(i) Copies of the resolutions of the board of directors of
the Company approving and authorizing the execution, delivery and
performance by the Company of this Agreement, and the other Loan Documents
to be delivered hereunder by the Company, certified as of the Closing Date
by the Secretary or an Assistant Secretary of the Company; and
(ii) Certificates of the Secretary or Assistant Secretary
of the Company certifying the names and true signatures of the officers of
the Company authorized to execute, deliver and perform this Agreement, and
all other Loan Documents to be delivered hereunder.
(d) LEGAL OPINION. An opinion of Counsel to the Company and
addressed to the Agent and the Banks, substantially in the form of EXHIBIT E.
(e) PAYMENT OF FEES. The Company shall have paid all accrued and
unpaid fees, costs and expenses to the extent then due and payable on the
Closing Date, together with fees and disbursements of counsel for First Hawaiian
Bank.
(f) CERTIFICATES. An initial Borrowing Base Certificate, an
initial Leverage Ratio Certificate, and a compliance certificate signed by a
Responsible Officer of the Company dated as of the Closing Date, stating that:
(i) the representations and warranties contained in
Article V are true and correct on and as of such date, as though made on
and as of such date;
(ii) no Default or Event of Default exists or would result
from the initial Borrowing; and
(iii) there has occurred since December 31, 1995, no event
or circumstance that has resulted or could reasonably be expected to result
in a Material Adverse Effect.
(g) FINANCIAL STATEMENTS. Unaudited consolidated financial
statements of the Company as of December 31, 1995.
(h) CERTIFICATE OF GOOD STANDING. A certificate of good standing
for the Company, issued by the Director of the Department of Commerce and
Consumer Affairs of the State of Hawaii, as of no earlier than February 29,
1996.
(i) TAX CLEARANCE CERTIFICATE. A tax clearance certificate for
the Company, issued by the Department of Taxation of the State of Hawaii,
certifying that all taxes due to the State of Hawaii by the Company, up to and
including a date within 30 days of the Closing Date, have been paid.
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(j) OTHER DOCUMENTS. Such other approvals, opinions, documents
or materials as the Agent or any Bank may reasonably request.
4.02 CONDITIONS TO ALL BORROWINGS, SWING-LINE BORROWINGS AND ISSUANCE OF
LETTERS OF CREDIT. The obligation of each Bank to make any Advance hereunder
(including its initial Advance), or to continue or convert any Advance pursuant
to section 2.06, or of the Agent to make any Swing-Line Advance hereunder, or of
the Agent to issue any Letter of Credit hereunder, is subject to the
satisfaction of the following conditions precedent on the relevant date
therefor:
(a) NOTICE OF BORROWING OR CONTINUATION/CONVERSION. The Agent
shall have received a Notice of Borrowing or a Notice of Swing-Line Borrowing or
a Request for Issuance of Letter of Credit or a Notice of
Continuation/Conversion, as applicable;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company herein shall be true and
correct on and as of such date, with the same effect as if made on and as of
such date (except to the extent such representations and warranties expressly
refer to an earlier date, in which case they shall be true and correct as of
such earlier date); and
(c) NO EXISTING DEFAULT. No Default or Event of Default shall
exist or shall result from such Borrowing or continuation or conversion.
Each Notice of Borrowing, Notice of Swing-Line Borrowing, Request for Issuance
of Letter of Credit and Notice of Continuation/Conversion submitted by the
Company hereunder shall constitute a representation and warranty by the Company
hereunder, as of the applicable effective date thereof, that the conditions in
this Section 4.02 are satisfied.
4.03 USE OF PROCEEDS OF INITIAL ADVANCE. The Company shall use the
proceeds of the initial Advance to repay in full simultaneously and
contemporaneously its existing $50,000,000 development facility with First
Hawaiian Bank (which consists of a $20,000,000 line of credit and a $30,000,000
land development facility, maturing March 31, 1996), and for such other
purposes, not in contravention of any provision of this Agreement or any
Requirement of Law, as the Company may determine.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agent and each Bank that:
5.01 ORGANIZATION, STANDING AND AUTHORITY. The Company is a Delaware
corporation, validly existing and in good standing under the laws of the State
of Delaware, is registered to do business and in good standing in the State of
Hawaii, and has all requisite corporate power and authority to carry on the
business and to own the property that it now carries on and owns. The Company
has all requisite corporate power and authority to execute and deliver this
Agreement and the other Loan Documents and to observe and perform all of the
provisions and
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conditions thereof. The execution and delivery of the Loan Documents have been
duly authorized by the board of directors of the Company, and no other corporate
action of or for the Company is requisite to the execution and delivery of this
Agreement and the other Loan Documents.
5.02 TAX RETURNS AND PAYMENTS. All material tax returns and reports of
the Company and its Subsidiaries required by law to be filed have been duly
filed, and all taxes, assessments, contributions, fees and other governmental
charges the liability for which could exceed $100,000 (other than those
presently payable without penalty or interest and those which have been
disclosed to the Banks but which are currently being contested in good faith)
upon the Company or any of its Subsidiaries or upon the properties or assets or
income of the Company or any of its Subsidiaries, which are due and payable,
have been paid.
5.03 LITIGATION. There is, to the knowledge of the Company, no action,
suit, proceeding or investigation pending at law or in equity or before any
Governmental Authority, or threatened against or affecting the Company or any of
its Subsidiaries, an adverse ruling in which would or might constitute a
Material Adverse Effect.
5.04 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME. The Company is
not in violation of or in default with respect to any term or provision of its
Articles of Incorporation or Bylaws, and neither the Company nor any of its
Subsidiaries is, to the best knowledge of the Company, in violation of or in
default with respect to any term or provision of any mortgage, indenture,
contract, agreement or instrument applicable to it or by which it may be bound;
and the execution, delivery, performance of and compliance with each and all of
the Loan Documents by the Company will not result in any such violation, or be
in conflict with or constitute a default under any such term or provision, or
result in the creation of any mortgage, lien or charge on any of the properties
or assets of the Company or any of its Subsidiaries; and there is no term or
provision of the Company's Articles of Incorporation or Bylaws, or any mortgage,
indenture, contract, agreement or instrument applicable to the Company or any of
its Subsidiaries or by which the Company or any of its Subsidiaries may be
bound, which may adversely affect the business or prospects or condition
(financial or other) of the Company or any of its Subsidiaries, or any of its
properties or assets.
5.05 COMPLIANCE WITH LAW. The consummation of the transactions
contemplated by the Loan Documents will not conflict with or result in a breach
of any law, statute, ordinance, regulation, order, writ, injunction, judgment of
any court or governmental instrumentality, domestic or foreign, applicable to
the Company or any of its Subsidiaries.
5.06 GOVERNMENTAL AUTHORIZATION. No consent, approval or authorization
of, or registration, declaration or filing with, any Governmental Authority in
connection with the valid execution and delivery of each of the Loan Documents
is required or, if required, such consent, approval, order or authorization
shall have been obtained prior to the Closing Date.
5.07 FINANCIAL STATEMENTS. All financial statements heretofore delivered
to the Banks by the Company are true and correct in all respects, and fairly
represent the financial condition of the subjects thereof as of the dates
thereof; and no material, adverse changes have occurred in the financial
condition reflected therein since the dates thereof.
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5.08 BROKERS, FINDERS AND AGENTS. The Company has not employed or
engaged any broker, finder or agent who may claim a commission or fee or other
compensation with respect to the Aggregate Commitment or the transactions
described herein. Without in any way limiting the generality of Section 10.05
of this Agreement, the Company will indemnify and hold each Bank harmless from
any and all claims of brokers or other claims for commissions or fees in
connection with the Aggregate Commitment and the transactions described herein,
and will further hold each Bank harmless and indemnify each Bank against all
losses, damages, costs and charges (including attorneys' fees) which such Bank
may sustain because of such claims or in consequence of defending against such
claims.
