<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, 1997
[ ] 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, 1997
--------------------- --------------
$.01 par value 20,100,177
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SCHULER HOMES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report..................... 3
Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996......................................... 4
Consolidated Statements of Income - Three months
ended March 31, 1997 and 1996............................. 5
Consolidated Statements of Cash Flows - Three
months ended March 31, 1997 and 1996...................... 6
Notes to Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 11
PART II. OTHER INFORMATION.......................................... 17
SIGNATURES............................................................ 18
2
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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, 1997, and the related consolidated statements of
income and cash flows for the three-month periods ended March 31, 1997 and
1996. 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, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated March 7, 1997, 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, 1996, 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 14, 1997
3
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SCHULER HOMES, INC.
CONSOLIDATED BALANCE SHEETS
March 31,1997 December 31,
------------- 1996
(unaudited) ------------
ASSETS
Cash and cash equivalents (Note 2).................. $ 3,394,000 $ 1,619,000
Receivables......................................... 1,392,000 425,000
Prepaid income taxes................................ 2,549,000 2,604,000
Amount due from affiliate (Note 5).................. 26,000 26,000
Real estate inventories (Note 3).................... 280,299,000 236,569,000
Investments in unconsolidated joint ventures........ 11,560,000 11,611,000
Deposits............................................ 570,000 483,000
Deferred offering costs............................. 1,342,000 1,399,000
Notes receivables (Note 2).......................... 1,822,000 3,944,000
Deferred income taxes............................... 5,985,000 7,356,000
Intangibles (Note 7)................................ 14,281,000 --
Other assets........................................ 3,235,000 1,122,000
------------ ------------
Total assets........................................ $326,455,000 $267,158,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................... 1,760,000 $ 593,000
Accrued expenses.................................... 7,673,000 6,910,000
Notes payable to bank (Note 4)...................... 101,280,000 44,690,000
6-1/2% convertible subordinated debentures due 2003. 57,500,000 57,500,000
------------ ------------
Total liabilities................................... 168,213,000 109,693,000
Commitments and contingencies (Notes 4 and 9)
Stockholders' equity (Note 10):
Common stock, $.01 par value; 30,000,000 shares
authorized; 20,874,177 shares issued at
March 31, 1997 and December 31, 1996........... 209,000 209,000
Additional paid-in capital...................... 93,096,000 93,096,000
Retained earnings............................... 69,937,000 69,160,000
Treasury stock, at cost; 774,000 shares at
March 31, 1997 and December 31, 1996........... (5,000,000) (5,000,000)
------------ ------------
Total stockholders' equity.......................... 158,242,000 157,465,000
------------ ------------
Total liabilities and stockholders' equity.......... $326,455,000 $267,158,000
------------ ------------
------------ ------------
See accompanying notes.
4
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SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31,
----------------------------
1997 1996
---- ----
(unaudited)
Residential real estate sales...................... $49,995,000 $19,965,000
Costs and expenses
Residential real estate sales.................. 41,464,000 16,213,000
Selling and commissions........................ 3,463,000 1,543,000
General and administrative..................... 2,920,000 906,000
----------- -----------
Total costs and expenses................... 47,847,000 18,662,000
Income from unconsolidated joint ventures.......... 7,000 88,000
----------- -----------
Operating income .............................. 2,155,000 1,391,000
Other income (expense)............................. (899,000) 161,000
----------- -----------
Income before provision for income taxes........ 1,256,000 1,552,000
Provision for income taxes (Note 6)................ 479,000 604,000
----------- -----------
Net income ..................................... $ 777,000 $ 948,000
----------- -----------
----------- -----------
Net income per share (Note 8):
Primary......................................... $ 0.04 $ 0.05
----------- -----------
----------- -----------
Fully diluted................................... $ 0.04 $ 0.05
----------- -----------
----------- -----------
See accompanying notes.
5
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SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
----------------------------
1997 1996
---- ----
(unaudited)
OPERATING ACTIVITIES
Net income.......................................... $ 777,000 $ 948,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense.......... 280,000 46,000
Income from unconsolidated joint venture
(undistributed).................................. (16,000) (85,000)
Sales financed by Company...................... (143,000) --
Principal payments of notes receivable......... 1,447,000 127,000
Changes in assets and liabilities, net of
effects from purchase of Melody Homes
and Mortgage:
(Increase) decrease in receivables.......... 142,000 (60,000)
Decrease in prepaid income taxes............ 55,000 143,000
(Increase) in real estate inventories....... (4,765,000) (8,518,000)
(Increase) in deposits...................... (87,000) --
(Increase) in other assets.................. (454,000) (396,000)
(Decrease) in accounts payable.............. (3,607,000) (448,000)
Increase (decrease) in accrued expenses..... 1,534,000 (1,215,000)
Change in deferred income taxes............. 1,371,000 500,000
------------ ------------
Net cash (used in) operating activities... (3,466,000) (8,958,000)
INVESTING ACTIVITIES
Payment for purchase of Melody Homes and Mortgage,
net of cash acquired.............................. (29,508,000) --
Advances to unconsolidated joint venture............ (44,000) (2,002,000)
Repayments of advances to unconsolidated joint
venture........................................... 64,000 1,447,000
Capital distributions from unconsolidated joint
venture........................................... 48,000 24,000
Purchase of furniture, fixtures, and equipment...... (298,000) (4,000)
------------ ------------
Net cash (used in) investing activities... (29,738,000) (535,000)
FINANCING ACTIVITIES
Proceeds from bank borrowings....................... 57,771,000 84,933,000
Principal payments on bank borrowings............... (22,848,000) (75,767,000)
Advances to affiliate............................... (27,000) (38,000)
Repayment of advances to affiliate.................. 26,000 25,000
Net decrease in deferred offering costs............. 57,000 57,000
------------ ------------
Net cash provided by financing activities. 34,979,000 9,210,000
------------ ------------
Increase (decrease) in cash......................... 1,775,000 (283,000)
Cash and cash equivalents at beginning of period.... 1,619,000 6,147,000
------------ ------------
Cash and cash equivalents at end of period.......... $3,394,000 $5,864,000
------------ ------------
------------ ------------
See accompanying notes.
6
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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, 1996
contained in the Company's 1996 annual report on Form 10-K.
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.
On January 8, 1997, the Company completed the acquisition of the common
stock of Melody Homes, Inc., a Colorado homebuilder, and Melody Mortgage
Company, a mortgage brokerage firm for Melody home buyers. The
operations of Melody Mortgage during the quarter ended March 31, 1997
consist primarily of transactions with Melody Homes, which are eliminated
upon consolidation.
2. Notes Receivable
Notes receivable consist primarily of notes receivable on seller financed
sales 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.
Certain of the notes are collateralized by second mortgages relating to
home buyers who purchased homes as part of the Company's "zero-down" sales
program. Revenue and profit recognition on such transactions are deferred
until the down payment requirement for revenue and profit recognition is
satisfied. In March 1997, the Company sold second mortgage notes of
approximately $2,500,000, resulting in the recognition of sales and gross
profit of approximately $11,303,000 and $817,000 (net of discount and
collection reserve relating to sale), respectively (includes five sales
which closed during the first quarter of 1997). The collection reserve
results in a restriction on the Company's cash in the amount of
approximately $506,000. Cumulative revenue and gross profit remaining
deferred on such transactions as of March 31, 1997 are $4,679,000 and
$588,000, respectively.
7
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3. Real Estate Inventories
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. 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.
The estimates of future cash flows require significant judgment relating to
the level of sales prices, rate of new home sales, amount of marketing
costs and price discounts needed in order to stimulate sales, rate of
increase in the cost of building materials and labor, introduction of
building code modifications, and level of consumer confidence, among other
items. Accordingly, there exists at any date, a reasonable possibility
that changes in estimates will occur in subsequent periods.
8
<PAGE>
Real estate inventories at March 31, 1997 consist of the following:
Unimproved land held for future development........... $ 61,108,000
Development projects in progress...................... 158,268,000
Completed inventory (including lots held for sale).... 60,923,000
------------
$280,299,000
------------
------------
Completed inventory includes residential units which are substantially
ready for occupancy.
4. Notes Payable to Bank
At March 31, 1997, $32,684,000 of the Company's line of credit is unused,
of which $621,000 is restricted as to withdrawal for project expenses and
$3,033,000 is restricted as to withdrawal for outstanding but unused
letters of credit.
In March 1997, the Company amended its Credit Agreement, increasing the
unsecured revolving line of credit facility from $110,000,000 to
$137,600,000. The facility expires on July 1, 1999 and includes an option
for the lenders to extend the term for an additional year. The Company can
select an interest rate based on either LIBOR (1, 2, 3 or 6 month term) or
prime for each borrowing. Based on the Company's leverage ratio, as
defined, the interest rate may vary from LIBOR plus 1.5% to 2% or prime
plus 0% to 0.25%. At March 31, 1997, the Company's outstanding borrowings
were at interest rates of LIBOR plus 1.75% (7.5% ) and prime plus 0%
(8.5%). 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 $3,581,000
during the quarter ended March 31, 1997. Interest capitalized to real
estate inventories during the quarter ended March 31, 1997 was
approximately $2,169,000. The difference between the amount of
interest paid and the amount capitalized is comprised of accrued interest
payable and interest of $667,000 expensed (included in Other income
(expense)) and not capitalized.
5. Related Party Transactions
The Company charged $26,000 for the quarter ended March 31, 1997 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,
1997, the $26,000 was included in Amount due from affiliate. Subsequent to
March 31, 1997, the receivable was paid in full.
From time to time, the Company engages the law firms in which directors of
the Company are partners. During the quarterly period ended March 31,
1997, legal fees of approximately $167,000 to such firms were incurred by
the Company.
9
<PAGE>
6. Income Taxes
During the three months ended March 31, 1997, no income tax payments were
required to be made by the Company.
7. Acquisition of Melody Homes, Inc. and Melody Mortgage Company
On January 8, 1997, the Company completed the acquisition of the common
stock of Melody Homes, Inc., a Colorado homebuilder, and Melody Mortgage
Company, a mortgage brokerage firm for Melody home buyers. The
consideration of approximately $24,100,000 (excludes $4,000,000 of the
covenant-not-to-compete paid to certain former Melody shareholders and
certain other acquisition related costs) consisted of cash, in addition
to liabilities assumed of approximately $26,500,000. The transaction has
been accounted for under the purchase method of accounting, wherein
goodwill and a covenant-not-to-compete in the combined amount of
approximately $14,500,000 has been recognized by the Company after
recording other purchase adjustments necessary to allocate the purchase
price to the value of assets acquired and liabilities assumed. Goodwill
and the covenant-not-to-compete is being amortized over a 20-year period.
Accumulated amortization at March 31, 1997 is approximately $184,000.
In connection with his consultation services relating to the acquisition of
Melody, the Company paid a fee of $90,000 to Mr. Martin T. Hart, a member
of the Company's Board of Directors. Combined revenue for Melody Homes,
Inc. and Melody Mortgage Company was approximately $97,000,000 for the year
ended June 30, 1996.
8. Net Income Per Share
Primary net income per share for the quarters ended March 31, 1997 and 1996
were computed using the weighted average number of common shares
outstanding during the quarters of 20,100,177 and 20,874,177, respectively.
The computation of fully diluted net income per share for the quarters
ended March 31, 1997 and 1996 resulted in amounts less than the primary net
income per share. Accordingly, the primary net income per share is also
presented as the fully diluted net income per share.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for
the quarters ended March 31, 1997 and March 31, 1996 is not expected to be
material.
10
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9. Commitments and Contingencies
At March 31, 1997, the Company had under contract to purchase for
approximately $6,133,000, land for residential development.
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 lawsuit by owners of units and
the Association of Owners of Fairway Village at Waikele, who seek to have a
class of all owners certified. 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. However,
this litigation is at an early stage of discovery. Based upon its
current understanding of the lawsuit, the Company believes (at this
early stage of litigation) the claims to be largely without merit, or
that meritorious defenses, together with potential third party
defendants and insurance coverage, exist to offset a material portion
of the related claims. The litigation is being vigorously defended.
However, 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.
Prior to its acquisition by the Company, Melody was joined in a
class-action lawsuit related to the use of polybutylene plumbing systems
and certain alleged defects and deficiencies of such systems. In
September 1995, the Denver District Court stayed the action pending the
resolution of two similar "national class actions" involving the same
group of Plaintiffs as well as manufacturers of polybutylene plumbing
systems. The Denver case was stayed to await a finalization of the
settlement agreed to in the courts of Tennessee and Alabama, which
required the assignment of Plaintiffs' claims to the manufacturers of
polybutylene. These settlement agreements have since been finalized,
and subsequent to March 31, 1997, a stipulated motion for dismissal of
the Denver case was submitted to the Denver District Court by Melody,
the Plaintiffs, and other parties to the case. The Company believes that
the stipulated motion for dismissal will be granted by the Denver
District Court, although no assurance can be given that the dismissal of
the case will be granted.
10. Stockholders' Equity
During the first quarter of 1997, options to purchase approximately 222,500
shares of common stock were approved to be granted. In addition, a plan
was approved to permit option holders to effectively reprice certain of
their outstanding options (covering up to an aggregate of approximately
271,000 shares of common stock). This plan would allow option holders to
receive new options for the same number of shares covered by their existing
options at an exercise price equal to $5.625. Any such new options would
be subject to a new vesting schedule and the existing options would be
cancelled.
11
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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, 1997, sales of residential real estate
(revenue) were $50.0 million and operating income was $2.2 million, compared
to revenues of $20.0 million and operating income of $1.4 million during the
first quarter last year. Net income was $777,000 ($0.04 per share) for the
quarter ended March 31, 1997, compared to net income of $948,000 ($0.05 per
share) during the 1996 first quarter.
On January 8, 1997, the Company announced the completion of its acquisition of
Melody Homes, Inc., a leading homebuilder and 43-year old company in the Denver
metropolitan area of Colorado, and Melody Mortgage Company, a mortgage
brokerage firm for Melody home buyers. The Company's 1997 first quarter
results were positively impacted by its acquisition of Melody Homes and
Mortgage. The Colorado operations contributed approximately $24.4 million to
the Company's 1997 first quarter revenues, generating improved operating
results for the Company, which were partially offset by a decline in Hawaii's
operating results and margins primarily caused by the continued softness in
Hawaii's residential market.
During the quarter ended March 31, 1997, the Company closed the sales of 240
homes and lots, including 167 homes in Colorado and 73 homes and lots in
Hawaii. This compares to the closing of 98 homes and lots in Hawaii during the
first quarter of last year. Backlog at March 31, 1997 totaled 468 homes and
lots with an aggregate sales value of $78.9 million, compared to $48.4 million
in aggregate sales value of the 200 homes and lots in backlog at March 31,
1996. The increase in backlog was solely attributable to strong sales activity
in the Denver division offset, in part, by lower backlog amounts in Hawaii. Due
to the ability of buyers to cancel their sales contracts, no assurances can be
given that homes included in backlog will result in actual closings.
The Company believes that the lower amount of closings of home sales and
quarter-end backlog in Hawaii this quarter as compared to the 1996 first
quarter, is the result of the general uncertainty of prospective home buyers as
to, and to their lack of confidence in, Hawaii's economy. If new home sales
rates persist at their current levels or decline further, the Company's Hawaii
financial results will be adversely affected by fewer closings of home sales,
lower revenues and continued pressure on margins in 1997 as compared to 1996.
12
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The following table sets forth, for the periods indicated, the percentage of
the Company's sales represented by each income statement line item presented.
<TABLE>
<CAPTION>
Percentage Change in
Three months ended March 31, Dollar Amounts From
1997 1996 1996 to 1997
---- ---- ------------
<S> <C> <C> <C>
Residential real estate sales................... 100.0% 100.0% 150.4%
Costs and expenses
Residential real estate sales............... 82.9 81.2 155.7
Selling and commissions..................... 6.9 7.7 124.4
General and administrative.................. 5.8 4.5 222.3
----- -----
Total costs and expenses.......... 95.6 93.4 156.4
Income from unconsolidated joint ventures....... 0.0 0.4 (92.0)
----- -----
Operating income............................ 4.4 7.0 54.9
Other income (expense).......................... (1.8) 0.8 (658.4)
----- -----
Income before provision for income taxes.... 2.6 7.8 (19.1)
Provision for income taxes...................... 1.0 3.1 (20.7)
----- -----
Net income.................................. 1.6% 4.7% (18.0)
----- -----
----- -----
</TABLE>
RESULTS OF OPERATIONS
SALES OF RESIDENTIAL REAL ESTATE
The Company's sales of residential real estate for the quarter ended March
31, 1997 were approximately $50.0 million as compared to approximately $20.0
million during the quarter ended March 31, 1996. This represents an increase
of approximately $30.0 million or 150.4%.
For the first quarter of 1997, the revenues of $50.0 million includes
approximately $39.9 million related to 231 sales closed during the quarter (167
in Colorado), in addition to approximately $10.1 million related to 53 sales
that closed in 1996 under the Company's "zero-down" sales program, for which
the second mortgage notes were sold during the 1997 first quarter. Pre-tax
profit of $762,000 was recognized in connection with the sale of the 53 second
mortgages. Revenue and profit recognition on these "zero-down" sales was
deferred in 1996 until the requirements for revenue and profit recognition were
satisfied, which occurred during the first quarter of 1997. The average
revenue recognized of $176,000 per unit for the first quarter of 1997 is lower
than the 1996 first quarter average of $233,000, primarily due to a) the lower
average sales prices of homes in Colorado as compared to homes in Hawaii and,
to a lesser extent, b) the discount taken on the sale of the second mortgages.
The number of Hawaii home sales closed in the first quarter of 1997 and
years 1996 and 1995 is significantly lower than the number of home sales closed
in 1994, primarily as a result of the reduction in home sales rates during the
periods as compared to 1994. The Company believes the reduction in the rate of
new home sales to be the result of the general uncertainty of prospective home
buyers as to, and to their lack of confidence in, Hawaii's economy. Although
the Company believes that the Hawaiian economy has shown signs of recovery,
particularly in the tourism industry, the Company's rate of new home sales has
not improved. If new home sales rates persist at their current levels or
decline further, the Company's financial results will be adversely affected by
fewer closings of home sales, lower revenues and continued pressure on margins.
13
<PAGE>
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 and jobs have declined an estimated
0.5% to 2.0% per year from 1992 through 1996. Any increases in Hawaii's
unemployment rate or continued lack of job growth may adversely affect future
demand for new homes. In addition, increases in mortgage rates impact the home
buyer'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 in Hawaii. 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 increased to approximately $41.5
million during the quarter ended March 31, 1997 from approximately $16.2
million during the same period in 1996, representing an increase of
approximately $25.3 million or 155.7%. This increase in the first quarter of
1997 as compared to the first quarter of 1996 is the result of a) the closing
of 167 home sales by the newly acquired Colorado operations and b) the
recognition of costs related to the 53 "zero-down" sales deferred in 1996 and
recognized in the first quarter of 1997 as a result of the sale of the related
second mortgages. Cost of residential real estate sales as a percentage of
sales increased to 82.9% in the first quarter of 1997 from 81.2% in the first
quarter of 1996, primarily as a result of an increased level of price discounts
and sales incentives to homebuyers in Hawaii. The Company anticipates this
increased level of discounts and incentives will continue to affect its
operating results in future periods and no assurances can be given that they
will not increase to even greater levels than reached in the past.
Total interest incurred during each of the quarters ended March 31, 1997
and 1996 was approximately $2.8 million and $1.9 million, respectively. All
amounts incurred, except for approximately $667,000 in the first quarter of
1997, 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 $155.6 million and $102.3
million during the first quarters of 1997 and 1996, respectively. The
Company's average interest rate on its debt for the quarters ended March 31,
1997 and 1996 was approximately 7.4% and 7.3%, 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.
COST AND EXPENSES - SELLING AND COMMISSIONS
Sales and marketing costs represented approximately 6.9% and 7.7% of sales
of residential real estate during the quarters ended March 31, 1997 and 1996,
respectively. The decrease is a result of lower costs incurred in Colorado as
compared to Hawaii, offset in part by increases in the level of selling and
commission costs in Hawaii.
14
<PAGE>
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 increased by $2.0 million during the
first quarter of 1997 as compared to the same period in 1996 primarily due to
the addition of the Colorado division and the start-up of operations in
Northern California and the Pacific Northwest. As a percentage of sales,
general and administrative expense increased from 4.5% during the quarter ended
March 31, 1996 to 5.8% during the quarter ended March 31, 1997, which is a
result of the same items mentioned in the preceding sentence.
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
$88,000 during the first quarter of 1996 to $7,000 during the same period in
1997 is primarily the result of the closing of 3 homes at Iao Parkside during
the first quarter of 1997 as compared to 13 closings during the comparable
quarter in 1996, and lower profit margins realized in this project during the
first quarter of 1997 as compared to the first quarter of 1996.
OTHER INCOME (EXPENSE)
Other income (expense) is primarily composed of interest income of $37,000
and $156,000 earned on cash balances and notes receivable during the quarters
ended March 31, 1997 and 1996, respectively, offset in the 1997 first quarter
by a) approximately $712,000 of financing costs (primarily including interest
of $667,000) expensed and not capitalized resulting from the acquisition of
Melody Homes and Mortgage and reduced construction activity in Hawaii, and b)
amortization of goodwill and the covenant-not-to-compete of $184,000 also
associated with the acquisition of Melody Homes and Mortgage.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate for the first quarters of 1997 and
1996 was approximately 38% and 39%, respectively. The lower effective tax rate
in the first quarter of 1997 reflects the lower Colorado state income tax rate
as compared to Hawaii's state income tax rate.
15
<PAGE>
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, 1996, ranged from approximately $20.0
million to $29.8 million. The Company's net income (loss) for each of the four
quarters ended December 31, 1995, ranged from a net loss of approximately $3.1
million (after giving effect to the $5.7 million after-tax charge relating to
FASB 121) to net income of $4.7 million and for each of the four quarters ended
December 31, 1996, ranged from a net loss of approximately $13.1 million (after
giving effect to the $14.6 million after-tax charge relating to FASB 121) to
net income of $948,000. Factors that contribute to variability of the
Company's results include: the timing of home closings, a substantial portion
of which historically have occurred in the last month of each quarter; the
Company's ability to continue to acquire additional land on favorable terms for
future developments; the condition of the real estate markets and economies in
states in which the Company operates; the cyclical nature of the homebuilding
industry and changes in prevailing interest rates; costs of material and
labor; and 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's recent expansion to markets in the mainland United States
further exposes the Company to risks inherent in those markets. For example,
as a result of the Company's acquisition of Melody, it will encounter
construction issues and risks such as expansive soils and extreme seasonal
weather conditions (dissimilar to those encountered in Hawaii).
The Company will continue to consider its expansion into additional
selected residential housing markets in the United States mainland and into
certain foreign countries and into other related industries. The Company has
and would consider the acquisition of or joint venture with an existing
company, as well as its own acquisition and development of homebuilding
projects in certain areas, in order to facilitate its expansion. 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.
16
<PAGE>
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 canceled 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, 1997 and 1996.
March 31, 1997 March 31, 1996
--------------
Aggregate Aggregate
Number Sales Value Number Sales Value
------ ----------- ------ -----------
Homes - Hawaii 105 $24,939,000 192 $47,271,000
Lots - Hawaii 2 229,000 8 1,166,000
Homes - Colorado 361 53,701,000 -- --
------ ----------- ------ -----------
Total 468 $78,869,000 200 $48,437,000
------ ----------- ------ -----------
------ ----------- ------ -----------
The Company has observed an increase in its historical cancellation rates
in Hawaii, 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 and lots comprising backlog at March
31, 1997 and 1996 were $169,000 and $242,000, respectively. The decrease in
average sales prices primarily reflects the lower average sales prices in
Colorado, as compared to Hawaii. 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 100% of the
backlog of Waiakoa Estates Subdivision Joint Venture and Iao Partners, the
Company's two joint ventures developing the Waiakoa Kai Estates and Iao
Parkside projects, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In March 1997, the Company amended its Credit Agreement, increasing the
unsecured revolving line of credit facility from $110 million to $137.6
million, and adding Bank One, Arizona, N.A. to the lending group. The facility
expires on July 1, 1999 and includes an option for the lenders to extend the
term for an additional year. The Company can select an interest rate based on
either LIBOR (1, 2, 3 or 6 month term) or prime for each borrowing. Based on
the Company's leverage ratio, as defined, the interest rate may vary from LIBOR
plus 1.5% to 2% or prime plus 0% to 0.25%. The Company's current rate is
LIBOR plus 1.75% or prime plus 0%. The Company's ability to draw upon its line
of credit is dependent upon meeting certain financial ratios and covenants.
On January 8, 1997, the Company completed the acquisition of Melody Homes,
Inc. ("Melody"), a homebuilder in the Denver metropolitan area of Colorado, and
Melody Mortgage Company, a mortgage brokerage firm for Melody home buyers. The
Company funded the purchase and refinanced a portion of Melody's loans using
its unsecured revolving line of credit facility. Upon the finalization of the
increase in the Company's unsecured revolving line of credit, all of Melody's
loans were refinanced by the Company's line of credit.
17
<PAGE>
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, 1997, the Company had bank notes payable of
approximately $101.3 million. Peak outstanding debt, including bank borrowings
and the Convertible Subordinated Debentures, during the quarter ended March 31,
1997 was $162.7 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 sellers of land purchased. The Company's business and
earnings are substantially dependent on its ability to obtain debt financing on
acceptable terms. 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.
At April 30, 1997, the Company had bank notes payable of approximately
$107.9 million.
At April 30, 1997, the Company has commitments to purchase several parcels
of land for approximately $5.8 million, including land to be acquired for
development by the Company's start-up divisions in Northern California and the
Pacific Northwest, in addition to land purchase commitments of the Colorado
division. The Company expects to utilize a combination of cash flow from
operations and bank financing to purchase the land parcels. The Company
intends to consummate the purchase of the land parcels in 1997. However, no
assurances can be given that the purchases will be completed or that the land
under purchase option will be acquired.
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 1997.
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.
18
<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 lawsuit by owners of units and
the Association of Owners of Fairway Village at Waikele, who seek to have a
class of all owners certified. 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. However,
this litigation is at an early stage of discovery. Based upon its
current understanding of the lawsuit, the Company believes (at this
early stage of litigation) the claims to be largely without merit, or that
meritorious defenses, together with potential third party defendants and
insurance coverage, exist to offset a material portion of the related
claims. The litigation is being vigorously defended. However, 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.
Prior to its acquisition by the Company, Melody was joined in a
class-action lawsuit related to the use of polybutylene plumbing systems
and certain alleged defects and deficiencies of such systems. In
September 1995, the Denver District Court stayed the action pending the
resolution of two similar "national class actions" involving the same
group of Plaintiffs as well as manufacturers of polybutylene plumbing
systems. The Denver case was stayed to await a finalization of the
settlement agreed to in the courts of Tennessee and Alabama, which
required the assignment of Plaintiffs' claims to the manufacturers of
polybutylene. These settlement agreements have since been finalized,
and subsequent to March 31, 1997, a stipulated motion for dismissal of
the Denver case was submitted to the Denver District Court by Melody,
the Plaintiffs, and other parties to the case. The Company believes that
the stipulated motion for dismissal will be granted by the Denver
District Court, although no assurance can be given that the dismissal of
the case will be granted.
Items 2 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Document Description
------- --------------------
10.1 Amended and Restated Credit Agreement between the
Company, certain Banks, and First Hawaiian Bank,
dated March 27, 1997.
10.2 Amended and Restated Promissory Note between the
Company, certain Banks, and First Hawaiian Bank,
dated March 27, 1997.
10.3 Amendment to Negative Pledge Agreement between the
Company, certain Banks, and First Hawaiian Bank,
dated March 27, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K. Current report on Form 8-K dated January 8, 1997.
19
<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 14, 1997 By: /s/ James K. Schuler
-----------------------------------
James K. Schuler
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: May 14, 1967 By: /s/ Pamela S. Jones
-----------------------------------
Pamela S. Jones
Senior Vice President of Finance,
Chief Financial Officer and
Director (principal financial officer)
Date: May 14, 1997 By: /s/ Douglas M. Tonokawa
-----------------------------------
Douglas M. Tonokawa
Vice President of Finance,
Chief Accounting Officer
(principal accounting officer)
20
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AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is dated March 27, 1997, and
effective as of March 27, 1997, among SCHULER HOMES, INC., a Delaware
corporation (the "Company"), SCHULER HOMES OF CALIFORNIA, INC., a California
corporation, SCHULER HOMES OF OREGON, INC., an Oregon corporation, SCHULER
HOMES OF WASHINGTON, INC., a Washington corporation, MELODY HOMES, INC., a
Delaware corporation, SCHULER REALTY/MAUI, INC., a Hawaii corporation,
SCHULER REALTY/OAHU, INC., a Hawaii corporation, LOKELANI CONSTRUCTION
CORPORATION, a Delaware corporation, and MELODY MORTGAGE CO., a Colorado
corporation (collectively referred to as the "Co-Borrowers", and the Company
and the Co-Borrowers are collectively referred to as the "Borrowers", and
individually referred to as a "Borrower"), the banks from time to time party
to this Agreement (collectively referred to as the "Banks", and individually
referred to as a "Bank"), FIRST HAWAIIAN BANK, a Hawaii corporation, as
administrative and co-syndication agent for the Banks (the "Administrative
Agent"), and BANK OF AMERICA NT&SA, a national banking association, as
documentation and co-syndication agent for the Banks (the "Documentation
Agent", the Administrative Agent and the Documentation Agent are collectively
referred to as the "Agents").