5.09 COMPLIANCE WITH FUNDING STANDARDS. The Company has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
currently applicable provisions of ERISA and the Code, and has not incurred any
liability to the PBGC.
5.11 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Advances
are intended to be and shall be used solely for the purposes set forth in and
permitted by this Agreement, and are intended to be and shall be used in
compliance with Section 7.01. Neither the Company nor any of its Subsidiaries
is generally engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.
5.11 NO MATERIAL ADVERSE EFFECT. Since December 31, 1995, there has been
no Material Adverse Effect.
5.12 REGULATED ENTITIES. None of the Company, any Person controlling the
Company, or any Subsidiary of the Company is (a) an "Investment Company" within
the meaning of the Investment Company Act of 1940; or (b) subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, any
state public utilities code, or any other Federal or state statute or regulation
limiting its ability to incur Indebtedness.
5.13 FULL DISCLOSURE. None of the representations or warranties made by
the Company or any of its Subsidiaries in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in each exhibit, report, statement or certificate furnished
by or on behalf of the Company or any of its Subsidiaries in connection with the
Loan Documents (including the offering and disclosure materials delivered by or
on behalf of the Company to the Banks prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any Bank shall have any
commitment to extend credit hereunder, or any Advance, Swing-Line Advance, or
Letter of Credit shall remain unpaid or unsatisfied, unless the Majority Banks
waive compliance in writing:
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6.01 FINANCIAL STATEMENTS. The Company shall deliver to the Agent in
form and detail satisfactory to the Agent and the Majority Banks, with
sufficient copies for each Bank:
(a) as soon as available, but not later than ninety (90) days
after the end of each fiscal year, a copy of the Company's annual 10-K Report
filed with the Securities and Exchange Commission, which includes a copy of the
audited consolidated balance sheet of the Company as at the end of such year and
the related consolidated statements of income, shareholders' equity and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, and accompanied by the opinion of a
nationally-recognized independent public accounting firm which report shall
state that such consolidated financial statements represent fairly the financial
position and results of operations as of the end of and for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted
or limited examination by such accountant of any material portion of the records
of the Company.
(b) as soon as available, but not later than forty-five (45) days
after the end of each Quarter, a copy of the Company's quarterly 10-Q Report
filed with the Securities and Exchange Commission, which includes a copy of the
unaudited consolidated balance sheets of the Company as of the end of such
Quarter and the related consolidated statements of income, shareholders' equity
and cash flows for the period commencing on the first day and ending on the last
day of such Quarter, and certified by an appropriate Responsible Officer of the
Company as being complete and correct and fairly presenting, in accordance with
Article 10 of SEC Regulation S-X, the consolidated financial position and the
consolidated results of operations of the Company;
(c) not later than five (5) days after the filing thereof, copies
of all reports and registration statements which the Company or any of its
Subsidiaries files with the Securities and Exchange Commission or any national
securities exchange;
6.02 CERTIFICATES; OTHER INFORMATION The Company shall furnish to the
Agent, with sufficient copies for each Bank:
(a) not later than forty-five (45) days after the end of each
Quarter, a certificate of a Responsible Officer of the Company in the form of
EXHIBIT F-1 stating that, to the best of such officer's knowledge, the Company
during such period, has observed and performed all of its covenants and other
agreements, and satisfied every condition contained in this Agreement to be
observed, performed or satisfied by the Company and that such officer has
obtained no knowledge of any Default or Event of Default except as specified in
such certificate, which, where a Default or Event of Default is specified, shall
set forth the details of the occurrence referred to therein, state what action
the Company proposes to take with respect thereto and at what time, and describe
with particularity any and all applicable clauses or provisions of this
Agreement which have been breached or violated, together with a calculation of
(i) the percentage of common stock in the Company owned by James K. Schuler as
of the end of such Quarter, (ii) the minimum Consolidated Tangible Net Worth of
the Company and its Subsidiaries as of the end of such Quarter, (iii) the
Consolidated Net Earnings for the Company and its Subsidiaries during such
Quarter, (iv) the amount of and net proceeds received from any
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Equity Offering (other than the exercise of an employee stock option) or
conversion of a subordinated convertible debenture consummated or effected
during such Quarter, (v) Real Estate Development Assets, Real Estate
Indebtedness, and the Development Ratio for the Company as of the end of such
Quarter, and (vi) the Fixed Charge Coverage Ratio for the Company as of the end
of such Quarter, showing, for each item (i) through (vi) above, the comparison
between such Quarter and previous Quarters (beginning with the Quarter ending
December 31, 1995).
(b) not later than forty-five (45) days after the end of each
Quarter a certificate of a Responsible Officer of the Company, in the form of
EXHIBIT F-2 for each project in which the Company has an investment, relating to
the status of all Unentitled Land (location, purchase price, number of lots and
entitlement schedule), Unimproved Land (location, number of lots and development
schedule), Land Under Development (location and status of development), Unsold
Homes Under Construction (location and number of homes), Completed Unsold Homes
(location and number of homes), Completed Unsold Homes Over 180 Days (location
and number of homes), and Contracted Homes (location, number of homes and status
of sales), as of the end of the previous Quarter.
(c) not later than fifteen (15) days after the end of each month,
a Borrowing Base Certificate of a Responsible Officer of the Company, in the
form of EXHIBIT F-3, containing a detailed listing and a summary of all Real
Estate Development Assets, as of the end of the previous month.
(d) not later than forty-five (45) days after the end of each
Quarter, a Leverage Ratio Certificate of a Responsible Office of the Company, in
the form of EXHIBIT F-4, containing a calculation of the total Indebtedness of
the Company and its Subsidiaries, and the Consolidated Tangible Net Worth of the
Company and its Subsidiaries, as of the end of the previous Quarter, based on
balance sheet information prepared in accordance with GAAP.
(e) as soon as available, but not later than ninety (90) days
after the end of each fiscal year, a projected consolidated balance sheet of the
Company for the next two (2) fiscal years, prepared on a Quarterly basis, and
the related projected consolidated statements of income, shareholders' equity
and cash flows for such fiscal years, setting forth in each case in comparative
form the figures for the previous fiscal year (whether such figures for such
previous fiscal year were actual or projected).
(f) promptly, such additional business, financial, corporate
affairs and other information as the Agent, at the request of any Bank, may from
time to time reasonably request.
6.03 NOTICES. The Company shall promptly notify each Bank through the
Agent:
(a) (i) of the occurrence of any Default or Event of Default,
(ii) of the occurrence or existence of any event or circumstance that
foreseeably is likely to become a Default or Event of Default, and (iii) of the
occurrence or existence of any event or circumstance that would cause the
condition to Borrowing, conversion or continuation set forth in subsection
4.02(b) not to be satisfied if a Borrowing, conversion or continuation were
requested on or after the date of such event or circumstance;
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(b) of any breach or non-performance of, or any default under,
any contractual obligation (including a contractual obligation by which any of
its property is bound) of the Company or any Subsidiary of the Company which
could result in a Material Adverse Effect;
(c) of the commencement of, or any material development in, any
litigation or proceeding affecting the Company, or any Subsidiary of the Company
which, if adversely determined, would reasonably be expected to have a Material
Adverse Effect; or in which the relief sought is an injunction or other stay of
the performance of this Agreement; and
(d) of any Material Adverse Effect subsequent to the date of the
most recent audited financial statements of the Company delivered to the Banks
pursuant to this Agreement;
Each notice pursuant to this Section shall be accompanied by a
written statement by a Responsible Officer of the Company setting forth details
of the occurrence referred to therein, and stating what action the Company
proposes to take with respect thereto and at what time. Each notice under
subsection 6.03(a) shall describe with particularity any and all clauses or
provisions of this Agreement that have been breached or violated.