WITNESSETH:
WHEREAS, the Company, the Banks and the Administrative Agent entered into
that certain Credit Agreement dated as of March 29, 1996 (the "Original Credit
Agreement"), relating to 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)
(the "Original Commitment") made available to the Company by the Banks; and
WHEREAS, in connection therewith, the Company, the Banks and the
Administrative Agent executed certain Loan Documents (as defined in the Original
Credit Agreement); and
WHEREAS, the Company, the Banks and the Administrative Agent entered into
that certain Supplement No. 1 to Credit Agreement effective as of January 8,
1997 (the "Supplement"), relating to the use of certain proceeds of Advances (as
defined in the Original Credit Agreement) during the Waiver Period (as defined
in the Supplement); and
WHEREAS, the Borrowers have requested the Banks and the Agents to amend the
terms of the Original Credit Agreement and the other Loan Documents to (i)
increase the amount of the Original Commitment by U.S. $27,600,000.00 (the "New
Commitment") so that the Aggregate Commitment shall be U.S. $137,600,000.00,
(ii) extend the Termination Date (as defined in the Original Credit Agreement)
to July 1, 1999, and (iii) amend other provisions contained therein; and
WHEREAS, the Banks and the Agents are willing to comply with such request,
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upon and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the Borrowers, the Banks and the Agents hereby agree
to amend and completely restate the Original Credit Agreement, as amended by the
Supplement, in its entirety, effective as of the date stated above, 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:
"ADMINISTRATIVE AGENT" means First Hawaiian Bank, in its capacity as
administrative and co-syndication agent for the Banks hereunder, and any
successor agent.
"ADMINISTRATIVE AGENT'S PAYMENT OFFICE" means the address for payments
set forth on the signature page hereto in relation to the Administrative Agent
or such other address as the Administrative Agent may from time to time specify
in accordance with Section 10.02.
"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 any
Borrower, nor shall any Borrower be deemed an "Affiliate" of any Bank.
"AGENT-RELATED PERSONS" means with respect to any Agent, such Agent
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.
"AGENTS" means collectively the Administrative Agent and the
Documentation Agent.
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"AGGREGATE COMMITMENT" means the combined Revolving Commitments of the
Banks, in the initial amount of U.S. ONE HUNDRED THIRTY-SEVEN MILLION SIX
HUNDRED THOUSAND DOLLARS (U.S. $137,600,000.00), 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 Prime Rate "A" Advance --
0.000%; (ii) for any Prime Rate "B" Advance -- 0.000%; (iii) for any Prime Rate
"C" Advance -- 0.250%; (iv) for any LIBO Rate "A" Advance -- 1.500%; (v) for any
LIBO Rate "B" Advance -- 1.750%; and (vi) for any LIBO Rate "C" Advance --
2.000%.
"AUTHORIZED STATES" means the States of Hawaii, California, Oregon,
Washington and Colorado.
"BANK" has the meaning specified in the introductory clause hereto.
"BORROWING" means a borrowing hereunder consisting of Advances made to
any of the Borrowers 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 consolidated financial statement of the Company and its
Subsidiaries, 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(d) 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.
"BUSINESS PLAN" means that certain plan with budget and cash flow
projections presented by the Borrowers to the Banks on February 18, 1997, as
identified and delivered to the Banks prior to the Closing Date.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive
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of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"CAPITALIZED INTEREST" means any interest incurred by any Borrower or
any Subsidiary of any Borrower that is added to the assets of the Company on the
consolidated balance sheet of the Company and expensed in future periods other
than the current applicable period.
"CAPTIVE INSURANCE SUBSIDIARY" means a Subsidiary of the Company which
is organized and authorized pursuant to Article 19 of Chapter 431 of the Hawaii
Revised Statutes.
"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 Authorized States owned by any
Borrower 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.
"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,
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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.
"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 any
Borrower and an unrelated third party purchaser, who has made an earnest money
deposit of not less than $250.00 and who has been pre-qualified by such Borrower
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 Authorized States owned by any
Borrower as part of its real estate development business, on which a building
permit has been issued and construction has begun, and for which such Borrower
has entered into a written Contract for Sale.
"CONTROLLED GROUP" means the Borrowers and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Borrowers 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
$424,979.00 construction loan facility with First Hawaiian Bank 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
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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 divided by
Real Estate Indebtedness.
"DOCUMENTATION AGENT" means Bank of America NT&SA, in its capacity as
documentation and co-syndication agent for the Banks hereunder, and any
successor agent.
"ENTITLED LAND" means all land in the Authorized States owned by any
Borrower as part of its real estate development business, which does have
residential zoning and the provision of potable water, sewage and other
utilities available to 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 or any
Subsidiary of the Company through a public or private issuance and sale of stock
of such entity 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 Administrative
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 Administrative Agent.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System, or any entity succeeding to any of its principal functions.
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"FIXED CHARGES RATIO" means, with respect to the Company and its
Subsidiaries, consolidated earnings before impairment loss recognized pursuant
to Financial Accounting Standards Board Statement No. 121, interest expense
(including Capitalized Interest expensed during the applicable period),
depreciation, taxes and amortization, divided by total consolidated interest
incurred minus Capitalized Interest plus any Capitalized Interest expensed
during the applicable period; provided, however, the earnings in 1996 for Melody
Homes, Inc. shall not include the allocation of or charge for the management
fees or overhead costs of its former parent company or other entity under common
ownership with such parent company for such period only.
"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.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority)
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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 Borrower or a Subsidiary of any
Borrower, the term "Guaranty Obligation" shall not include any direct or
indirect liability of the Borrower with respect to any primary obligation of
such other Borrower or Subsidiary, which the Borrower 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 accounts payables and accrued expenses as set
forth in the consolidated financial statements of the Company and its
Subsidiaries 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
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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
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
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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, or such
indebtedness owed by one member of the Company's consolidated group to another
member of such consolidated group.
"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
Administrative Agent, as administrative and co-syndication agent for the Banks,
the Agent as documentation and co-syndication 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 one month, 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 one (1), two (2), three (3) or six
(6) months thereafter, as selected by the Company, on behalf of the Borrowers,
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;
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(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
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numerically corresponding day in the calendar month at the end of such
Interest 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 Borrowers, pursuant to Section 2.05.
"ISSUING BANK" means any Bank or any Affiliate of any Bank, other than
the Administrative Agent, which issues a Letter of Credit hereunder at the
request of and for the account of the Borrowers, in accordance with a
requirement by the beneficiary of such Letter of Credit, and 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.
"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 Authorized States owned
by any Borrower 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 Borrowers and the Administrative Agent.
"LETTERS OF CREDIT" means standby letters of credit issued by the
Administrative Agent or the Issuing Bank, at the request of and for the account
of the Borrowers, 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, on a consolidated basis, including all accounts payables and
accrued expenses as set forth in the consolidated financial statements of the
Company and its Subsidiaries entered into in the ordinary course of business
pursuant to ordinary terms and all Quantifiable Contingent Liabilities, divided
by Consolidated Tangible Net Worth. 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
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(75) days after the end of such preceding Quarter, based upon the Leverage Ratio
Certificate provided to the Administrative Agent by the Company, on behalf of
the Borrowers, pursuant to Section 6.02(e) of this Agreement, and verified by
the Administrative Agent to its satisfaction). The Administrative Agent shall
promptly notify the Company, on behalf of the Borrowers, 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, on
behalf of the Borrowers, 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(e) 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 Page 3875 (or such
other display page on the Telerate System as may replace such 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
in the approximate amount of the Advances, for the applicable Interest Period.
"LIBO RATE "A" ADVANCE" means any outstanding LIBO Rate Advance during
a time when the Leverage Ratio is less than or equal to 1.00 to 1.
"LIBO RATE "B" ADVANCE" means any outstanding LIBO Rate Advance during
a time when the Leverage Ratio is greater than 1.00 to 1, and less than or equal
to 1.35 to 1.
"LIBO RATE "C" ADVANCE" means any outstanding LIBO Rate Advance during
a time when the Leverage Ratio is greater than 1.35 to 1.
"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 Administrative 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 Borrowers on a consolidated basis to perform under any Loan
Document and avoid any Event of Default; or (b) a material adverse effect upon
the legality, validity, binding
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effect or enforceability of any Loan Document.
"MODEL HOMES" means all condominium units and one-to-four family
residences in the Authorized States owned by any Borrower as part of its real
estate development business, which are used as models or sales offices 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" means that certain Negative Pledge
Agreement dated March 29, 1996, filed in the Office of the Assistant Registrar
of the Land Court of the State of Hawaii as Land Court Document No. 2303947, and
also recorded in the Bureau of Conveyances of the State of Hawaii as Document
No. 96-056281, as amended.
"NOTE" means the promissory note, as amended and restated, and dated
the date of this Agreement, executed by the Borrowers in favor of the
Administrative Agent (as agent for the Banks), evidencing the Borrowers'
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, on behalf
of the Borrowers, to the Administrative 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, on behalf of the Borrowers, to the Administrative 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,
on behalf of the Borrowers, to the Administrative 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 Borrowers to any Bank, the Administrative 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).
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"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 March 31, 1997, (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;
(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 any Borrower; 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 (except for
indemnification of sureties issuing bonds in connection with the Borrowers'
real estate development businesses), not to exceed $5,000,000 in the
aggregate, incurred in the ordinary course of the Borrowers' real estate
development businesses;
(vii) Premium Payments;
(viii) Guaranty Obligations (a) incurred in respect of
indemnification of sureties for the issuance of bonds in connection with
the Borrowers' real estate development businesses and (b) associated with
the
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acquisition of Melody Homes, Inc. and Melody Mortgage Co. by the Company;
and
(ix) Indebtedness in respect of the Aggregate Commitment
hereunder.
"PERMITTED INVESTMENT" means (a) the creation of or investment in a
wholly-owned Subsidiary of any Borrower which is used exclusively as an exchange
vehicle to facilitate a like-kind exchange under Section 1031 of the Code; (b)
the investment by a Borrower in any other Borrower; (c) loan receivables from
sales incentive programs, not to exceed $10,000,000.00; and (d) 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;
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(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 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 any Borrower or any member of the Controlled Group sponsors or
maintains or to which any Borrower 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 to Gentry
Homes, Ltd., if the Company 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
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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 "A" ADVANCE" means any outstanding Prime Rate Advance
during a time when the Leverage Ratio is less than or equal to 1.00 to 1.
"PRIME RATE "B" ADVANCE" means any outstanding Prime Rate Advance
during a time when the Leverage Ratio is greater than 1.00 to 1, and less than
or equal to 1.35 to 1.
"PRIME RATE "C" ADVANCE" means any outstanding Prime Rate Advance
during a time when the Leverage Ratio is greater than 1.35 to 1.
"PRIME RATE ADVANCE" means an Advance or a Swing-Line Advance that
bears interest based on the Prime Rate.
"QUANTIFIABLE CONTINGENT LIABILITIES" means, with respect to the
Company and its Subsidiaries, an estimated loss from a loss contingency
recognized pursuant to Financial Accounting Standards Board Statement No. 5.
"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 consolidated financial statements of the Company and
its Subsidiaries, 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 total amount of: (1) the
Aggregate Commitment; (2) the existing Subordinated Debt of the Company
(including the Company's existing subordinated convertible debentures) in the
amount of $57,500,000.00, and (3) other indebtedness, as may be permitted by the
Banks, in connection with the development of any Real Estate Development Assets.
"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
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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, on behalf of the Borrowers, to the Administrative 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 or of a Borrower means the chief
executive officer, the president, or the chief financial officer of the Company
or such Borrower, 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.
"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 any Borrower (including
subordinated debentures and subordinated convertible debentures) to another
lender or creditor who has expressly agreed by virtue of documents or
instruments acceptable to
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the Majority Banks, that the Indebtedness of such Borrower to such lender or
creditor is subordinated to the Obligations of the Borrowers 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 Borrowers
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 Borrowers on the same day by the Administrative
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, 1999, unless extended by the Banks
pursuant to subsection 2.09, in which case the Termination Date shall be July 1,
2000.
"UNENCUMBERED" when used to describe real property owned by any
Borrower, 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, or such similar statutes under California, Oregon, Washington
and Colorado law, shall not prevent such property from being Unencumbered, as
long as the Borrowers are 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 Borrowers have filed a bond, sufficient to discharge such lien, with
the clerk of the applicable court, as provided in Section 507-43, Hawaii Revised
Statutes, or such similar statutes under California, Oregon, Washington and
Colorado law; 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 the Borrowers have 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 Authorized States owned by any
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Borrower 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 to 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 Authorized States
owned by any Borrower 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 Authorized States
owned by any Borrower 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."
(d) PERFORMANCE; TIME. Whenever any performance obligation
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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 Administrative Agent, the
Borrowers 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 Administrative Agent merely because of the
Administrative 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" refer to such fiscal year of
the Company.
ARTICLE II
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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 Borrowers
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 Administrative Agent agrees, on the terms and conditions
hereinafter set forth, to make Swing-Line Advances to the Borrowers 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 Administrative Agent and the Issuing Bank agree, on the terms and
conditions hereinafter set forth, to issue Letters of Credit for the account of
the Borrowers 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 Administrative Agent's obligation
to make Advances and Swing-Line Advances, together with the Administrative
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 Administrative 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 Borrowers
may borrow, prepay, and reborrow.
2.02 DETERMINATION OF BORROWING BASE; RESTRICTION ON ADVANCES, SWING-LINE
ADVANCES AND LETTERS OF CREDIT. The Administrative Agent will determine the
initial Borrowing Base at the Closing Date, calculated as of February 28, 1997,
and evidenced by a Borrowing Base Certificate delivered by the Company, on
behalf of the Borrowers, to the Administrative Agent no later than the Closing
Date. 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 Administrative Agent, calculated as of the end of the
preceding month, evidenced by the Borrowing Base Certificate provided to the
Administrative Agent by the Company, on behalf of the Borrowers, pursuant to
Section 6.02(c) of this Agreement, and verified by the Administrative Agent to
its satisfaction. The Administrative Agent shall promptly notify the Borrowers,
through the Company, and each Bank of each determination by the Administrative
Agent of the Borrowing Base. Any determination of the Borrowing Base by the
Administrative Agent shall be conclusively deemed to be correct unless objected
to by the Company, on behalf of the Borrowers or the Majority Banks 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
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hereunder, shall not exceed the Borrowing Base as determined by the
Administrative 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 Administrative 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
Borrowers shall, within fifteen (15) Business Days of the receipt of
notification by the Administrative Agent, repay Advances or Swing-Line Advances
and/or repay or cash collateralize issued and outstanding Letters of Credit, 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, on behalf of the Borrowers, to the Administrative
Agent in accordance with Section 10.02 in the form of a Notice of Borrowing
(which notice must be received by the Administrative 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 three (3) months.