6.04 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause its
Subsidiaries to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a
lien upon its property; and
(c) all Indebtedness, as and when due and payable, but subject to
the restrictions contained in Section 7.05 of this Agreement.
6.05 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause
each of its Subsidiaries to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including the Federal Fair Labor Standards Act), the breach of
which would have a Material Adverse Effect, except such as may be contested in
good faith or as to which a bona fide dispute may exist.
6.06 INSPECTION OF PROPERTY AND BOOKS AND PROCEEDS. The Company shall
maintain and shall cause each of its Subsidiaries to maintain books, accounts,
and records in accordance with GAAP and permit employees or agents of the Agent
and any Bank, at any reasonable time, to inspect its and such Subsidiary's
properties, and permit employees or agents of the Agent and any Bank, at any
reasonable time, once per Quarter, to examine and audit its and such
Subsidiary's books, accounts, and records and make copies and memoranda thereof,
at such Bank's expense, at such reasonable times during normal business hours,
upon reasonable advance notice to the Company; PROVIDED, HOWEVER, when an Event
of Default exists the Agent
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or any Bank may do any of the foregoing at the expense of the Company at any
time during normal business hours and without advance notice.
6.07 MINIMUM TANGIBLE NET WORTH. The Company shall maintain the
Consolidated Tangible Net Worth of the Company and its Subsidiaries, as at the
end of each Quarter, at a level equal to or greater than (a) $148,000,000, plus
(b) fifty percent (50%) of Consolidated Net Earnings cumulative since December
31, 1995 to the end of such Quarter (excluding losses, if any, for that period),
plus (c) ninety percent (90%) of net proceeds received from any Equity Offering,
and from any conversion of a subordinated convertible debenture, consummated or
effected after the Closing Date.
6.08 PRESERVATION OF CORPORATE EXISTENCE. The Company shall maintain its
corporate existence in good standing under the laws of the State of Delaware,
the State of Hawaii and any other jurisdiction in which it conducts business,
and shall not, without the prior written consent of the Majority Banks, make any
material amendment to, or modification of, or terminate, its constituent
documents, true and correct copies of which the Company represents have been
provided to the Banks.
6.09 APPRAISAL. Independent FIRREA appraisals may be requested from the
Company, and the Company shall provide such appraisals, if required to conform
with FDICIA guidelines or other banking laws, rules or regulations.
ARTICLE VII
NEGATIVE COVENANTS
The Company hereby covenants and agrees that, so long as any Bank shall
have any commitment to extend credit hereunder, or any Advance, Swing-Line
Advance, or Letter of Credit shall remain unpaid or unsatisfied, unless the
Majority Banks waive compliance in writing:
7.01 USE OF PROCEEDS. The Company shall not and shall not suffer or
permit any of its Subsidiaries to use any portion of the proceeds of any
Advance, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of the Company or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Securities Exchange Act
of 1934 and regulations promulgated under such act.
7.02 LEVERAGE RATIO. The Company shall not allow the Leverage Ratio,
measured as of the end of each Quarter, to exceed 1.25 to 1.
7.03 DEVELOPMENT RATIO. The Company shall not allow the Development
Ratio, measured as of the end of each Quarter, to be less than 1.50 to 1.
7.04 FIXED CHARGE COVERAGE RATIO. The Company shall not allow the Fixed
Charge Coverage Ratio, measured as of the end of each Quarter on a rolling four
(4) Quarters basis, to
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be less than 1.50 to 1 in each Quarter of 1996, 1.75 to 1 in each Quarter of
1997, and 2.00 to 1 in each Quarter of 1998.
7.05 NO REPAYMENT OF SUBORDINATED DEBT. The Company shall not repay or
permit any of its Subsidiaries to repay any of the Subordinated Debt.
7.06 ADDITIONAL INDEBTEDNESS. The Company shall not, and shall not
permit any of its Subsidiaries to, create, assume, or become or remain liable
for or committed to incur, directly or indirectly, any Indebtedness or Guaranty
Obligation, other than the Permitted Indebtedness.
7.07 ADDITIONAL INVESTMENTS AND ACQUISITIONS. The Company shall not, and
shall not permit any of its Subsidiaries to, except as provided below, directly
or indirectly, invest in, purchase or acquire any interest in real property (fee
or leasehold) or any stocks, bonds, notes, debentures or other securities of or
acquire by purchase or otherwise all or substantially all of the business or
assets, or stock, partnership interests or other evidence of ownership
(beneficial or otherwise) or make any other investment in, any corporation,
association, partnership, organization or individual; or directly or indirectly,
make or commit to make any loan, advance, guaranty or extension of credit to any
corporation, association, partnership, organization or individual; or directly
or indirectly, assume, endorse, be or become liable for, or guarantee directly
or indirectly any debt or obligation of any corporation, association,
partnership, organization or individual; PROVIDED HOWEVER, that notwithstanding
the foregoing, the Company may (a) purchase the Kapolei Knolls Property for not
more than $30,000,000, (b) purchase the remainder of the Kulalei Property
(directly or through Iao Partners) for not more than $3,000,000, (c) expend up
to $5,000,000 in the aggregate, (but not more than $1,000,000 for any one such
transaction), for any other investment not in contravention of any provision of
this Agreement or any Requirement of Law, and (d) make any other Permitted
Investment, without the necessity of obtaining the consent of the Majority
Banks, and make any other Permitted Investment. If the Company wishes to obtain
the consent of the Majority Banks for any proposed deviation from the above, the
Company shall furnish to the Agent, and the Agent shall forward to the Banks:
(i) a copy of all contracts to be entered into by the Company with respect to
the proposed transaction, (ii) a pro forma budget and cash flow projection for
the proposed transaction, (iii) supporting market studies and projections as
deemed necessary by the Majority Banks, and (iv) supporting appraisals and/or
market evaluations, if required by the Majority Banks. The Agent shall advise
the Company of the decision by the Majority Banks within ten (10) Business Days
after the receipt by the Agent of all of the required items described above.
7.08 INVENTORY RESTRICTIONS.
(a) The Company shall not acquire or obtain any interest in, or
contract to acquire or obtain any interest in, any Unentitled Land; PROVIDED,
HOWEVER, that notwithstanding the provisions of Section 7.07 above, the Company
may acquire the Kapolei Land, unless such acquisition is objected to by the
Majority Banks. The Agent shall advise the Company of the decision by the
Majority Banks within ten (10) Business Days after the receipt by the Agent of
the Company's request for approval.
(b) The Company shall not allow its inventory of Completed Unsold
Homes to exceed the applicable levels set forth in SCHEDULE 2 attached hereto.
The Agent shall advise
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the Company of the decision by the Majority Banks within ten (10) Business Days
after the receipt by the Agent of the Company's request for approval.
(c) The Company shall not allow its inventory of Unimproved Land
to exceed 35% of the Company's "Gross Cost in Inventory" (excluding Country Club
Village) as set forth in the Company's financial statement, as of the end of
each Quarter.