(b) Upon receipt of the Notice of Borrowing, the Administrative 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
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the Borrowing available to the Administrative Agent for the account of the
Borrowers at the Administrative Agent's Payment Office by 11:00 a.m. Honolulu,
Hawaii time on the Borrowing date requested by the Borrowers in funds
immediately available to the Administrative Agent. The proceeds of all such
Advances will then be made available to the Borrowers by the Administrative
Agent at such office by crediting the account of the Company on the books of
First Hawaiian Bank or such other accounts as the Company, on behalf of the
Borrowers, may specify, with the aggregate of the amounts made available to the
Administrative Agent by the Banks and like funds as received by the
Administrative Agent.
(d) The proceeds from Advances shall be used for general corporate
purposes, including working capital, set aside letters for bonding purposes, and
land acquisition in the Authorized States, and not in contravention of any
provision of this Agreement or any Requirement of Law.
(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 Borrowers 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, on behalf of the Borrowers, to the
Administrative Agent in accordance with Section 10.02 in the form of a Notice of
Swing-Line Borrowing (which notice must be received by the Administrative 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 Administrative 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 Borrowers 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 Administrative
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Agent's election into an Advance, upon one (1) Business Day's written notice
given by the Administrative Agent to each Bank (with a copy of such notice being
given to the Company, on behalf of the Borrowers), 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 Administrative Agent will notify each Bank, on a monthly
basis, of a Swing-Line Borrowing, and will notify each Bank of any repayment of
a Swing-Line Borrowing by the Borrowers, from its own funds, as described in
subsection 2.04(b)(i) above.
(d) If the Administrative Agent shall elect to convert a Swing-Line
Advance into an Advance, the Administrative 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, on behalf of the Borrowers). Each Bank will thereupon make the
amount of its Commitment Percentage therein available to the Administrative
Agent at the Administrative 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 Administrative Agent. The proceeds received from the Banks
will be used by the Administrative 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
Authorized States, and may also be used to repay Prime Rate Advances upon
approval of the Administrative Agent, 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 Borrowers 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
Borrowers have 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, on behalf of the Borrowers, to the Administrative
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 Administrative Agent
prior to 11:00 a.m. Honolulu, Hawaii time), together with an Application and
Agreement for Standby Letter
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of Credit in the form attached hereto as EXHIBIT D (as the same may be revised
by the Administrative Agent from time to time), or in a form that is acceptable
to the Issuing Bank, no less than five (5) Business Days prior to the requested
Issuance date, if the Issuance is by the Administrative Agent, or no less than
ten (10) Business Days prior to the requested Issuance date, if the Issuance is
by the Issuing Bank.
(b) Upon receipt of the Request for Issuance of Letter of Credit, the
Administrative Agent will promptly notify each Bank thereof. The Issuing Bank
will immediately notify the Administrative Agent upon the Issuance of a Letter
of Credit.
(c) Upon any negotiation of an outstanding Letter of Credit by the
beneficiary thereof, the Issuing Bank shall notify the Administrative Agent and
the Administrative 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 Administrative Agent at the Administrative Agent's Payment
Office by 11:00 a.m. Honolulu, Hawaii time on the date requested by the
Administrative Agent in funds immediately available to the Administrative Agent.
The proceeds received from the Banks will be used by the Administrative Agent to
pay the beneficiary of the Letter of Credit upon such negotiation, or to
reimburse the Administrative Agent or the Issuing Bank, as applicable, 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, provided, however, that
Letters of Credit may be issued to the Company to comply with capital
requirements for the Captive Insurance Subsidiary.
The aggregate amount of all Letters of Credit issued and outstanding at any
one time may not exceed Eight Million Dollars ($8,000,000), and the amount
available to the Borrowers 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 by the Borrowers
pursuant to Section 2.11(d) of this Agreement, the Borrowers shall, at the time
of the Issuance of each Letter of Credit, pay to the Administrative Agent or the
Issuing Bank, as applicable, 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 Borrowers shall deposit with
the Administrative Agent cash in an amount sufficient to fully collateralize all
outstanding Letters of Credit as of such date, and if the Borrowers 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 Borrowers in connection
with their real estate development businesses in the
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Authorized States (including any required deposits for like-kind exchanges under
Section 1031 of the Code), and to support capital and performance requirements
and obligations of the Captive Insurance Subsidiary, and not in contravention of
any provision of this Agreement or any Requirement of Law.
2.06 CONVERSION AND CONTINUATION ELECTIONS.
(a) The Company, on behalf of the Borrowers, may upon irrevocable
written notice to the Administrative 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 Borrowers to continue such Advance as, and convert such Advance
into, a LIBO Rate Advance, shall terminate.
(b) The Company, on behalf of the Borrowers, shall deliver a Notice
of Conversion/Continuation in accordance with Section 10.02 to be received by
the Administrative 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;
(ii) the aggregate amount of Advances to be converted or
continued;
(iii) the nature of the proposed conversion or continuation; and
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(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, on behalf of the Borrowers, 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 Borrowers 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
Administrative Agent will promptly notify each Bank thereof, or, if no timely
notice is provided by the Company, on behalf of the Borrowers, the
Administrative 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 Borrowers 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 Borrowers may,
on January 1, 1998, and thereafter at the end of any Quarter, upon not less than
five Business Days' prior notice to the Administrative 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 $10,000,000 in excess thereof, up to an
aggregate maximum amount of $40,000,000; 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 Administrative 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 Borrowers shall reimburse each Bank and hold each Bank
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harmless from any loss or expense which such Bank may sustain or incur as a
consequence of any reduction or termination of 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
3.04 below.
2.08 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Subject to Section 3.04, the Borrowers
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, by the Company on
behalf of the Borrowers, to the Administrative 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, by the Company on behalf of the Borrowers, to the
Administrative Agent, in any amounts, and (iii) prepay Swing-Line Advances in
whole or in part without prior notice to the Administrative 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 for prepayment of LIBO Rate Advances shall not
thereafter be revocable by the Borrowers, and the Administrative Agent will
promptly notify each Bank thereof and of such Bank's Commitment Percentage of
such prepayment. If such notice for prepayment of LIBO Rate Advances is given
by the Borrowers, the Borrowers 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 Borrowers 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.
(b) MANDATORY PREPAYMENTS. If any Borrower sells (other than a sale
to any other Borrower) any portion of its property or assets for $10,000,000 or
more, or if any Borrower sells substantially all of its property or assets, in a
single transaction, the Borrowers shall use 100% of the proceeds of such sale
(the "Sale Proceeds") to prepay any Advances, subject to Section 3.04. If the
Sale Proceeds are used to prepay LIBO Rate Advances in whole or in part, then
the Borrowers shall provide at least three Business Days' prior notice, by the
Company on behalf of the Borrowers, to the Administrative Agent, of such
prepayment and such prepayments shall be 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; unless the total Advances
outstanding after giving effect to any other prepayments required by this
section, is less than $2,000,000, in which case, the LIBO Rate Advances
outstanding shall be reduced by the balance of the such prepayment). Such
notice for prepayment of LIBO Rate Advances shall not thereafter be revocable by
the Borrowers, and the Administrative
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Agent will promptly notify each Bank thereof and of such Bank's Commitment
Percentage of such prepayment. If such notice for prepayment of LIBO Rate
Advances is given by the Borrowers, the Borrowers 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 Borrowers
shall
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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. If the Sale Proceeds are used
to prepay Prime Rate Advances (other than Swing-Line Advances) in whole or in
part, then the Borrowers shall provide at least one Business Day's prior notice,
by the Company on behalf of the Borrowers, to the Administrative Agent, and such
prepayments may be made in any amounts. Prepayments of Swing-Line Advances in
whole or in part may be made without prior notice to the Administrative Agent.
2.09 REPAYMENT; EXTENSION OF TERMINATION DATE.
(a) The Borrowers 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 Administrative 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.
(b) Notwithstanding the foregoing, upon the request of the Company,
on behalf of the Borrowers made not earlier than April 1, 1998 and not later
than June 30, 1998, and the concurrence of all of the Banks, in their sole and
absolute discretion, the Termination Date may be extended to July 1, 2000;
provided, however, that if any Bank does not concur in the extension of the
Termination Date (the "Dissenting Bank"), the Borrowers may: (i) request one or
more of the other Banks (the "Non-Dissenting Banks") to acquire and assume all
or part of such Dissenting Bank's Advances and Revolving Commitment, which
request may be granted or denied in such Non-Dissenting Bank's sole discretion;
or (ii) designate a replacement bank or financial institution to acquire and
assume all or part of such Dissenting Bank's Advances and Revolving Commitment
(a "REPLACEMENT BANK"); or (iii) notwithstanding the provisions of Section 2.07,
permanently reduce the Aggregate Commitment by the aggregate amount of such
Dissenting Bank's Advances and Revolving Commitment, by prepaying the amount of
such Dissenting Bank's Advances and all accrued interest and fees and
reimbursing such Dissenting Bank and holding such Dissenting Bank harmless from
any loss or expense which such Dissenting Bank may sustain or incur as a
consequence of such reduction of 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 3.04 below.
Any acquisition of a Dissenting Bank's Advances and Revolving Commitment,
designation of a Replacement Bank under clause or reduction of the Aggregate
Commitment shall be subject to the prior written consent of the Administrative
Agent (which consent shall not be unreasonably withheld), and shall be effective
upon such consent. In the event of the replacement of a Dissenting Bank, such
Dissenting Bank agrees to assign without recourse its rights and obligations
hereunder to the Replacement Bank upon payment by the Replacement Bank to the
Dissenting Bank of the principal amount of such Dissenting Banks's outstanding
Advances and any accrued and unpaid interest thereon, and any other amounts owed
to such Dissenting Bank and to execute and deliver to the Administrative
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Agent an assignment and acceptance in form and substance reasonably satisfactory
to the Administrative Agent and such Dissenting Bank evidencing such assignment
and the acceptance by the Replacement Bank of such Dissenting Bank's obligations
hereunder. The designation of a Replacement Bank shall not affect the
Borrowers' obligations to such Dissenting Bank hereunder.
(c) As a condition to such extension as provided hereinabove, the
Banks may require the Borrowers to pay an extension fee, in an amount to be
determined by the Banks; provided, however, if such extension is permitted on
the same terms and conditions then in effect, and there are no other
modifications to the Aggregate Commitment or this Agreement, then the Borrowers
shall be required to pay, on July 1, 1998, an extension fee in the amount of
one-tenth of one percent (0.10%) of the amount of the Aggregate Commitment (for
an aggregate fee of $137,600.00). The extension fee, as provided herein, shall
be paid to the Administrative Agent for the account of each Non-Dissenting Bank
and Replacement Bank, if any.
2.10 INTEREST.
(a) Subject to subsection (c) of this Section, each LIBO Rate "A"
Advance, each LIBO Rate "B" Advance, each LIBO Rate "C" Advance, each Prime Rate
"A" Advance, each Prime Rate "B" Advance and each Prime Rate "C" 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
any portion of Advances or Swing-Line Advances prepaid pursuant to Sections 2.07
and 2.08; provided, however, that interest on Prime Rate Advances shall be paid
in arrears on the Interest Payment Date immediately following the date of such
prepayment. Interest shall be paid on demand during the existence of any Event
of Default.
(c) During the existence of any Event of Default, the Borrowers agree
to pay interest on any unpaid principal or other amount payable hereunder or
under any of the other Loan Documents, 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 Borrowers 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 Borrowers shall pay such Bank interest at the highest rate
permitted by law applicable to such Bank.
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2.11 FEES.
(a) EXTENSION FEES. The Borrowers shall pay to the Administrative
Agent on the Closing Date, for the account of each Bank, extension fees in
aggregate amount of $165,200.00, payable as follows:
(i) an amount equal to one-tenth of one percent (0.10%) of the
amount of such Bank's Revolving Commitment for the Original Commitment (for an
aggregate fee of $110,000.00); PLUS
(ii) an amount equal to two-tenths of one per cent (0.20%) of
the amount of such Bank's Revolving Commitment for the New Commitment (for an
aggregate fee of $55,200.00).
(b) COMMITMENT FEE. The Borrowers shall pay to the Administrative
Agent for the account of each Bank a non-refundable commitment fee in the
following percentage per annum on the amount of such Bank's Revolving
Commitment, computed on a Quarterly basis in advance, based upon the Leverage
Ratio then in effect (for example, the commitment fee due on April 1 shall be
computed based upon the Leverage Ratio then in effect, which in such case would
be as of the previous December 31), commencing on the Closing Date, and
continuing on the first Business Day of each Quarter until the Termination Date:
(i) if the Leverage Ratio in effect on the first day of such
Quarter is less than or equal to 1.00 to 1, then the percentage for the
commitment fee shall be equal to 0.125%;
(ii) if the Leverage Ratio in effect on the first day of such
Quarter is greater than 1.00 to 1, and less than or equal to 1.35 to 1, then the
percentage for the commitment fee shall be equal to 0.18%; and
(iii) if the Leverage Ratio in effect on the first day of such
Quarter is greater than 1.35 to 1, then the percentage for the commitment fee
shall be equal to 0.25%;
PROVIDED, HOWEVER, that (1) if the Borrowers fail to provide the Leverage Ratio
Certificate as required in Section 6.02(e), and the Administrative Agent is
unable to determine the Leverage Ratio for such Quarter, then the percentage for
the commitment fee for such Quarter shall be 0.25%, or (2) if an Event of
Default has occurred, then the percentage for the commitment fee for the Quarter
immediately following such Event of Default, and for each subsequent Quarter as
long as such Event of Default is continuing, shall be 0.25%.
(c) UNUSED FACILITY FEES. The Borrowers shall pay to the
Administrative Agent for the account of each Bank an unused facility fee equal
to one-fourth of one percent (0.25%) per annum of the amount equal to the
difference
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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 Administrative Agent, the unused facility fee
shall be equal to one-fourth of one percent (0.25%) of the amount equal to the
difference between (i) the Administrative Agent's Revolving Commitment (less the
Administrative Agent's Commitment Percentage of any issued and outstanding
Letters of Credit) and (ii)(A) the Administrative 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.