7.09 NEGATIVE PLEDGE. The Company shall not create, incur, assume, or
suffer to exist any lien, encumbrance, mortgage, security interest, pledge, or
charge of any kind (including. without limitation, any negative pledge, or any
"secret", "springing", or other unrecorded lien) upon any of its property or
assets of any character, whether now owned or hereafter acquired, or transfer
any of such property or assets for the purpose of subjecting the same to the
payment of any indebtedness or performance of any other obligation, or acquire
or have an option to acquire any property or assets upon conditional sale or
other title retention agreement, device or arrangement; provided, however, that
the Company may create or incur or suffer to be created or incurred or to exist:
(i) liens for taxes or assessments for governmental charges or levies if payment
thereof shall not at the time be required to be made; (ii) liens in respect of
pledges and deposits under workers' compensation laws or similar legislation,
and in respect of pledges or deposits in connection with appeal or similar bonds
incidental to the conduct of litigation; (iii) liens incidental to the conduct
of the business of the Company not incurred in connection with the borrowing of
money or the obtaining of advances or credit and which do not in the aggregate
materially detract from the value of its assets or property; (iv) mechanics' and
materialmen's liens which have attached pursuant to Chapter 507, Hawaii Revised
Statutes, as long as the Company has filed a bond, sufficient to discharge such
lien, with the clerk of the applicable circuit court, as provided in Section
507-43, Hawaii Revised Statutes; and (v) liens specifically allowed with respect
to "Permitted Indebtedness". The Company will execute and deliver to the Agent,
no later than the Closing Date, a negative pledge agreement, in form and
substance satisfactory to the Agent, which shall be recorded in the Bureau of
Conveyances of the State of Hawaii and shall be filed in the Office of the
Assistant Registrar of the Land Court of the State of Hawaii, on the Closing
Date, containing the foregoing covenants.
7.10 NO HIGH-RISE CONSTRUCTION. Neither the Company nor any of its
Subsidiaries shall engage in any development of a residential or commercial
building having more than four (4) stories, other than Country Club Village.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 EVENT OF DEFAULT. Any of the following shall constitute an "Event
of Default":
(a) NON-PAYMENT. The Company fails to pay, when and as required
to be paid herein, (i) any amount of principal of any Advance or Swing-Line
Advance; or (ii) any interest, fee or other amount payable hereunder or pursuant
to any other Loan Document, unless such failure to pay such interest, fee or
other charge is remedied within five (5) Business Days after the due date
therefor; or
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(b) REPRESENTATION OR WARRANTY. Any representation or warranty
by the Company made or deemed made herein or which is contained in any
certificate, document or financial or other statement by or on behalf of the
Company, furnished at any time under this Agreement, shall prove to have been
incorrect in any material respect on or as of the date made or deemed made; or
(c) SPECIFIC DEFAULTS. The Company fails to perform or observe
any term, covenant or agreement contained in Section 7.01; or
(d) OTHER DEFAULTS. Except as provided in subsection 8.01(l)
below, the Company fails to perform or observe any other covenant contained in
this Agreement or any other Loan Document, and such default shall continue
unremedied for a period of 30 days after the earlier of (i) the date upon which
a Responsible Officer of the Company knew of such failure or (ii) the date upon
which written notice thereof is given to the Company by the Agent or any Bank;
or
(e) CROSS-DEFAULT. The Company or any Subsidiary of the Company
(i) fails to make any payment in respect of the Indebtedness incurred in
connection with the Country Club Village Loan Facility (not including the
Country Club Village Subordinate Mortgage), if the effect of such failure is to
cause the holder or holders of such Indebtedness to declare such Indebtedness to
be due and payable prior to its stated maturity, or (ii) fails to make any
payment in respect of any other Indebtedness or Guaranty Obligation having an
aggregate principal amount for the Company and such Subsidiaries (including
undrawn committed or available amounts and including amounts owing to all
creditors under any combined or syndicate credit arrangement) of more than
$5,000,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise), if the effect of such failure is to cause
the holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to declare such Indebtedness to be due and payable
prior to its stated maturity, or such Guaranty Obligation to become due and
payable or to demand additional collateral therefor; or (iii) fails to perform
or observe in any material respect any other condition or covenant, or any other
event shall occur or condition exist, under any agreement or instrument relating
to the Country Club Village Loan Facility (not including the Country Club
Village Subordinate Mortgage) or any such Indebtedness or Guaranty Obligation,
if the effect of such failure is to cause the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee
or agent on behalf of such holder or holders or beneficiary or beneficiaries) to
declare such Indebtedness to be due and payable prior to its stated maturity, or
such Guaranty Obligation to become due and payable or to demand additional
collateral therefor; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company (i) ceases or
fails to be Solvent, or generally fails to pay, or admits in writing its
inability to pay, its debts as they become due, subject to applicable grace
periods, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
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(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company, or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied against
a substantial part of the Company's properties, and any such proceeding or
petition shall not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully bonded
within 60 days after commencement, filing or levy; (ii) the Company admits the
material allegations of a petition against it in any Insolvency Proceeding, or
an order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) the Company acquiesces in the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its property or business; or
(h) ERISA.
(i) there shall exist an accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether
or not waived, with respect to any Plan (other than a Multi-employer Plan)
which does or would be reasonably expected to have a Material Adverse
Effect;
(ii) there shall occur a Reportable Event with respect to
any Plan (other than a Multi-employer Plan) which does or would be
reasonably expected to have a Material Adverse Effect;
(iii) any liability to the PBGC shall be incurred by the
Company or any of its Subsidiaries with respect to any Plan (other than a
Multi-employer Plan) which does or would be reasonably expected to have a
Material Adverse Effect;
(iv) The Company or any of its Subsidiaries shall incur any
withdrawal liability under Title IV of ERISA with respect to any Multi-
employer Plan which does or would be reasonably expected to have a Material
Adverse Effect; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory judgments,
orders or decrees shall be entered against the Company involving in the
aggregate (existing at any one time for the Company) a liability (not fully
covered by independent third-party insurance) as to any single or related series
of transactions, incidents or conditions, of $5,000,000 or more, and the same
shall remain unsatisfied, unvacated, unbonded or unstayed pending appeal for a
period of 60 days after the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or
decree shall be rendered against the Company which does or would reasonably be
expected to have a Material Adverse Effect, and there shall be any period of 10
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
(k) LOSS OF LICENSES. Any Governmental Authority shall revoke or
fail to renew any license, permit or franchise of the Company, or any Subsidiary
of the Company, which revocation or failure to renew does or would reasonably be
expected to have a Material
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Adverse Effect, or any such entity shall for any reason lose any license, permit
or franchise, and such loss does or would reasonably be expected to have a
Material Adverse Effect; or any such entity shall suffer the imposition of any
restraining order, escrow, suspension or impound of funds in connection with any
proceeding (judicial or administrative) with respect to any license, permit or
franchise and such imposition does or would reasonably be expected to have a
Material Adverse Effect; or
(l) COMPLETED UNSOLD HOMES. The Company fails to perform or
observe any term, covenant or agreement contained in Section 7.08(b), and such
failure shall remain unremedied by the end of the next succeeding Quarter after
the earlier of (i) the date upon which a Responsible Officer of the Company knew
of such failure or (ii) the date upon which written notice thereof is given to
the Company by the Agent or any Bank (the "cure period"); provided however that
following any such failure and during any such cure period, a Responsible
Officer of the Company shall provide the Agent with a weekly status report of
all Completed Unsold Homes; and provided further that if at any time during such
cure period the number of Completed Unsold Homes exceeds 110% of the level set
forth in SCHEDULE 2, then the cure period shall automatically be terminated, and
an Event of Default hereunder shall be deemed to have occurred.
(m) OWNERSHIP/MANAGEMENT. James K. Schuler shall fail at any
time to retain ownership and direct control of at least thirty percent (30%) of
the common stock of the Company; or James K. Schuler shall fail at any time to
retain his position as chairman of the board, chief executive officer and
president of the Company, or to remain active and involved in the management of,
and formation of policy for, the Company; PROVIDED, HOWEVER, that the death or
disability of James K. Schuler shall not constitute an Event of Default
hereunder if the Board of Directors of the Company shall, within a reasonable
time thereafter, appoint a successor chairman of the board, chief executive
officer, and president of the Company, subject to the approval of the Majority
Banks, which approval shall not be unreasonably withheld.
(n) ADVERSE CHANGE. There shall occur a Material Adverse Effect,
and the existence thereof shall continue unremedied for a period of 30 days
after the earlier of (i) the date upon which a Responsible Officer of the
Company knew of the occurrence of the event resulting in such Material Adverse
Effect or (ii) the date upon which written notice thereof is given to the
Company by the Agent or any Bank.
8.02 REMEDIES. If any Event of Default occurs, the Agent shall, at the
request of the Majority Banks,
(a) declare the Revolving Commitment of each Bank, and any
obligation of such Bank to make Advances hereunder, and any obligation of the
Agent to make Swing-Line Advances or to issue Letters of Credit hereunder, to be
terminated, whereupon such Revolving Commitments and obligations shall forthwith
be terminated;
(b) declare the amounts of all issued and outstanding Letters of
Credit to be outstanding Advances hereunder (unless the Company shall have
deposited with the Agent cash in an amount sufficient to fully collateralize all
outstanding Letters of Credit as of such date, as
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provided in Section 2.05 hereof) and declare the unpaid principal amount of all
outstanding Advances, all interest accrued and unpaid thereon, all Swing-Line
Advances, all interest accrued and unpaid thereon, and all other amounts owing
or payable hereunder or under any other Loan Document, including any fees,
charges and other sums payable pursuant to Section 2.11 hereof or otherwise, to
be immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in paragraph
(f) or (g) of Section 8.01 (in the case of clause (i) of paragraph (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Advances and of the Agent to make Swing-Line Advances shall
automatically terminate and the unpaid principal amount of all outstanding
Advances (including the amount of all issued and outstanding Letters of Credit
which shall be automatically deemed to be Advances, unless the Company shall
have deposited with the Agent cash in an amount sufficient to fully
collateralize all outstanding Letters of Credit as of such date, as provided in
Section 2.05 hereof) and all outstanding Swing-Line Advances, and all interest
and other amounts as aforesaid, shall automatically become due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company, and without further act of the Agent
or any Bank.
8.03 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE IX
THE AGENT
9.01 APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably
appoints, designates and authorizes the Agent to take such action on such Bank's
behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated to it
by the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
9.02 DELEGATION OF DUTIES. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible to the
Banks for the negligence or misconduct of any agent or
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attorney-in-fact that it selects with reasonable care, except to the extent such
negligence or misconduct is determined to be gross negligence or willful
misconduct.
9.03 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be
liable to any of the Banks for any action taken or omitted to be taken by any of
them under or in connection with this Agreement or any other Loan Document
(except for such Agent-Related Person's own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Banks for any
recital, statement, representation or warranty made by the Company or any
Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Company or any
other party to any Loan Document to perform its obligation hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Company, or any
Subsidiary or Affiliate of the Company.
9.04 RELIANCE BY AGENT.
(a) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Banks (or all of the Banks where this
Agreement expressly so provides) as it deems appropriate and, if it so requests,
it shall first be indemnified to its satisfaction by the Banks against any and
all liability and expense which may be incurred by it (other than any portion of
such liability or expense resulting solely from the Agent's gross negligence or
willful misconduct) by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a
request or consent of the Majority Banks (or all of the Banks where this
Agreement expressly so provides) and such request and any action taken or
failure to act pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 4.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to such Bank.
9.05 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the
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payment of principal, interest and fees required to be paid to the Agent for the
account of the Banks, unless the Agent shall have received written notice from a
Bank or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice, the Agent shall give notice thereof
to the Banks. The Agent shall take such action with respect to such Default or
Event of Default as shall be requested by the Majority Banks in accordance with
Article VIII; PROVIDED, HOWEVER, that unless and until the Agent shall have
received any such request, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall reasonably deem advisable.
9.06 CREDIT DECISION. Each Bank expressly acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it and that no
act by the Agent hereafter taken, including any review of the affairs of the
Company, and each of the Subsidiaries of the Company shall be deemed to
constitute any representation or warranty by the Agent to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon the
Agent and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company, and each of the Subsidiaries of the Company, and all applicable bank
regulatory laws relating to the transactions contemplated thereby, and made its
own decision to enter into this Agreement and extend credit to the Company
hereunder. Each Bank also represents that it will, independently and without
reliance upon the Agent and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly herein required to be furnished to the
Banks by the Agent (which shall be deemed to include documents delivered to the
Agent with sufficient copies for each Bank pursuant to Sections 4.01, 6.01 and
6.02), the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of any of the Agent-Related Persons.
9.07 INDEMNIFICATION. Whether or not the transactions contemplated
hereby shall be consummated, the Banks shall indemnify upon demand the Agent-
Related Persons (to the extent not reimbursed by or on behalf of the Company and
without limiting the obligation of the Company to do so), ratably from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind
whatsoever which may at any time (including at any time following the repayment
of the Advances and the termination or resignation of the Agent) be imposed on,
incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by any such Person under or in connection with any of
the foregoing; PROVIDED, HOWEVER, that no Bank shall be liable for the payment
of the Agent-Related Persons of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from such Person's gross negligence or willful
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misconduct. Without limiting the foregoing, but subject to the proviso in the
immediately preceding sentence, each Bank shall reimburse the Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including fees and
disbursements for counsel, allocated costs for internal legal services, and
disbursements of internal counsel) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of the Company. Without limiting the generality of the foregoing, if the
Internal Revenue Service or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered, was not properly executed, or because such
Bank failed to notify the Agent of a change in circumstances which rendered the
exemption from or reduction of, withholding tax ineffective, or for any other
reason) such Bank shall indemnify the Agent fully for all amounts paid, directly
or indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
and attorneys' fees (including fees and disbursements of counsel, allocated
costs of internal legal services, and all disbursements of internal counsel).
The obligation of the Banks in this Section shall survive the payment of all
Obligations hereunder.
9.08 AGENT IN INDIVIDUAL CAPACITY. First Hawaiian Bank and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory or other business with the Company, and any
and all of the Subsidiaries and Affiliates of the Company as though First
Hawaiian Bank were not the Agent hereunder and without notice to or consent of
the Banks. With respect to its Advances, First Hawaiian Bank shall have the
same rights and powers under this Agreement as any other Bank and may exercise
the same as though it were not the Agent, and the terms "Bank" and "Banks" shall
include First Hawaiian Bank in its individual capacity.
9.09 SUCCESSOR AGENT. The Agent may, and at the request of all of the
other Banks shall, resign as Agent upon 30 days' notice to the Banks. If the
Agent shall resign as Agent under this Agreement, the Banks (other than the
Agent) holding 66% of the balance of the Aggregate Commitment (i.e., the
Aggregate Commitment less the Revolving Commitment held by the Agent) shall,
with the approval of the Company, appoint from among the Banks a successor agent
for the Banks. If no successor agent is appointed prior to the effective date
of the resignation of the Agent, the Agent may appoint, after consulting with
the Banks and the Company, a successor agent from among the Banks. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article IX and
Sections 10.04 and 10.05 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is 30 days
following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the Banks shall
perform all of the
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duties of the Agent hereunder until such time, if any, as a successor agent is
appointed, as provided for above.
ARTICLE X
MISCELLANEOUS
10.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks and the Company and acknowledged by
the Agent, and then such waiver shall be effective only in the specific instance
and for the specific purpose for which given; PROVIDED, HOWEVER, that no such
waiver, amendment, or consent shall, unless in writing and signed by all the
Banks and the Company and acknowledged by the Agent, do any of the following:
(a) increase the amount of or extend the term of the Revolving
Commitment of any Bank (or reinstate any commitment terminated pursuant to
subsection 8.02(a)) or subject any Bank to any additional obligations;
(b) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Banks (or any of them)
hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Advance, or of any fees or other amounts payable hereunder or
under any other Loan Document;
(d) change the Commitment Percentage or the percentage of the
Aggregate Commitment which shall be required for the Banks or any of them to
take any action hereunder; or
(e) amend this Section 10.01 or Section 2.15 or any provision
providing for consent or other action by all Banks;
and, PROVIDED FURTHER, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document.