(d) LETTER OF CREDIT FEES. The Borrowers shall pay to the
Administrative Agent or the Issuing Bank, as applicable, 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. For Letters
of Credit issued by the Administrative Agent, the Administrative Agent will
retain 20% of such letter of credit 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 Administrative Agent) pro rata in accordance with such
Bank's Revolving Commitment. For Letters of Credit issued by the Issuing Bank,
the Issuing Bank may retain 20% of such letter of credit fee (i.e., .25% of the
amount of such Letter of Credit) for its own account, and will remit the balance
to the Administrative Agent, who will then remit the same to each Bank
(including the Issuing Bank and the Administrative Agent) pro rata in accordance
with such Bank's Revolving Commitment.
(e) AGENCY FEE; STRUCTURING FEE. The Borrowers shall pay to the
Administrative Agent for the Administrative 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 Administrative Agent dated March 26, 1996, as amended by that
certain instrument dated March 27, 1997. The Borrowers shall also pay to the
Agents for their own respective accounts a structuring fee in the amount and
at the times set forth in a letter agreement between the Borrowers and the
Agents dated March 27, 1997.
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.
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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 Administrative Agent will, with reasonable promptness, notify
the Borrowers, through 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 Borrowers of any liability hereunder or provide the basis
for any claim against the Administrative 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 month following the determination of the
Leverage Ratio. The Administrative Agent will with reasonable promptness notify
the Borrowers, through 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 Borrowers of any liability hereunder or provide the basis for any claim
against the Administrative Agent.
2.13 PAYMENTS BY THE BORROWERS.
(a) All payments (including prepayments) to be made by the Borrowers
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 Administrative Agent for the ratable account of
the Banks at the Administrative 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
Administrative Agent will promptly distribute to each Bank its Commitment
Percentage (or other applicable share as expressly provided herein) of such
principal, interest, fees or other amounts, in like funds as received; provided
however that the Administrative Agent shall retain all payments made by the
Borrowers on, or of, Swing-Line Advances for the Administrative Agent's own
account. Any payment which is received by the Administrative Agent later than
9:00 a.m. Honolulu, Hawaii time and any payment on, or of, Swing-Line Advances
which is received by the Administrative 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
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the definition of "Interest Period" herein.
(c) Unless the Administrative Agent shall have received notice from
the Company, on behalf of the Borrowers, prior to the date on which any payment
is due to the Banks hereunder that the Borrowers will not make such payment in
full as and when required hereunder, the Administrative Agent may assume that
the Borrowers have made such payment in full to the Administrative Agent on such
date in immediately available funds and the Administrative 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 Borrowers shall not have made such payment in full to
the Administrative Agent, each Bank shall repay to the Administrative 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 Administrative Agent, at the Federal Funds
Rate as in effect for each such day.
2.14 PAYMENTS BY THE BANKS TO THE ADMINISTRATIVE AGENT.
(a) Unless the Administrative 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 Administrative Agent as
and when required hereunder the amount of that Bank's Commitment Percentage
thereof, the Administrative Agent may assume that each Bank has made such amount
available to the Administrative Agent in immediately available funds on such
date and the Administrative 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 Administrative Agent in immediately available
funds and the Administrative 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 Administrative Agent,
together with interest at the Federal Funds Rate for and determined as of each
day during such period. A notice of the Administrative 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
Administrative 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 Administrative Agent on the next Business Day following
the date of such Borrowing, the Administrative Agent shall notify the Borrowers,
through the Company, of such failure to fund and, upon demand by the
Administrative Agent, the Borrowers shall pay such amount to the Administrative
Agent for the Administrative Agent's account, together with interest thereon for
each day elapsed since the date of such Borrowing, at a rate per annum equal to
the interest rate applicable at the time to the 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
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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 Administrative Agent shall take such
action as the Administrative Agent deems advisable, or as the Administrative
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 Administrative 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 Administrative 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 Borrowers
agree 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 Borrowers in the amount of such participation. The
Administrative 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
Borrowers to each Bank or the Administrative 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 Administrative Agent, such taxes (including income taxes or franchise
taxes) as are imposed on or measured by
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each Bank's net income by the jurisdiction under the laws of which such Bank or
the Administrative 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 Borrowers 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 Borrowers shall indemnify and
hold harmless each Bank and the Administrative 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
Administrative 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
Administrative Agent makes written demand therefor. If any Taxes or Other Taxes
for which the Borrowers have provided an indemnity to any Bank or the
Administrative Agent under this subsection 3.01(c) are found to be incorrectly
or illegally assessed, then, upon the request of the Borrowers, such Bank or
Administrative Agent will take such action, if any, as such Bank or the
Administrative 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 Borrowers any refund which the Bank or the
Administrative 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 Borrowers 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 Administrative 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
Administrative 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 Borrowers shall make such deductions; and
(iii) the Borrowers 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 Borrowers of
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Taxes or Other Taxes, the Borrowers shall furnish to the Administrative Agent
the original or a certified copy of a receipt evidencing payment thereof, or
other evidence of payment satisfactory to the Administrative 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:
(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 each of the Borrowers through the Administrative 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
each of the Borrowers through the Administrative 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 Borrowers
through the Administrative 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 Borrowers' or the
Administrative Agent's reasonable request to that effect, deliver to the
Borrowers or the Administrative 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 Borrowers 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:
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(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 Borrowers 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 Borrowers 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 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 Borrowers 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 Borrowers 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 Borrowers are required to pay additional amounts to any
Bank or the Administrative 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 Borrowers 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 Borrowers through the Administrative Agent, the
obligation of that Bank to make LIBO Rate Advances shall be suspended until that
Bank shall have notified the Administrative Agent and the Borrowers 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 Borrowers 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
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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 Borrowers are required to prepay any LIBO Rate Advance
immediately as provided in subsection 3.02(b), then concurrently with such
prepayment, the Borrowers 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 Borrowers may elect, by giving notice to that
Bank through the Administrative Agent that all Advances which would otherwise be
made by that Bank as LIBO Rate Advances shall be instead Prime Rate Advances.
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 Borrowers shall be liable for, and shall from time to time, upon demand
therefor by such Bank (with copy of such demand to the Administrative Agent),
pay to the Administrative 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 Administrative Agent), the
Borrowers 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 Borrowers 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
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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 Borrowers, through the Company, (with a copy
to the Administrative 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 Borrowers agree 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 Borrowers to make any payment or mandatory
prepayment of principal of any LIBO Rate Advance (including payments made after
any acceleration thereof);
(b) the failure of the Borrowers to borrow, continue or convert an
Advance after the Borrowers have given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Borrowers to make any prepayment after the
Company, on behalf of the Borrowers, 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
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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 Borrowers, through the Company, (with a
copy to the Administrative 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 Borrowers 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 Administrative Agent will forthwith give notice of
such determination to the Borrowers, through the Company, and each Bank.
Thereafter, the obligation of the Banks to make or maintain LIBO Rate Advances
hereunder shall be suspended until the Administrative Agent upon the instruction
of the Majority Banks revokes such notice in writing. Upon receipt of such
notice, the Borrowers may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrowers do not revoke
such notice, the Banks shall make, convert or continue the Advances, as proposed
by the Borrowers, in the amount specified in the applicable notice submitted by
the Company for the Borrowers, 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 Borrowers 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 Borrowers through the Administrative Agent
under Section 3.02(a), unless the Borrowers 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
Borrowers, the Borrowers 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 (the
"Substitute Bank") to acquire and assume all or part of such Affected Bank's
Advances and Revolving Commitment. Any such designation of a Substitute Bank
under clause (ii) shall be subject to the prior written consent of the
Administrative 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 Substitute
Bank upon payment by the Substitute Bank to the Affected Bank of the principal
amount of such Affected Banks's
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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
Administrative Agent an assignment and acceptance in form and substance
reasonably satisfactory to the Administrative Agent and such Affected Bank
evidencing such assignment and the acceptance by the Substitute Bank of such
Affected Bank's obligations hereunder. The designation of a Substitute Bank
shall not affect the Borrowers' obligations to such Affected Bank hereunder.
3.07 SURVIVAL. The agreements and obligations of the Borrowers 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 Borrowers hereunder is subject to the
condition that the Administrative Agent shall have received on or before the
Closing Date all of the following, in form and substance satisfactory to the
Administrative Agent and each Bank and in sufficient copies for each Bank:
(a) CREDIT AGREEMENT. This Agreement executed by the Borrowers, the
Administrative Agent and each of the Banks.
(b) OTHER LOAN DOCUMENTS. The Note and the Negative Pledge
Agreement, executed by the Borrowers, in favor of the Administrative Agent, as
agent for the Banks.
(c) RESOLUTIONS: INCUMBENCY.
(i) Copies of the resolutions of the respective board of
directors of each Borrower approving and authorizing the execution,
delivery and performance by such Borrower of this Agreement, and the other
Loan Documents to be delivered hereunder by the Borrowers, certified as of
the Closing Date by the Secretary or an Assistant Secretary of such
Borrower; and
(ii) Certificates of the Secretary or Assistant Secretary of
each Borrower certifying the names and true signatures of the officers of
such Borrower 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 Borrowers and
addressed to the Administrative Agent and the Banks, substantially in the form
of EXHIBIT E.
(e) PAYMENT OF FEES. The Borrowers shall have paid all accrued and
unpaid fees, costs and expenses to the extent then due and payable on the
Closing
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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, on behalf of the Borrowers, 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, 1996, 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 and its Subsidiaries as of September 30, 1996.
(h) CERTIFICATE OF GOOD STANDING. A certificate of good standing for
each Borrower, issued by the appropriate agency of the state of incorporation
for such Borrower and, if qualified to do business in the State of Hawaii, by
the Director of the Department of Commerce and Consumer Affairs of the State of
Hawaii, as of no earlier than January 1, 1997.
(i) TAX CLEARANCE CERTIFICATE. A tax clearance certificate for each
Borrower, issued by the appropriate agency of the state of incorporation for
such Borrower and, if qualified to do business in the State of Hawaii, by the
Department of Taxation of the State of Hawaii, certifying that all taxes due to
the respective state by such Borrower, up to and including a date within 30 days
of the Closing Date, have been paid.
(j) RELEASE OF BANK ONE LIENS. Recorded releases of all mortgages
and financing statements filed by Bank One, Arizona, NA, on the property and
assets of Melody Homes, Inc. and Melody Mortgage Co.
(k) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Administrative 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 Administrative Agent to make any Swing-Line Advance
hereunder, or of the Administrative Agent or the Issuing Bank to issue any
Letter of Credit hereunder, is subject to the satisfaction of the following
conditions precedent on the relevant date therefor:
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(a) NOTICE OF BORROWING OR CONTINUATION/CONVERSION. The
Administrative 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 Borrowers 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, on behalf of the Borrowers, hereunder shall constitute a representation
and warranty by the Borrowers hereunder, as of the applicable effective date
thereof, that the conditions in this Section 4.02 are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants to the Administrative Agent
and each Bank that:
5.01 ORGANIZATION, STANDING AND AUTHORITY.
(a) SCHULER HOMES, INC.: Schuler Homes, Inc. 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, is solvent, 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.
Schuler Homes, Inc. 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 conditions thereof. The execution and
delivery of the Loan Documents have been duly authorized by the board of
directors of Schuler Homes, Inc., and no other corporate action of or for such
company is requisite to the execution and delivery of this Agreement and the
other Loan Documents.
(b) SCHULER HOMES OF CALIFORNIA, INC.: Schuler Homes of California,
Inc. is a California corporation, validly existing and in good standing under
the laws of the State of California, is solvent, 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. Schuler Homes of California, Inc. 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
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the provisions and conditions thereof. The execution and delivery of the Loan
Documents have been duly authorized by the board of directors of Schuler Homes
of California, Inc., and no other corporate action of or for such company is
requisite to the execution and delivery of this Agreement and the other Loan
Documents.
(c) SCHULER HOMES OF OREGON, INC.: Schuler Homes of Oregon, Inc. is
an Oregon corporation, validly existing and in good standing under the laws of
the State of Oregon, is solvent, 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. Schuler Homes of Oregon, Inc. 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 conditions thereof. The
execution and delivery of the Loan Documents have been duly authorized by the
board of directors of Schuler Homes of Oregon, Inc., and no other corporate
action of or for such company is requisite to the execution and delivery of this
Agreement and the other Loan Documents.
(d) SCHULER HOMES OF WASHINGTON, INC.: Schuler Homes of Washington,
Inc. is a Washington corporation, validly existing and in good standing under
the laws of the State of Washington, is solvent, 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. Schuler Homes of Washington, Inc. 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
conditions thereof. The execution and delivery of the Loan Documents have been
duly authorized by the board of directors of Schuler Homes of Washington, Inc.,
and no other corporate action of or for such company is requisite to the
execution and delivery of this Agreement and the other Loan Documents.
(e) MELODY HOMES, INC.: Melody Homes, Inc. is a Delaware
corporation, validly existing and in good standing under the laws of the State
of Delaware, is solvent, 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.
Melody Homes, Inc. 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 conditions thereof. The execution and
delivery of the Loan Documents have been duly authorized by the board of
directors of Melody Homes, Inc., and no other corporate action of or for such
company is requisite to the execution and delivery of this Agreement and the
other Loan Documents.
(f) SCHULER REALTY/MAUI, INC.: Schuler Realty/Maui, Inc. is a Hawaii
corporation, validly existing and in good standing under the laws of the State
of Hawaii, is solvent, 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.
Schuler Realty/Maui, Inc. 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 conditions thereof. The execution and
delivery of the Loan Documents have been duly authorized by the board of
directors of Schuler Realty/Maui, Inc., and no other corporate action of or for
such company is requisite to the execution and delivery of this
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Agreement and the other Loan Documents.
(g) SCHULER REALTY/OAHU, INC.: Schuler Realty/Oahu, Inc. is a Hawaii
corporation, validly existing and in good standing under the laws of the State
of Hawaii, is solvent, 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.
Schuler Realty/Oahu, Inc. 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 conditions thereof. The execution and
delivery of the Loan Documents have been duly authorized by the board of
directors of Schuler Realty/Oahu, Inc., and no other corporate action of or for
such company is requisite to the execution and delivery of this Agreement and
the other Loan Documents.
(h) LOKELANI CONSTRUCTION CORPORATION: Lokelani Construction
Corporation 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, is solvent,
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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. Lokelani Construction
Corporation 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 conditions thereof. The execution and delivery of the
Loan Documents have been duly authorized by the board of directors of Lokelani
Construction Corporation, and no other corporate action of or for such company
is requisite to the execution and delivery of this Agreement and the other Loan
Documents.
(i) MELODY MORTGAGE CO.: Melody Mortgage Co. is a Colorado
corporation, validly existing and in good standing under the laws of the State
of Colorado, is solvent, 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.