10.02 NOTICES
(a) All notices, requests and other communications provided for
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission), provided that any matter transmitted by
the Company by facsimile (i) shall be immediately confirmed by a telephone to
the recipient at the number specified on the applicable signature page hereof,
and (ii) shall be followed promptly by a hard copy original thereof, and,
provided further that any notice, request or other communications by the Company
hereunder shall be signed on behalf of the Company by a Responsible Officer, and
mailed, faxed or
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delivered, to the address or facsimile number specified for notices on the
applicable signature page hereof; or, if directed to the Company or the Agent,
to such other address as shall be designated by such party in a written notice
to the other parties, and if directed to each other party, at such other address
as shall be designated by such party in a written notice to the Company and the
Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited
into the U.S. mail, or if delivered, upon delivery.
(c) The Company acknowledges and agrees that any agreement of the
Agent and the Banks at Article II to receive certain notices by telephone and
facsimile is solely for the convenience and at the request of the Company. The
Agent and the Banks shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by the Company to give such notice and the
Agent and the Banks shall not have any liability to the Company or any other
Person on account of any action taken or not taken by the Agent or the Banks in
reliance upon such telephonic or facsimile notice. The obligation of the
Company to repay the Advances shall not be affected in any way or to any extent
by any failure by the Agent and the Banks to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Agent and the Banks of a
confirmation which is at variance with the terms understood by the Agent and the
Banks to be contained in the telephonic or facsimile notice.
10.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
10.04 COSTS AND EXPENSES. The Company shall, whether or not the
transactions contemplated hereby shall be consummated:
(a) pay or reimburse First Hawaiian Bank (including First
Hawaiian Bank in its capacity as Agent) within five Business Days after demand
(subject to subsection 4.01(d)) for all reasonable out-of-pocket costs and
expenses incurred by First Hawaiian Bank (including in its capacity as Agent) in
connection with the development, preparation, delivery, administration and
execution of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any other Loan Document and
any other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including the
reasonable fees and disbursements of counsel, with respect thereto; and
(b) pay or reimburse each Bank and the Agent within five Business
Days after demand (subject to subsection 4.01(d)) for all reasonable costs and
expenses incurred by them, in connection with the enforcement, attempted
enforcement, or preservation of any rights or remedies (including in connection
with any "workout" or restructuring regarding the Advances, and including in any
Insolvency Proceeding or appellate proceeding) under this Agreement, any
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other Loan Document, and any such other documents, including reasonable fees and
disbursements of counsel, the allocated costs of internal legal services and
disbursements of internal counsel incurred by the Agent and any Bank.
The agreements in this Section shall survive payment of all other Obligations.
10.05 INDEMNITY. Whether or not the transactions contemplated hereby
shall be consummated: the Company shall pay and indemnify and hold harmless
each Bank, the Agent and each of their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person")
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses and disbursements
(including all fees and disbursements of counsel, the allocated costs of
internal legal services, and disbursements of internal legal counsel) of any
kind or nature whatsoever arising from claims brought by third parties (except
for such Indemnified Person's own gross negligence or willful misconduct) with
respect to and to the extent arising from the Company's execution, delivery,
enforcement or performance of this Agreement and any other Loan Documents, or
the Company's use of the proceeds of the Advances, or arising from the action or
failure to act of the Company or its officers, directors, employees, counsel,
agents or attorneys-in-fact (all the foregoing, collectively, the "Indemnified
Liabilities"). The agreements in this Section shall survive payment of all
other Obligations.
10.06 MARSHALLING; PAYMENTS SET ASIDE. Neither the Agent nor the Banks
shall be under any obligation to marshall any assets in favor of the Company or
any other Person or against or in payment of any or all of the Obligations. To
the extent that the Company makes a payment or payments to the Agent or the
Banks, or the Agent or the Banks exercise their rights of set-off, and such
payment or payments or the proceeds of such enforcement or set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Agent in its discretion) to be repaid to a trustee, receiver or any other party
in connection with any Insolvency Proceeding, or otherwise, then to the extent
of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
10.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that (i) the Company may not assign or transfer
any of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank, (ii) the Agent may not assign or transfer
any of its rights or obligations except as provided in Section 9.09, and (iii)
no Bank may assign its rights and obligations except (a) as provided in Section
3.06, (b) that each Bank may assign its rights and obligations to an Affiliate
of such Bank with the prior written consent of the Agent and the Company (which
consent shall not be unreasonably withheld) and (c) that each Bank may sell
participating interests as provided in Section 10.08.
10.08 ASSIGNMENTS, PARTICIPATIONS, ETC.
(a) Upon notice to the Agent and the Company, any Bank may at any
time sell to one or more commercial banks or other Persons not Affiliates of the
Company (a
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"Participant") participating interests in any Advances, the Revolving Commitment
of that Bank and the other interests of that Bank (the "originating Bank")
hereunder and under the other Loan Documents, PROVIDED, HOWEVER, that the
Company shall have no additional expense as a result of such participation, and
PROVIDED, FURTHER, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Company and the
Agent shall continue to deal solely and directly with the originating Bank in
connection with the originating Bank's rights and obligations under this
Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant
any participating interest under which the Participant shall have rights to
approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document. In the case of any participation, the
Participant shall be entitled to the benefit of Sections 3.01, 3.03 and 10.05 as
though it were also a Bank hereunder, and not have any other rights under this
Agreement, or any of the other Loan Documents, and all amounts payable by the
Company hereunder shall be determined as if such Bank had not sold such
participation; except that, if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement.
(b) Each Bank agrees to take normal and reasonable precautions
and exercise due care to maintain the confidentiality of all information
identified as "confidential" by the Company and provided to it by the Company or
any Subsidiary of the Company, or by the Agent on the Company's or such
Subsidiary's behalf, in connection with this Agreement or any other Loan
Document, and neither such Bank nor any of its Affiliates shall disclose any
such information for any purpose or in any manner other than pursuant to the
terms contemplated by this Agreement, except to the extent such information was
or becomes generally available to the public other than as a result of a
disclosure by such Bank; PROVIDED, HOWEVER, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which such Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; and (F) to such Bank's independent auditors and other
professional advisors. Notwithstanding the foregoing, the Company authorizes
each Bank to disclose to any assignee and proposed assignee, and to any
Participant and any prospective Participant, such financial and other
information in such Bank's possession concerning the Company or its Subsidiaries
which has been delivered to the Agent or the Banks pursuant to this Agreement or
which has been delivered to the Agent or the Banks by the Company in connection
with the Banks' credit evaluation of the Company prior to entering into this
Agreement; PROVIDED that, unless otherwise agreed by the Company, such recipient
agrees in writing to such Bank to keep such information confidential to the same
extent required of the Banks hereunder.
(c) Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, any Bank may assign all or
any portion of the Advances
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made by it to any Federal Reserve Bank or the United States Treasury as
collateral security pursuant to Regulation A of the Federal Reserve Board and
any Operating Circular issued by such Federal Reserve Bank, provided that any
payment in respect of such assigned Advances made by the Company to or for the
account of the assigning or pledging Bank in accordance with the terms of this
Agreement shall satisfy the Company's obligations hereunder in respect of such
assigned Advances to the extent of such payment. No such assignment shall
release the assigning Bank from its obligations hereunder.
10.09 SET-OFF. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists, each Bank is authorized at any
time and from time to time, without prior notice to the Company, any such notice
being waived by the Company to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held by, and other indebtedness at any time owing to, such
Bank to or for the credit or the account of the Company against any and all
Obligations owing to such Bank, now or hereafter existing, irrespective of
whether or not the Agent or such Banks shall have made demand under this
Agreement or any other Loan Document and although such Obligations may be
contingent or unmatured. Each Bank agrees promptly to notify the Company and
the Agent after any such set-off and application made by such Bank; PROVIDED,
HOWEVER, that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Bank under this Section are in
addition to the other rights and remedies (including other rights of set-off)
which such Bank may have.