Melody Mortgage Co. 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 conditions thereof. The execution and
delivery of the Loan Documents have been duly authorized by the board of
directors of Melody Mortgage Co., and no other corporate action of or for such
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
each Borrower 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 any Borrower or any of its Subsidiaries or upon the properties or assets or
income of any Borrower or its Subsidiaries, which are due and payable, have been
paid.
5.03 LITIGATION. There is, to the knowledge of the Borrowers, no action,
suit, proceeding or investigation pending at law or in equity or before any
Governmental Authority, or threatened against or affecting any Borrower or its
Subsidiaries, an adverse ruling in which would or might constitute a Material
Adverse Effect.
5.04 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME. None of the
Borrowers is in violation of or in default with respect to any term or provision
of its Articles of Incorporation or Bylaws, and no Borrower or any of its
Subsidiaries is, to the best knowledge of the Borrowers, 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 Borrowers 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 any Borrower or its Subsidiaries; and there is no term or provision
of any Borrower's Articles of Incorporation or Bylaws, or any mortgage,
indenture, contract, agreement or instrument applicable to any Borrower or by
which any Borrower may be bound, which may adversely affect the business or
prospects or
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condition (financial or other) of any Borrower, 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,
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regulation, order, writ, injunction, judgment of any court or governmental
instrumentality, domestic or foreign, applicable to any Borrower or 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 Borrowers 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.
5.08 BROKERS, FINDERS AND AGENTS. The Borrowers have 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 Borrowers 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. Each Borrower has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan in which it is a member 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. None of the Borrowers or any of their
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.
5.12 NO MATERIAL ADVERSE EFFECT. Since December 31, 1996, there has been
no Material Adverse Effect.
5.13 REGULATED ENTITIES. None of the Borrowers or any Person controlling
any Borrower or any of its Subsidiaries 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
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Indebtedness.
5.14 FULL DISCLOSURE. None of the representations or warranties made by
the Borrowers or any of their 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 Borrowers or any of their Subsidiaries in connection with
the Loan Documents (including the offering and disclosure materials delivered by
or on behalf of the Borrowers 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 Borrowers covenant and agree 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:
6.01 FINANCIAL STATEMENTS. The Company, on behalf of the Borrowers, shall
deliver to the Administrative Agent in form and detail satisfactory to the
Administrative 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, (i) 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 Borrowers 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 Borrowers); and (ii) a copy of the consolidating reports of the Company
and all of its Subsidiaries;
(b) as soon as available, but not later than forty-five (45) days
after the end of each Quarter, (i) 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 Borrowers 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
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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 Borrowers; and (ii) a copy of the consolidating reports of
the Company and all of its Subsidiaries;
(c) not later than five (5) days after the filing thereof, copies of
all reports and registration statements which the Borrowers file with the
Securities and Exchange Commission or any national securities exchange.
6.02 CERTIFICATES; OTHER INFORMATION The Company, on behalf of the
Borrowers, shall furnish to the Administrative 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, on behalf of the
Borrowers, in the form of EXHIBIT F-1 stating that, to the best of such
officer's knowledge, the Borrowers during such period, have observed and
performed all of their covenants and other agreements, and satisfied every
condition contained in this Agreement to be observed, performed or satisfied by
the Borrowers 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 Borrowers propose 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 Borrowers as of the end of such
Quarter, (iii) the Consolidated Net Earnings for the Borrowers and their
Subsidiaries during such Quarter, (iv) the amount of and net proceeds received
from any 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 Borrowers as of the end of such
Quarter, (vi) the Fixed Charges Ratio for the Borrowers as of the end of such
Quarter, and (vii) the Capitalized Interest for the Borrowers as of the end of
such Quarter, showing, for each item (i) through (vii) above, the comparison
between such Quarter and previous Quarters (beginning with the Quarter ending
December 31, 1996).
(b) not later than forty-five (45) days after the end of each Quarter
a certificate of a Responsible Officer of the Company, on behalf of the
Borrowers, in the form of EXHIBIT F-2 for each project in which any Borrower 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), and Land Under Development (location
and status of development), as of the end of the previous Quarter.
(c) not later than fifteen (15) days after the end of each month,
provided, however, that if the end of such month is also the end of a Quarter,
then not
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later than twenty-five (25) days after the end of such month, a certificate of a
Responsible Officer of the Company, on behalf of the Borrowers, in the form of
EXHIBIT F-3 for each project in which any Borrower has an investment, relating
to the status of all 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
month.
(d) not later than fifteen (15) days after the end of each month,
provided, however, that if the end of such month is also the end of a Quarter,
then not later than twenty-five (25) days after the end of such month, a
Borrowing Base Certificate of a Responsible Officer of the Company, on behalf of
the Borrowers, in the form of EXHIBIT F-4, containing a detailed listing and a
summary of all Real Estate Development Assets, as of the end of the previous
month.
(e) not later than forty-five (45) days after the end of each
Quarter, a Leverage Ratio Certificate of a Responsible Office of the Company, on
behalf of the Borrowers, in the form of EXHIBIT F-5, containing a calculation of
the total Indebtedness of the Borrowers and their Subsidiaries, and the
Consolidated Tangible Net Worth of the Borrowers and their Subsidiaries, as of
the end of the previous Quarter, based on balance sheet information prepared in
accordance with GAAP.
(f) 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
Borrowers 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).
(g) promptly, such additional business, financial, corporate affairs
and other information as the Administrative Agent, at the request of any Bank,
may from time to time reasonably request.
6.03 NOTICES. The Borrowers shall promptly notify each Bank through the
Administrative 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;
(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 any Borrower or any Subsidiary of any Borrower which could
result in a Material Adverse Effect;
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(c) of the commencement of, or any material development in, any
litigation or proceeding affecting any Borrower or any Subsidiary of any
Borrower 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 Borrowers 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, on behalf of the Borrowers,
setting forth details of the occurrence referred to therein, and stating what
action the Borrowers propose 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 Borrowers shall, and shall cause their
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 each Borrower 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 Borrowers shall comply, and shall cause
each of their Subsidiaries to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over them
or their 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 Borrowers shall
maintain and shall cause each of their Subsidiaries to maintain books, accounts,
and records in accordance with GAAP and permit employees or agents of the
Administrative Agent and any Bank, at any reasonable time, to inspect their
properties, and permit employees or agents of the Administrative Agent and any
Bank, at any reasonable time, once per Quarter, to examine and audit their
books, accounts, and records and make copies and memoranda thereof, at such
Bank's expense, at such reasonable times
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during normal business hours, upon reasonable advance notice to the Borrowers;
PROVIDED, HOWEVER, when an Event of Default exists the Administrative Agent or
any Bank may do any of the foregoing at the expense of the Borrowers at any time
during normal business hours and without advance notice.
6.07 MINIMUM TANGIBLE NET WORTH. The Borrowers shall maintain the
Consolidated Tangible Net Worth, as at the end of each Quarter, at a level equal
to or greater than (a) $135,000,000, plus (b) fifty percent (50%) of
Consolidated Net Earnings cumulative since December 31, 1996 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. Each Borrower shall maintain its
corporate existence in good standing under the laws of the jurisdiction in which
it is incorporated and 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 Borrowers represent have been provided to the Banks.
6.09 APPRAISAL. Independent FIRREA appraisals may be requested from the
Borrowers, and the Borrowers shall provide such appraisals, if required to
conform with FDICIA guidelines or other banking laws, rules or regulations.
6.10 AUTHORIZED STATES. The Borrowers shall restrict their businesses, and
shall cause each Subsidiary to restrict its business, except as provided below,
only to the Authorized States. If the Borrowers wish to obtain the consent of
the Majority Banks for any proposed deviation from the above, the Borrowers,
through the Company, shall furnish the Administrative Agent, and the
Administrative Agent shall forward to the Banks: (i) a copy of the proposed plan
of expansion beyond the Authorized States, (ii) a pro forma budget and cash flow
projection for the proposed expansion, (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
Administrative Agent shall advise the Borrowers of the decision by the Majority
Banks within thirty (30) days after the receipt by the Administrative Agent of
all of the required items described above.
6.11 QUARTERLY MEETINGS. The Company shall meet quarterly with the Banks,
either in person or by telephone conference call, on such dates and at such
times as may be mutually agreeable, provided, however, that such meeting shall
held no later than forty-five (45) days after the end of each Quarter, to
discuss the progress of the Borrowers in comparison to the Business Plan.
6.12 ADDITIONAL SUBSIDIARIES. To the extent that the Borrowers are
permitted under this Agreement to incorporate or otherwise form new
Subsidiaries, the Borrowers agree that such new Subsidiary shall be added as a
Co-Borrower under this Agreement; provided, however, that the Captive Insurance
Subsidiary shall not be subject to this
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provision.
6.13 WAIVER OF SURETYSHIP DEFENSES, ETC. The Borrowers expressly agree
that until each and every term, covenant and condition of this Agreement is
fully performed, each Borrower shall not be released by any act or event which
might be deemed a legal or equitable discharge of a surety, or because of any
waiver, extension, modification, forbearance or delay or other act or omission
of the Banks or their failure to proceed promptly or otherwise as against any
other Borrower, or because of any action taken or omitted or circumstance which
might vary the risk or affect the rights or remedies of any Borrower as against
any other Borrower, or because of any further dealings between any other
Borrower and the Banks. It is the purpose and intent of this provision that the
obligations of the Borrowers under it shall be absolute and unconditional under
any and all circumstances.
(a) WAIVERS OF DEFENSES. Each Borrower (each a "Surety") waives:
(i) all statutes of limitations as a defense to any action or
proceeding brought against any other Borrower by the Banks, to the fullest
extent permitted by law;
(ii) any right it may have to require the Banks to proceed
against any other Borrower, proceed against or exhaust any security held from
any other Borrower, or pursue any other remedy in the Banks' power to pursue;
(iii) any defense based on any legal disability of any other
Borrower, any discharge or limitation of the liability of any other Borrower to
the Banks, whether consensual or arising by operation of law or any bankruptcy,
reorganization, receivership, insolvency, or debtor-relief proceeding, or from
any other cause, or any claim that the Surety's obligations exceed or are more
burdensome than those of any other Borrower;
(iv) all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of this Agreement and of the existence, creation, or incurring of new
or additional indebtedness, and demands and notices of every kind;
(v) any defense based on or arising out of any defense that
any other Borrower may have to the payment or performance of obligations under
any Loan Document or any part of thereof; and
(vi) until all amounts due and owing under the Loan Documents
have been paid and all obligations under the Loan Documents performed in full,
all rights of subrogation, all rights to enforce any remedy that the Banks may
have against any other Borrower, and all rights to participate in any security
now or later to be held by the Banks.
(b) IMPAIRMENT OF SUBROGATION RIGHTS.
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(i) Upon a default by any Borrower, the Banks in their sole
discretion, without prior notice to or consent of the Borrowers, may elect to
foreclose either judicially or nonjudicially against any real or personal
property security it may hold as security for the Aggregate Commitment, or
accept an assignment of any such security in lieu of foreclosure, or compromise
or adjust the Aggregate Commitment or any part of it or make any other
accommodation with any other Borrower. Each Borrower expressly agrees that
under no circumstances shall it be deemed to have any right, title, interest or
claim in or to any real or personal property to be held by Banks or any third
party after any foreclosure or assignment in lieu of foreclosure of such
security.
(ii) Each Borrower waives any and all defenses based on the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation as against any other Borrower, or any other right or remedy of any
Borrower against another Borrower, whether resulting from election of remedies
by the Banks, or from any defect in, failure of, or loss or absence of priority
with respect to the Banks' interest in their security, or otherwise (including,
without limitation, any defense that any exercise by the Banks of any right or
remedy under this Agreement or any other Loan Document violates, or would, in
combination with the previous or subsequent exercise by any other Borrower of
any rights of subrogation, reimbursement, contribution or exercise by such other
Borrower, of any rights of subrogation, reimbursement, contribution or
indemnification against any other Borrower, directly or indirectly, result in or
be deemed to be, a violation of any applicable law.
(d) BORROWERS' FINANCIAL CONDITION. Each Borrower assumes full
responsibility for keeping informed of the financial condition and business
operations of the Company and its Subsidiaries and all other circumstances
affecting the Borrowers' ability to pay and perform their obligations to the
Banks, and agrees that the Banks shall have no duty to disclose to any Borrower
any information which the Banks may receive about any Borrower's financial
condition, business operations, or any other circumstances bearing on its
ability to perform.
ARTICLE VII
NEGATIVE COVENANTS
The Borrowers hereby covenant and agree 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 Borrowers shall not and shall not suffer or
permit any of their 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 any Borrower or others incurred to
purchase or carry Margin Stock, (iii)
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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.
(a) The Borrowers shall not allow the Leverage Ratio, measured as of
the end of each Quarter ending March 31, 1997, June 30, 1997, September 30,
1997, December 31, 1997 and March 31, 1998, to exceed 1.50 to 1.
(b) The Borrowers shall not allow the Leverage Ratio, measured as of
the end of each Quarter ending June 30, 1998, September 30, 1998, December 31,
1998, March 31, 1999, and June 30, 1999, to exceed 1.35 to 1.
7.03 DEVELOPMENT RATIO. The Borrowers 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 CHARGES RATIO. The Borrowers shall not allow the Fixed Charges
Ratio, measured as of the end of each Quarter on a rolling four (4) Quarters
basis, to be less than 1.00 to 1 in each Quarter of 1997, 1.25 to 1 in the first
two Quarters of 1998, 1.50 to 1 in the last two Quarters of 1998 and 1.75 to 1
in the first two Quarters of 1999. In addition, the Borrowers shall not allow
the Fixed Charges Ratio, measured as of the end of each Quarter on a quarter
only basis, to be less than 1.50 to 1 for the last two Quarters of 1997.
7.05 NO REPAYMENT OF SUBORDINATED DEBT. The Borrowers shall not repay or
permit any of their Subsidiaries to repay any of the Subordinated Debt.
7.06 ADDITIONAL INDEBTEDNESS. The Borrowers shall not, and shall not
permit any of their 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 Borrowers shall not, and
shall not permit any of their 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 Borrowers may (a) make other real estate
investments or acquisitions, the total capital commitment for which shall not
exceed the following designated amounts for a single project (multiple
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phases of a project are considered in the aggregate and not as separate
projects), and not in contravention of any provision of this Agreement or any
Requirement of Law: (i) $25,000,000 for projects in Washington, Oregon and
Northern California, and (ii) $75,000,000 for projects in Colorado and Hawaii
(provided further, that all existing agreements for real estate acquisitions
shall be excluded from this provision); (b) make other investments in an amount
which shall not exceed $2,000,000 in a Captive Insurance Subsidiary; and (c)
make any other Permitted Investment, without the necessity of obtaining the
consent of the Majority Banks. If the Borrowers wish to obtain the consent of
the Majority Banks for any proposed deviation from the above, the Borrowers
shall furnish to the Administrative Agent, and the Administrative Agent shall
forward to the Banks: (i) a copy of all contracts to be entered into by the
Borrowers 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 Administrative Agent shall advise the Borrowers of the decision by
the Majority Banks within thirty (30) days after the receipt by the
Administrative Agent of all of the required items described above.
7.08 INVENTORY RESTRICTIONS.
(a) The Borrowers shall not acquire or obtain any interest in, or
contract to acquire or obtain any interest in, any Unentitled Land.
(b) The Borrowers shall not allow their inventory of Completed Unsold
Homes to exceed the applicable levels set forth in SCHEDULE 2 attached hereto.
(c) The Borrowers shall not allow its inventory of Unimproved Land to
exceed 35% of the GAAP consolidated net book value of "Real Estate Inventories"
in the consolidated financial statements of the Company and its Subsidiaries,
the balance of which is included in the Borrowing Base calculation, as of the
end of each month.
7.09 NEGATIVE PLEDGE. The Borrowers 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 their 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 Borrowers 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 Borrowers 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
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of their assets or property; (iv) mechanics' and materialmen's liens which have
attached pursuant to Chapter 507, Hawaii Revised Statutes, as long as the
Borrowers have 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". This negative pledge shall not apply to any portion of the
Borrowers' property or assets transferred, assigned or conveyed upon due
consideration to a "Third Party Purchaser". As used herein, the term "Third
Party Purchaser" shall mean any individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture or
governmental authority, other than the Borrowers or any of their Subsidiaries,
Waiakoa Estates Subdivision Joint Venture, Iao Partners, James K. Schuler,
Pamela S. Jones, Harvey L. Goth, Michael T. Jones, Peter M. Aiello, Douglas M.
Tonokawa, Mary K. Flood, David Oyler or Jim Henry.
7.10 NO HIGH-RISE CONSTRUCTION. None of the Borrowers shall engage in any
development of a residential or commercial building having more than four (4)
stories, other than Country Club Village.
7.11 CAPITALIZED INTEREST. The Borrowers shall not allow the Capitalized
Interest, measured as of the end of each Quarter, to exceed 8% of the value of
Real Estate Development Assets.
7.12 TRANSFER OF ASSETS TO CAPTIVE INSURANCE SUBSIDIARY. Except as may be
permitted in Section 7.07, the Borrowers shall not transfer any assets or
property to the Captive Insurance Subsidiary.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 EVENT OF DEFAULT. Any of the following shall constitute an "Event of
Default":
(a) NON-PAYMENT. The Borrowers fail 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
(b) REPRESENTATION OR WARRANTY. Any representation or warranty by
any Borrower made or deemed made herein or which is contained in any
certificate, document or financial or other statement by or on behalf of any
Borrower, 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. Any Borrower fails to perform or observe any
term, covenant or agreement contained in Section 7.01; or
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(d) OTHER DEFAULTS. Except as provided in subsection 8.01(l) below,
any Borrower 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 45 days after the earlier of (i) the date upon which a
Responsible Officer of any Borrower knew of such failure or (ii) the date upon
which written notice thereof is given to the Company, on behalf of the
Borrowers, by the Administrative Agent or any Bank; or
(e) CROSS-DEFAULT. Any Borrower or any Subsidiary of any Borrower
(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 Borrowers 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. Any Borrower (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, except, in connection
with a merger or acquisition of substantially all of the assets of such Borrower
by the Company or a Subsidiary of the Company; (iii) commences any Insolvency
Proceeding with respect to itself; or (iv) takes any action to effectuate or
authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against any Borrower, or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied against
a substantial part of any Borrower's properties, and any such proceeding or
petition shall not be dismissed,
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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) any Borrower 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) any Borrower 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 any
Borrower 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) Any Borrower 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 any Borrower involving in the
aggregate (existing at any one time for such Borrower) 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 any Borrower 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 any Borrower or any
Subsidiary of any Borrower, which revocation or failure to renew does or
would reasonably be expected to have a Material 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
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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. Any Borrower 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 any Borrower knew of
such failure or (ii) the date upon which written notice thereof is given to the
Company, on behalf of the Borrowers, by the Administrative 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, on behalf of the
Borrowers, shall provide the Administrative 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. (i) 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 (ii) 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; or (iii) Michael T.
Jones shall fail at any time to retain his position as executive vice 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,
resignation, dismissal for good cause, or disability of Michael T. Jones 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 executive
vice president of the Company, subject to the approval of the Majority Banks,
which approval shall not be unreasonably withheld; or (iv) David Oyler or Jim
Henry shall fail at any time to retain their positions as president or executive
vice president, respectively, of Melody Homes, Inc., or to remain active and
involved in the management of, and formation of policy for Melody Homes, Inc.;
PROVIDED, HOWEVER, that the death, resignation, dismissal for good cause, or
disability of David Oyler or Jim Henry shall not constitute an Event of Default
hereunder if the Board of Directors of Melody Homes, Inc. shall, within a
reasonable time thereafter appoint a successor to such person, 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
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of (i) the date upon which a Responsible Officer of any Borrower 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, on behalf of the
Borrowers, by the Administrative Agent or any Bank.
8.02 REMEDIES. If any Event of Default occurs, the Administrative 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
Administrative 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 Borrowers shall have
deposited with the Administrative 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 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 Borrowers;
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 Administrative 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 Borrowers shall
have deposited with the Administrative 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 Borrowers, and without further act of
the Administrative 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.
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ARTICLE IX
THE AGENTS
9.01 APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably appoints,
designates and authorizes each of the Agents 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, neither Agent shall have any duties or responsibilities, except those
expressly set forth herein, nor shall any 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 either Agent.
9.02 DELEGATION OF DUTIES. The Agents 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 Agents shall not be responsible to the
Banks for the negligence or misconduct of any agent or 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 THE AGENTS. 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 Borrowers, any
Subsidiary or Affiliate of the Borrowers, 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
Administrative 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 Borrowers 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
Borrowers, or any Subsidiary or any Affiliate of the Borrowers.
9.04 RELIANCE BY ADMINISTRATIVE AGENT.
(a) The Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit,
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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 Borrowers), independent
accountants and other experts selected by the Administrative Agent. The
Administrative 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
Administrative Agent's gross negligence or willful misconduct) by reason of
taking or continuing to take any such action. The Administrative 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 Administrative 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 Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Administrative Agent for the account of the Banks,
unless the Administrative Agent shall have received written notice from a Bank
or the Borrowers 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 Administrative Agent receives such a notice, the Administrative Agent
shall give notice thereof to the Banks. The Administrative 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 Administrative Agent shall have received any
such request, the Administrative 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 Administrative Agent hereafter taken, including any review of the
affairs of the Borrowers, and each of their Subsidiaries, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Bank. Each Bank represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent and based on
such documents and information as it has
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deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrowers, and each of the Subsidiaries of the
Borrowers, 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 Borrowers hereunder. Each Bank also represents that it
will, independently and without reliance upon the Administrative 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 Borrowers. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the
Administrative Agent (which shall be deemed to include documents delivered to
the Administrative Agent with sufficient copies for each Bank pursuant to
Sections 4.01, 6.01 and 6.02), the Administrative 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 Borrowers 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 Borrowers and
without limiting the obligation of the Borrowers 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 Administrative 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 misconduct. Without limiting the foregoing, but subject to the proviso
in the immediately preceding sentence, each Bank shall reimburse the
Administrative 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 Administrative 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 Administrative Agent is not reimbursed for such expenses by or
on behalf of the Borrowers. 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
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Administrative 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 Administrative
Agent of a change in circumstances which rendered the exemption from or
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reduction of, withholding tax ineffective, or for any other reason) such Bank
shall indemnify the Administrative Agent fully for all amounts paid, directly or
indirectly, by the Administrative Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Administrative 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 ADMINISTRATIVE 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 Borrowers,
and any and all Subsidiaries and Affiliates of the Borrowers as though First
Hawaiian Bank were not the Administrative 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 Administrative Agent, and the
terms "Bank" and "Banks" shall include First Hawaiian Bank in its individual
capacity.
9.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may, and at
the request of all of the other Banks shall, resign as Administrative Agent upon
30 days' notice to the Banks. If the Administrative Agent shall resign as
Administrative Agent under this Agreement, the Banks (other than the
Administrative Agent) holding 66% of the balance of the Aggregate Commitment
(i.e., the Aggregate Commitment less the Revolving Commitment held by the
Administrative Agent) shall, with the approval of the Borrowers, 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 Administrative
Agent, the Administrative Agent may appoint, after consulting with the Banks and
the Borrowers, 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 Administrative Agent and
the term "Administrative Agent" shall mean such successor agent and the retiring
Administrative Agent's appointment, powers and duties as Administrative Agent
shall be terminated. After any retiring Administrative Agent's resignation
hereunder as Administrative 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 Administrative Agent under this
Agreement. If no successor agent has accepted appointment as Administrative
Agent by the date which is 30 days following a retiring Administrative Agent's
notice of resignation, the retiring Administrative Agent's resignation shall
nevertheless thereupon become effective and the Banks shall perform all of the
duties of the Administrative Agent hereunder until such time, if any, as a
successor agent is appointed, as provided for above.
9.10 DOCUMENTATION AGENT. Bank of America NT&SA in its capacity as the
Documentation Agent shall not have any duties or responsibilities except those
that may be required from time to time by the Administrative Agent and accepted
in writing by
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Bank of America NT&SA.
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 Borrowers therefrom, shall be effective unless the same shall
be in writing and signed by the
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Majority Banks and the Borrowers and acknowledged by the Administrative 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 Borrowers and acknowledged by the Administrative 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 Administrative Agent in addition to the Majority Banks
or all the Banks, as the case may be, affect the rights or duties of the
Administrative Agent under this Agreement or any other Loan Document.
10.02 NOTICES
(a) The Borrowers agree that all notices, requests and other
communications between the Borrowers and the Administrative Agent or the Banks,
shall be made to or by the Company, on behalf of the Borrowers.
(b) 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, on behalf of the Borrowers, 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, on behalf of the Borrowers, hereunder shall be
signed on behalf of the Borrowers by a Responsible Officer of the Company, and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on the applicable signature page hereof; or, if directed to the
Borrowers or the Administrative Agent, to such other address as shall
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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 Borrowers and the Administrative 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 Borrowers acknowledge and agree that any agreement of the
Administrative 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
Borrowers. The Administrative Agent and the Banks shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by the
Borrowers to give such notice and the Administrative Agent and the Banks shall
not have any liability to the Borrowers or any other Person on account of any
action taken or not taken by the Administrative Agent or the Banks in reliance
upon such telephonic or facsimile notice. The obligation of the Borrowers to
repay the Advances shall not be affected in any way or to any extent by any
failure by the Administrative Agent and the Banks to receive written
confirmation of any telephonic or facsimile notice or the receipt by the
Administrative Agent and the Banks of a confirmation which is at variance with
the terms understood by the Administrative 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 Administrative 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 Borrowers 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 Administrative 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
Administrative 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 Administrative Agent within
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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 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
Administrative 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 Borrowers shall pay and indemnify and hold harmless
each Bank, the Administrative 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 Borrowers'
execution, delivery, enforcement or performance of this Agreement and any other
Loan Documents, or the Borrowers' use of the proceeds of the Advances, or
arising from the action or failure to act of any Borrower 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 Administrative
Agent nor the Banks shall be under any obligation to marshall any assets in
favor of the Borrowers or any other Person or against or in payment of any or
all of the Obligations. To the extent that the Borrowers make a payment or
payments to the Administrative Agent or the Banks, or the Administrative 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 Administrative 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 Borrowers may not assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of the Administrative Agent and each Bank, (ii) the
Administrative Agent may not assign or
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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 Administrative
Agent and the Borrowers (which consent shall not be unreasonably withheld), (c)
that each Bank may sell participating interests as provided in Section 10.08,
and (d) as provided in Section 2.09.
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10.08 ASSIGNMENTS, PARTICIPATIONS, ETC.
(a) Upon notice to the Administrative Agent and the Borrowers, any
Bank may, as long as no Event of Default has occurred or is occurring, sell to
one or more commercial banks or other Persons not Affiliates of the Borrowers (a
"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
Borrowers 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 Borrowers and the
Administrative 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 Borrowers 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 Borrowers and provided to it by the Borrowers or any
Subsidiaries of the Borrowers, or by the Administrative Agent on the Borrowers'
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
Administrative 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
Borrowers authorize
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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 Borrowers or their
Subsidiaries which has been delivered to the Administrative Agent or the Banks
pursuant to this Agreement or which has been delivered to the Administrative
Agent or the Banks by the Borrowers in connection with the Banks' credit
evaluation of the Borrowers prior to entering into this Agreement; PROVIDED
that, unless otherwise agreed by the Borrowers, 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 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
Borrowers to or for the account of the assigning or pledging Bank in accordance
with the terms of this Agreement shall satisfy the Borrowers' 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 Borrowers, any such
notice being waived by the Borrowers 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 Borrowers against
any and all Obligations owing to such Bank, now or hereafter existing,
irrespective of whether or not the Administrative 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 Borrowers and the Administrative 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 Borrowers 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 Administrative Agent
under the Loan Documents, the Borrowers hereby irrevocably authorize the
Administrative Agent to debit any deposit account of the Borrowers with the
Administrative 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 Administrative Agent's
<PAGE>
- --------------------------------------------------------------------------------
Page 79
- --------------------------------------------------------------------------------
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 Administrative 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
Administrative 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 Borrowers and the Administrative 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 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 Borrowers, the Banks and
the Administrative 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 Administrative 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 BORROWERS, THE
ADMINISTRATIVE 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 BORROWERS, THE ADMINISTRATIVE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE ADMINISTRATIVE AGENT,
AND THE BANKS IRREVOCABLY
<PAGE>
- --------------------------------------------------------------------------------
Page 80
- --------------------------------------------------------------------------------
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 BORROWERS, THE ADMINISTRATIVE
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 BORROWERS, THE BANKS AND THE
ADMINISTRATIVE 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 BORROWERS, THE BANKS AND THE
ADMINISTRATIVE 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 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 LIABILITY JOINT AND SEVERAL. The obligations of each Borrower
hereunder shall be joint and several.
10.19 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 Borrowers, the Banks and the
Administrative 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 Borrowers to
the Administrative Agent of such agency fee, and that the relationship between
the Administrative Agent and the Banks, and among the Banks themselves, shall
also be subject to the terms and provisions of the Inter-Bank Agreement.
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.