10.10 AUTOMATIC DEBITS OF FEES. Upon approval by the Company of any
invoice with respect to any fee, or any other cost or expense (including fees
and disbursements of counsel, the allocated costs of internal legal services and
disbursements of internal counsel) due and payable to the Agent under the Loan
Documents, the Company hereby irrevocably authorizes the Agent to debit any
deposit account of the Company with the Agent in an amount such that the
aggregate amount debited from all such deposit accounts does not exceed such fee
or other cost or expense. If there are insufficient funds in such deposit
accounts to cover the amount of the fee or other cost or expense then due, such
debits will be reversed (in whole or in part, in the Agent's sole discretion)
and such amount not debited shall be deemed to be unpaid. No such debit under
this Section shall be deemed a setoff.
10.11 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
such Bank should be directed, of addresses of any of its Lending Offices, of
payment instructions in respect of all payments to be made to it hereunder and
of such other administrative information as the Agent shall reasonably request.
10.12 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement in any number of separate counterparts, each of which,
when so executed, shall be deemed an original, and all of said counterparts
taken together shall be deemed to constitute but one and the same instrument. A
set of the copies of this Agreement signed by all the parties shall be lodged
with the Company and the Agent.
10.13 SEVERABILITY. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the
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legality or enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.
10.14 NO THIRD PARTIES BENEFITTED. This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the Banks and the
Agent, and their permitted successors and assigns, and no other Person shall be
a direct or indirect legal beneficiary of, or have any direct or indirect cause
of action or claim in connection with, this Agreement or any of the other Loan
Documents. Neither the Agent nor any Bank shall have any obligation to any
Person not a party to this Agreement or other Loan Documents.
10.15 TIME. Time is of the essence as to each term or provision of this
Agreement and each of the other Loan Documents.
10.16 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF HAWAII; PROVIDED THAT THE COMPANY, THE
AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF HAWAII
OR OF THE UNITED STATES FOR THE DISTRICT OF HAWAII, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT, AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND
THE BANKS EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY HAWAII LAW.
10.17 WAIVER OF JURY TRIAL. THE COMPANY, THE BANKS AND THE AGENT EACH
WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREES THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY
-56-
<PAGE>
ARE WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
10.18 ENTIRE AGREEMENT. This Agreement (together with the Exhibits and
Schedules attached hereto), and the other Loan Documents, embodies the entire
agreement and understanding among the Company, the Banks and the Agent, and
supersedes all prior or contemporaneous agreements and understandings of such
Persons, verbal or written, relating to the subject matter hereof and thereof;
PROVIDED, that the agency fee letter agreement referenced in subsection 2.11(e)
shall govern the payment by the Company to the Agent of such agency fee, and
that the relationship between the Agent and the Banks, and among the Banks
themselves, shall also be subject to the terms and provisions of the Inter-Bank
Agreement.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
SCHULER HOMES, INC.
By /s/ Pamela S. Jones
--------------------------------
Name: Pamela S. Jones
Title: Senior Vice President - Finance &
Chief Financial Officer
FIRST HAWAIIAN BANK, as Agent
By /s/ Koren K. Kubota
--------------------------------
Name:
Title:
ADDRESS FOR PAYMENTS:
1132 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
ADDRESS FOR NOTICES:
1132 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
FIRST HAWAIIAN BANK, as a Bank
By /s/ Koren K. Kubota
--------------------------------
Name:
Title:
-58-
<PAGE>
ADDRESS FOR NOTICES:
1132 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
DOMESTIC AND OFFSHORE LENDING OFFICE:
1132 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
BANK OF AMERICA NT&SA
By /s/ W.D. Balfour III
--------------------------------
Name: W.D. Balfour III
Title: Vice President
ADDRESS FOR NOTICES:
DOMESTIC AND OFFSHORE LENDING OFFICE:
ADDRESS FOR PAYMENTS:
NBD BANK
By /s/ Timothy P. O'Neil
--------------------------------
Name:
Title:
-59-
<PAGE>
ADDRESS FOR NOTICES:
NBD Bank
Attn: Timothy P. O'Neil
LARGE CORPORATE DETROIT
611 Woodward Ave. Detroit, MI 48226
DOMESTIC AND OFFSHORE LENDING OFFICE:
NBD Bank
Attn: Timothy P. O'Neil
LARGE CORPORATE DETROIT
611 Woodward Ave. Detroit, MI 48226
ADDRESS FOR PAYMENTS:
ABA# 072 000 326
COMMERCIAL LOAN DEPARTMENT /AC-212115
ATTN: DEBBIE SMITH
REF: SCHULER HOMES INC.
BANK OF BOSTON
By /s/ Paul F. DeVito
--------------------------------
Name: Paul F. Devito
Title: Vice President
ADDRESS FOR NOTICES:
BANK OF BOSTON
100 Federal Street
Boston, MA 02110
DOMESTIC AND OFFSHORE LENDING OFFICE:
ADDRESS FOR PAYMENTS:
BANK OF BOSTON
100 Rustcraft Road
Dedham, MA 02026
Attn: Beverly Long
BANK OF HAWAII
By /s/ Dean M. Murakami
--------------------------------
Name: Dean M. Murakami
Title: Assistant Vice President
-60-
<PAGE>
ADDRESS FOR NOTICES:
Bank of Hawaii
P.O. Box 2900
Honolulu, HI 96848
Attention: Construction & Income Property
Loan
Department #366
DOMESTIC AND OFFSHORE LENDING OFFICE:
Bank of Hawaii
P.O. Box 2900
Honolulu, HI 96848
Attention: Construction & Income Property
Loan
Department #366
ADDRESS FOR PAYMENTS:
Bank of Hawaii
P.O. Box 2900
Honolulu, HI 96848
Attention: Construction & Income Property
Loan
Department #366
-61-
<PAGE>
PROMISSORY NOTE
Honolulu, Hawaii
$110,000,000.00 March 29, 1996
FOR VALUE RECEIVED, SCHULER HOMES, INC., a Delaware corporation, (the
"Maker"), promises to pay to the order of FIRST HAWAIIAN BANK, a Hawaii
corporation (the "Agent"), as agent for: BANK OF AMERICA NT&SA; NBD BANK;
BANK OF BOSTON; BANK OF HAWAII; and FIRST HAWAIIAN BANK (collectively, the
"Banks"), at the Agent's office at 1132 Bishop Street, Honolulu, Hawaii, or
at such other place as the Agent may from time to time designate, the
principal sum of ONE HUNDRED TEN MILLION AND NO/100 DOLLARS
($110,000,000.00), or so much thereof as is from time to time advanced,
pursuant to the terms and conditions contained in that certain Credit
Agreement dated March 29, 1996, (the "Credit Agreement") executed by and
among the Maker, the Agent, and the Banks, which is incorporated herein by
reference.
Principal, interest, fees and charges payable under the Credit Agreement
shall be payable in lawful money of the United States of America, in immediately
available funds, as provided in the Credit Agreement. All unpaid principal, all
accrued but unpaid interest, and all unpaid fees and charges shall be due and
payable on July 1, 1998, unless extended by the Banks pursuant to Section 2.09
of the Credit Agreement, or unless sooner due following the occurrence of an
"Event of Default" under the Credit Agreement.
If any payment of principal or interest shall not have been paid within ten
(10) days after the same becomes due and payable, the Agent, in addition to its
other remedies, may collect, and the Maker shall pay on demand, a late charge
equal to five percent (5%) of the amount overdue.
The Maker promises to pay such attorneys' fees and expenses as are incurred
pursuant to the Credit Agreement to induce or compel the payment of this Note or
any portion of the indebtedness evidenced hereby, whether suit is brought hereon
or not.