<PAGE>
- --------------------------------------------------------------------------------
Page 81
- --------------------------------------------------------------------------------
SCHULER HOMES, INC.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
<PAGE>
- --------------------------------------------------------------------------------
Page 82
- --------------------------------------------------------------------------------
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER HOMES OF OREGON, INC.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
MELODY HOMES, INC.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER REALTY/MAUI, INC.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER REALTY/OAHU, INC.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
<PAGE>
- --------------------------------------------------------------------------------
Page 83
- --------------------------------------------------------------------------------
LOKELANI CONSTRUCTION CORPORATION
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
MELODY MORTGAGE CO.
By /s/ Pamela S. Jones
---------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
FIRST HAWAIIAN BANK, as Administrative Agent
By /s/ Alvin Takahashi
---------------------------
Name: Alvin Takahashi
Title: Real Estate Loan Officer
ADDRESS FOR PAYMENTS:
--------------------
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
ADDRESS FOR NOTICES:
--------------------
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
BANK OF AMERICA NT&SA, as Documentation Agent
By /s/ Robert S. Dowling
---------------------------
Name: Robert S. Dowling
Title: Vice President
<PAGE>
- --------------------------------------------------------------------------------
Page 84
- --------------------------------------------------------------------------------
ADDRESS FOR NOTICES:
-------------------
FIRST HAWAIIAN BANK, as a Bank
By /s/ Alvin Takahashi
---------------------------
Name: Alvin Takahashi
Title: Real Estate Loan Officer
ADDRESS FOR NOTICES:
-------------------
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
DOMESTIC AND OFFSHORE LENDING OFFICE:
------------------------------------
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
<PAGE>
- --------------------------------------------------------------------------------
Page 85
- --------------------------------------------------------------------------------
BANK OF AMERICA NT&SA
By /s/ Robert Dowling
---------------------------
Name: Robert Dowling
Title: Vice President
ADDRESS FOR NOTICES:
-------------------
5 Park Plaza
Suite 500
Irvine, California 92614
DOMESTIC AND OFFSHORE LENDING OFFICE:
------------------------------------
ADDRESS FOR PAYMENTS:
--------------------
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Gregory A. Gilbert
---------------------------
Name: Gregory A. Gilbert
Title: Vice President
ADDRESS FOR NOTICES:
-------------------
One First National Plaza
Mail Suite 0151
Chicago, IL 60670-0151
Attn: Commercial Real Estate Department
DOMESTIC AND OFFSHORE LENDING OFFICE:
------------------------------------
One First National Plaza
Mail Suite 0151
Chicago, IL 60670-0151
ADDRESS FOR PAYMENTS:
--------------------
One First National Plaza
Mail Suite 0318
Chicago, IL 60670-0318
BANK OF BOSTON
<PAGE>
- --------------------------------------------------------------------------------
Page 86
- --------------------------------------------------------------------------------
By /s/ Nicholas Whiting
---------------------------
Name: Nicholas Whiting
Title: Vice President
ADDRESS FOR NOTICES:
-------------------
THE FIRST NATIONAL BANK OF BOSTON
115 Perimeter Center Place, N.E., Suite 500
Atlanta, GA 30346
DOMESTIC AND OFFSHORE LENDING OFFICE:
------------------------------------
ADDRESS FOR PAYMENTS:
--------------------
THE FIRST NATIONAL BANK OF BOSTON
Commercial Loan Services
100 Rustcraft Road
Dedham, MA 02026
BANK OF HAWAII
By /s/ Joyce Y. Sakai
---------------------------
Name: Joyce Y. Sakai
Title: Vice President
ADDRESS FOR NOTICES:
-------------------
DOMESTIC AND OFFSHORE LENDING OFFICE:
------------------------------------
ADDRESS FOR PAYMENTS:
--------------------
BANK ONE, ARIZONA, NA
By /s/ Teresa A. Schrader
---------------------------
Name: Teresa A. Schrader
Title: Assistant Relationship Manager
ADDRESS FOR NOTICES:
-------------------
Bank One, Arizona, N.A.
201 North Central Avenue
Phoenix, Arizona 85004
ATTN: Teri Schrader
AZ1-1321
DOMESTIC AND OFFSHORE LENDING OFFICE:
------------------------------------
ADDRESS FOR PAYMENTS:
--------------------
Bank One, Arizona, N.A.
201 North Central Avenue
Phoenix, Arizona 85004
ATTN: R.E. Loan Administration
AZ1-1328
<PAGE>
Page 1
AMENDED AND RESTATED PROMISSORY NOTE
SCHULER HOMES, INC., a Delaware corporation (the "Company"), previously
executed and delivered to FIRST HAWAIIAN BANK, a Hawaii corporation, as agent
for: BANK OF AMERICA NT&SA; NBD BANK; BANK OF BOSTON; BANK OF HAWAII and FIRST
HAWAIIAN BANK (collectively, the "Original Banks"), that certain Promissory Note
dated March 29, 1996, in the amount of $110,000,000.00 (the "Note"), evidencing
the "Aggregate Commitment", provided to the Company pursuant to that certain
Credit Agreement dated March 29, 1996 (the "Credit Agreement"), executed by and
between the Company, as borrower, and the Original Banks, as lenders. NBD Bank
has since assigned its interest in the Aggregate Commitment to The First
National Bank of Chicago, and Bank One, Arizona, NA has joined the Original
Banks as a lender, (which together with the remaining Original Banks are
referred to as the "Banks"). The Company and the Banks have agreed to amend the
Credit Agreement in order to, among other matters, (i) include SCHULER HOMES OF
CALIFORNIA, INC., a California corporation, SCHULER HOMES OF OREGON, INC., an
Oregon corporation, SCHULER HOMES OF WASHINGTON, INC., a Washington corporation,
MELODY HOMES, INC., a Delaware corporation, SCHULER REALTY/MAUI, INC., a Hawaii
corporation, SCHULER REALTY/OAHU, INC., a Hawaii corporation, LOKELANI
CONSTRUCTION CORPORATION, a Delaware corporation, and MELODY MORTGAGE CO., a
Colorado corporation, as co-borrowers (collectively referred to, with the
Company, as the "Borrowers"), (ii) increase the amount of the Aggregate
Commitment from $110,000,000.00 to $137,600,000.00, and (iii) extend the
"Termination Date" from July 1, 1998, to July 1, 1999, pursuant to that certain
Amended and Restated Credit Agreement executed concurrently herewith.
The Borrowers and the Banks wish to amend the Note, effective as of
March 27, 1997, to read in its entirety as follows:
Honolulu, Hawaii
$137,600,000.00 March 27, 1997
FOR VALUE RECEIVED, SCHULER HOMES, INC., a Delaware corporation, SCHULER
HOMES OF CALIFORNIA, INC., a California corporation, SCHULER HOMES OF OREGON,
INC., an Oregon corporation, SCHULER HOMES OF WASHINGTON, INC., a Washington
corporation, MELODY HOMES, INC., a Delaware corporation, SCHULER REALTY/MAUI,
INC., a Hawaii corporation, SCHULER REALTY/OAHU, INC., a Hawaii corporation,
LOKELANI CONSTRUCTION CORPORATION, a Delaware corporation, and MELODY MORTGAGE
CO., a Colorado corporation (collectively, the "Makers"), promise to pay to the
order of FIRST HAWAIIAN BANK, a Hawaii corporation (the "Agent"), as
administrative and co-syndication agent for: BANK OF AMERICA NT&SA; THE FIRST
NATIONAL BANK OF CHICAGO; BANK OF BOSTON; BANK OF HAWAII; BANK ONE, ARIZONA, NA
and FIRST HAWAIIAN BANK (collectively, the "Banks"), at the Agent's office at
999 Bishop Street, Honolulu, Hawaii, or at such other
<PAGE>
Page 2
place as the Agent may from time to time designate, the principal sum of ONE
HUNDRED THIRTY-SEVEN MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS
($137,600,000.00), or so much thereof as is from time to time advanced,
pursuant to the terms and conditions contained in that certain Amended and
Restated Credit Agreement dated March 27, 1997, and effective as of March
27, 1997 (the "Credit Agreement") executed by and among the Makers, the
Agent, Bank of America NT&SA, as documentation and co-syndication agent for
the Banks, 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, 1999, unless extended by the Banks pursuant to Section 2.09
of the Credit Agreement, or unless due sooner 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 Makers shall pay on demand, a late charge
equal to five percent (5%) of the amount overdue.
The Makers promise 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 Makers, 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.
The obligations of the Makers hereunder shall be joint and several.
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 Makers have caused this Note to be duly executed.
SCHULER HOMES, INC.
<PAGE>
Page 3
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER HOMES OF OREGON, INC.
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
MELODY HOMES, INC.
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER REALTY/MAUI, INC.
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
SCHULER REALTY/OAHU, INC.
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
LOKELANI CONSTRUCTION CORPORATION
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
MELODY MORTGAGE, CO.
By /s/ Pamela S. Jones
------------------------------------------
Name: Pamela Jones
Title: Senior Vice President
Chief Financial Officer
ACCEPTED:
FIRST HAWAIIAN BANK, as Agent
By /s/ Alvin Takahashi
-------------------------------
Name: Alvin Takahashi
Title: REAL ESTATE LOAN OFFICES
<PAGE>
Page 1
LAND COURT SYSTEM REGULAR SYSTEM
- -------------------------------------------------------------------------------
AFTER RECORDATION, RETURN BY MAIL ( ) PICK UP ( )
FIRST HAWAIIAN BANK
999 Bishop Street, 11th Floor
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Dept.
- -------------------------------------------------------------------------------
Tax Map Key: See Exhibit "A" attached hereto
0140667.01
AMENDMENT TO
NEGATIVE PLEDGE AGREEMENT
-------------------------
THIS AMENDMENT TO NEGATIVE PLEDGE AGREEMENT is made this 27th day of
March, 1997, by and between SCHULER HOMES, INC., a Delaware corporation
(hereinafter called the "Company"), and FIRST HAWAIIAN BANK, a Hawaii
corporation, whose address is 999 Bishop Street, Honolulu, Hawaii 96813
(hereinafter called the "Agent"), as administrative and co-syndication agent
for Bank of America NT&SA, The First National Bank of Chicago, Bank of
Boston, Bank of Hawaii, Bank One, Arizona, NA and First Hawaiian Bank,
W I T N E S S E T H:
--------------------
WHEREAS, the Company executed that certain Negative Pledge Agreement dated
March 29, 1996, in favor of the Agent, recorded in the Bureau of Conveyances of
the State of Hawaii as Document No. 96-056281 and filed in the Office of the
Assistant Registrar of the Land Court of the State of Hawaii as Land Court
Document No.
<PAGE>
Page 2
2303947 (the "Negative Pledge"), to induce the Agent, as agent for Bank of
America NT&SA, NBD Bank, Bank of Boston, Bank of Hawaii and First Hawaiian Bank
(collectively, the "Original Banks") to make a loan (the "Loan") to the Company
in the principal amount of $110,000,000.00, pursuant to that certain Credit
Agreement dated March 29, 1996 (the "Credit Agreement"), executed by and
between the Company, as borrower, and the "Original Banks", as lenders; and
WHEREAS, NBD Bank has assigned its interest in the Loan to The First
National Bank of Chicago, and Bank One, Arizona, NA has joined the Original
Banks as a lender (Bank of America NT&SA, The First National Bank of Chicago,
Bank of Boston, Bank of Hawaii, Bank One, Arizona, NA and First Hawaiian Bank
being hereinafter collectively referred to as the "Banks"); and
WHEREAS, the Company has requested, and the Banks have agreed, that the
Loan be amended and extended pursuant to that certain Amended and Restated
Credit Agreement (the "Amendment") executed concurrently herewith by and
between the Company and the Banks,
WHEREAS, the parties hereto wish to amend the Negative Pledge pursuant to
the Amendment and the mutual agreements stated herein;
NOW, THEREFORE, effective March 27, 1997, the parties do hereby agree
that the Negative Pledge shall be amended, pursuant to the Amendment as follows:
1. As used in the Negative Pledge, the term "Banks" is hereby amended and
shall be Bank of America NT&SA, The First National Bank of Chicago, Bank of
Boston, Bank of Hawaii, Bank One, Arizona, NA and First Hawaiian Bank.
2. The amount of the loan made by the Banks to the Company is amended
from $110,000,000.00 to $137,600,000.00.
3. Schuler Homes of California, Inc., a California corporation, Schuler
Homes of Oregon, Inc., an Oregon corporation, Schuler Homes of Washington,
Inc., a Washington corporation, Melody Homes, Inc., a Delaware corporation,
Schuler Realty/Maui, Inc., a Hawaii corporation, Schuler Realty/Oahu, Inc., a
Hawaii corporation, Lokelani Construction Corporation, a Delaware corporation,
and Melody Mortgage Co., a Colorado corporation, have become co-borrowers with
the Company on the Loan.
4. The Company ratifies and confirms that the Negative Pledge, as
amended, shall continue in full force and effect to secure the Loan, as amended.
5. The Company represents and warrants that (i) the Company remains the
owner of all or a portion of the property more particularly described in
Exhibit "A" attached hereto and to the Negative Pledge; (ii) the Company has
not made or permitted any lien or encumbrance on or to the property subject to
the Negative Pledge; and (iii) there has been no violation of any federal,
state or other law, nor has there been any other act or omission, which
subjects or may subject the property subject to
<PAGE>
Page 3
the Negative Pledge to forfeiture or seizure.
6. The Company further represents and affirms that the Company does not
possess any offsets or defenses to the enforcement of the Negative Pledge, as
hereby amended, the Company's Note, as amended, or any of the Loan Documents
evidencing or securing the Loan, and the Company hereby waives and releases any
and all defenses and agrees not to assert any offset or defense arising out of
events or occurrences prior to the execution date of this Amendment.
7. Except as amended hereby, all of the terms and provisions of the
Negative Pledge remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents on the
day and year first above written.
SCHULER HOMES, INC.,
a Delaware corporation
By /s/ Pamela S. Jones
_____________________________________
Its Senior Vice President
Chief Financial Officer
"Company"
FIRST HAWAIIAN BANK,
a Hawaii corporation
By /s/ Alvin Takahashi
_____________________________________
Its Real Estate Loan Officer
"Agent"
<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, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,394,000
<SECURITIES> 0
<RECEIVABLES> 1,392,000
<ALLOWANCES> 0
<INVENTORY> 280,065,000
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 326,455,000
<CURRENT-LIABILITIES> 0
<BONDS> 57,500,000
0
0
<COMMON> 209,000
<OTHER-SE> 93,096,000
<TOTAL-LIABILITY-AND-EQUITY> 326,455,000
<SALES> 49,995,000
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 47,847,000
<OTHER-EXPENSES> 899,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,256,000
<INCOME-TAX> 479,000
<INCOME-CONTINUING> 777,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 777,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