Except as otherwise provided herein, the Maker, indorsers and guarantors
hereof and all others who may become liable for any part of this obligation
severally waive presentment, protest, demand and notice of protest, demand,
dishonor and nonpayment of this Note and consent to any number of renewals or
extensions of the time of payment hereof and to any release of parties obligated
hereunder or forbearance in the enforcement hereof.
No provision in this Note may be waived, modified or cancelled orally, but
only by an agreement in writing and signed by the party against whom enforcement
of any waiver, modification, discharge or cancellation is sought.
This Note shall be governed by and construed according to the laws of the
State of Hawaii.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed.
SCHULER HOMES, INC.
By /s/ Pamela S. Jones
-------------------------------------
WITNESSED: Name: Pamela S. Jones
Title: Senior Vice President - Finance &
Chief Financial Officer
/s/ Karen K. Kubota
- - --------------------------------- "Maker"
/s/ Alvin Takahashi
- - ---------------------------------
<PAGE>
LAND COURT SYSTEM REGULAR SYSTEM
- - -------------------------------------------------------------------------------
AFTER RECORDATION, RETURN BY MAIL ( ) PICK UP ( )
FIRST HAWAIIAN BANK
1132 Bishop Street, 19th Floor
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Dept.
- - -------------------------------------------------------------------------------
Tax Map Key: See Exhibit "A" attached hereto
NEGATIVE PLEDGE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
SCHULER HOMES, INC., a Delaware corporation, hereinafter called the
"Company", in order to induce FIRST HAWAIIAN BANK, a Hawaii corporation,
whose address is 1132 Bishop Street, Honolulu, Hawaii 96813 (hereinafter
called the "Agent"), as agent for Bank of America NT&SA, NBD Bank, Bank of
Boston, Bank of Hawaii and First Hawaiian Bank (collectively called the
"Banks"), to lend to the Company the sum of $110,000,000.00, pursuant to the
terms and conditions contained in that certain Credit Agreement dated March
29, 1996, executed by the Company, the Agent and the Banks (the "Credit
Agreement") hereby warrants and represents to the Banks that the Company owns
the real property more particularly described in Exhibit "A" attached hereto
and made a part hereof (the "Property") and agrees that, unless waived in
writing by the "Majority
<PAGE>
Banks" (as defined in the Credit Agreement), the Company shall not create,
incur, assume, or suffer to exist any lien, encumbrance, mortgage, security
interest, pledge, or charge of any kind (including. without limitation, any
negative pledge, or any "secret", "springing", or other unrecorded lien) upon
any of the Property or any of its assets of any character, whether now owned or
hereafter acquired, or transfer any of the Property or any of such assets for
the purpose of subjecting the same to the payment of any indebtedness or
performance of any other obligation, or acquire or have an option to acquire any
property or assets upon conditional sale or other title retention agreement,
device or arrangement; provided, however, that the Company may create or incur
or suffer to be created or incurred or to exist: (i) liens for taxes or
assessments for governmental charges or levies if payment thereof shall not at
the time be required to be made; (ii) liens in respect of pledges and deposits
under workers' compensation laws or similar legislation, and in respect of
pledges or deposits in connection with appeal or similar bonds incidental to the
conduct of litigation; (iii) liens incidental to the conduct of the business of
the Company not incurred in connection with the borrowing of money or the
obtaining of advances or credit and which do not in the aggregate materially
detract from the value of its assets or property; (iv) mechanics' and
materialmen's liens which have attached pursuant to Chapter 507, Hawaii Revised
Statutes, as long as the Company has filed a bond, sufficient to discharge such
lien, with the clerk of the applicable circuit court, as provided in Section
507-43, Hawaii Revised Statutes; and (v) liens specifically allowed with respect
to "Permitted Indebtedness" (as defined in the Credit Agreement).
This Negative Pledge Agreement shall be automatically released with
respect to any portion of the Property upon the conveyance of such portion of
the Property to a "Third Party Purchaser". As used herein, the term "Third
Party Purchaser" shall mean any
2
<PAGE>
individual, partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture or governmental authority,
other than (i) Schuler Homes, Inc., Schuler Realty/Maui, Inc., Schuler
Realty/Oahu, Inc., Lokelani Construction Corporation, Aina Kihei Partners,
Waiakoa Estates Subdivision Joint Venture, Iao Partners, Wahiawa Lands General
Partnership, James K. Schuler, Pamela S. Jones, Harvey L. Goth, Michael T.
Jones, Peter M. Aiello, Douglas M. Tonokawa, Mary K. Flood, and Gerry R. Wilson;
PROVIDED, that the Agent may supplement this list by recording (and the Agent
shall have the right to unilaterally record) a Supplement to Negative Pledge
Agreement which shall include the names of other individuals, partnerships,
corporations, business trusts, joint stock companies, trusts, unincorporated
associations, and joint ventures which are not to be considered "Third Party
Purchasers". The Company will provide the Agent within a reasonable time with
Tax Map Key numbers and (if applicable) Transfer Certificate of Title numbers
for any real property acquired by the Company after the date of this Agreement,
and the Agent may supplement the description of the "Property" contained herein
by recording (and the Agent shall have the right to unilaterally record) a
Supplement to Negative Pledge Agreement which shall include a description of all
such after-acquired property.
AND the Company agrees that a default by the Company under this
Agreement will constitute an "Event of Default" under and as defined in the
Credit Agreement, and the Agent will thereupon be entitled to enforce all of the
remedies set forth in Section 8.02 of the Credit Agreement.
This Agreement, which is expressly intended for the benefit and
protection of the Banks, their successors and assigns, and the Agent, as agent
for the Banks, shall remain in full force and effect until (a) all amounts
payable under the Credit Agreement above shall have been paid in full and the
obligations of the Banks thereunder shall have terminated or
3
<PAGE>
(b) until twenty-one (21) years following the death of William Jefferson
Clinton, the current President of the United States of America, whichever first
occurs.
IN WITNESS WHEREOF, the Company has executed these presents this
29th day of March, 1996.
SCHULER HOMES, INC.
By /s/ Pamela S. Jones
----------------------------------------------
Name: Pamela S. Jones
Title: Senior Vice President - Finance &
Chief Financial Officer
"Company"
4
<PAGE>
STATE OF HAWAII )
) SS:
CITY AND COUNTY OF HONOLULU )
On this 25th day of March, 1996, personally appeared Pamela S. Jones,
to me personally known, who, being by me duly sworn or affirmed did say that
such person(s) executed the foregoing instrument as the free act and deed of
such person(s), and if applicable, in the capacity shown, having been duly
authorized to execute such instrument in such capacity.
/s/ Lorraine Takara
--------------------------------------------
Notary Public, State of Hawaii
My commission expires: June 20, 1997
--------------------
STATE OF HAWAII )
) SS:
CITY AND COUNTY OF HONOLULU )
On this day of , 19 ,
personally appeared
, to me personally known, who,
being by me duly sworn or affirmed did say that such person(s) executed the
foregoing instrument as the free act and deed of such person(s), and if
applicable, in the capacity shown, having been duly authorized to execute such
instrument in such capacity.
Notary Public, State of Hawaii
My commission expires:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,864,000
<SECURITIES> 0
<RECEIVABLES> 1,020,000
<ALLOWANCES> 0
<INVENTORY> 254,996,000
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 280,793,000
<CURRENT-LIABILITIES> 0
<BONDS> 57,500,000
0
0
<COMMON> 209,000
<OTHER-SE> 93,096,000
<TOTAL-LIABILITY-AND-EQUITY> 280,793,000
<SALES> 19,965,000
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 18,662,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,552,000
<INCOME-TAX> 604,000
<INCOME-CONTINUING> 948,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 948,000
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
