<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 September 30, 1998
[ ] 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.
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock October 31, 1998
--------------------- ----------------
<S> <C>
$.01 par value 20,118,465
</TABLE>
- ------------------------------------------------------------------------------
<PAGE>
SCHULER HOMES, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements
Independent Accountants' Review Report . . . . . . . . . . . . . 3
Consolidated Balance Sheets - September 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Income - Three and nine months
ended September 30, 1998 and 1997 . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1998 and 1997 . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 10
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
Schuler Homes, Inc.
We have reviewed the accompanying interim consolidated balance sheet of Schuler
Homes, Inc. as of September 30, 1998, and the related consolidated statements of
income for the three-month and nine-month periods ended September 30, 1998 and
1997, and the consolidated statements of cash flows for the nine-month periods
ended September 30, 1998 and 1997. 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, 1997, 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 5, 1998, 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, 1997, 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
November 9, 1998
3
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents (restricted-Note 2). . . . . . . . . . . . . $ 5,011,000 $ 3,842,000
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,267,000 880,000
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 1,434,000 1,682,000
Real estate inventories (Note 3) . . . . . . . . . . . . . . . . . . . 318,269,000 291,081,000
Investments in and advances to unconsolidated joint ventures . . . . . 20,129,000 16,026,000
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,265,000 1,691,000
Deferred offering costs, net (Note 9). . . . . . . . . . . . . . . . . 2,062,000 1,171,000
Notes receivable (Note 2). . . . . . . . . . . . . . . . . . . . . . . 2,175,000 2,406,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 4,085,000 4,002,000
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,200,000 13,742,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,059,000 4,048,000
-------------- -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 373,956,000 $ 340,571,000
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS= EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,744,000 $ 12,805,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,448,000 13,207,000
Notes payable to bank (Note 4) . . . . . . . . . . . . . . . . . . . . 10,993,000 91,077,000
Notes payable to others. . . . . . . . . . . . . . . . . . . . . . . . 3,907,000 2,627,000
6-1/2% convertible subordinated debentures due 2003. . . . . . . . . . 57,500,000 57,500,000
9% senior notes due 2008 (Note 9). . . . . . . . . . . . . . . . . . . 98,472,000 --
-------------- -------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 202,064,000 177,216,000
Commitments and contingencies (Notes 4 and 8)
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized;
20,892,465 and 20,874,927 shares issued at September 30, 1998 and
December 31, 1997, respectively. . . . . . . . . . . . . . . . . . 209,000 209,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 93,201,000 93,100,000
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 83,482,000 75,046,000
Treasury stock, at cost; 774,000 shares at September 30, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . (5,000,000) (5,000,000)
-------------- -------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 171,892,000 163,355,000
-------------- -------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $ 373,956,000 $ 340,571,000
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes.
4
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Residential real estate sales. . . . . . . . $ 79,186,000 $ 61,057,000 $ 202,131,000 $ 163,509,000
Costs and expenses:
Residential real estate sales. . . . . . . 63,206,000 48,683,000 161,064,000 132,168,000
Selling and commissions. . . . . . . . . . 5,180,000 4,731,000 13,772,000 12,497,000
General and administrative . . . . . . . . 4,165,000 3,898,000 11,685,000 10,197,000
-------------- -------------- -------------- -------------
Total costs and expenses . . . . . . . . 72,551,000 57,312,000 186,521,000 154,862,000
Income from unconsolidated joint ventures. . 750,000 176,000 1,546,000 192,000
-------------- ------------- ------------- --------------
Operating income . . . . . . . . . . . . . 7,385,000 3,921,000 17,156,000 8,839,000
Other income (expense) (Note 4). . . . . . . (1,618,000) (1,088,000) (3,492,000) (2,885,000)
-------------- ------------- ------------- --------------
Income before provision for income taxes . 5,767,000 2,833,000 13,664,000 5,954,000
Provision for income taxes (Note 6). . . . . 2,184,000 1,075,000 5,228,000 2,260,000
-------------- ------------- ------------- --------------
Net income . . . . . . . . . . . . . . . . $ 3,583,000 $ 1,758,000 $8,436,000 $ 3,694,000
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
Net income per share (Note 7):
Basic and diluted . . . . . . . . . . . . $0.18 $0.09 $0.42 $0.18
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
</TABLE>
See accompanying notes.
5
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1997
--------------- -----------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,436,000 $ 3,694,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization expense. . . . . . . . . . . . . . . . . . . . . 2,387,000 1,998,000
Increase in allowance for doubtful accounts. . . . . . . . . . . . . . . . . . 96,000 --
(Income) loss from unconsolidated joint ventures . . . . . . . . . . . . . . . (1,463,000) (26,000)
Principal payments of notes receivable . . . . . . . . . . . . . . . . . . . . 150,000 1,591,000
Changes in assets and liabilities, net of effects from purchase of Melody
Homes and Mortgage:
(Increase) decrease in receivables . . . . . . . . . . . . . . . . . . . . . (387,000) 635,000
(Increase) decrease in prepaid income taxes. . . . . . . . . . . . . . . . . 248,000 (201,000)
(Increase) decrease in real estate inventories . . . . . . . . . . . . . . . (27,198,000) (18,183,000)
(Increase) decrease in deposits. . . . . . . . . . . . . . . . . . . . . . . (574,000) 283,000
(Increase) decrease in other assets. . . . . . . . . . . . . . . . . . . . . (252,000) (1,502,000)
Increase (decrease) in accounts payable. . . . . . . . . . . . . . . . . . . 1,939,000 4,380,000
Increase (decrease) in accrued expenses. . . . . . . . . . . . . . . . . . . 3,092,000 1,079,000
Change in deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . (83,000) 2,954,000
------------ ------------
Net cash provided by (used in) operating activities . . . . . . . . . . . (13,609,000) (3,298,000)
INVESTING ACTIVITIES:
Payment for purchase of Melody Homes and Mortgage, net of cash acquired. . . . . -- (29,508,000)
Investment in unconsolidated joint ventures. . . . . . . . . . . . . . . . . . . (1,000,000) (3,172,000
Advances to unconsolidated joint ventures. . . . . . . . . . . . . . . . . . . . (5,359,000) (180,000)
Repayments of advances to unconsolidated joint ventures. . . . . . . . . . . . . 262,000 98,000
Capital distributions from unconsolidated joint ventures . . . . . . . . . . . . 3,457,000 --
Purchase of furniture, fixtures, and equipment . . . . . . . . . . . . . . . . . (181,000) (597,000)
------------ ------------
Net cash provided by (used in) investing activities. . . . . . . . . . . . (2,821,000) (33,359,000)
FINANCING ACTIVITIES:
Proceeds from bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 224,478,000 159,481,000
Principal payments on bank borrowings. . . . . . . . . . . . . . . . . . . . . . (304,562,000) (124,068,000)
Net (increase) decrease in deferred offering costs . . . . . . . . . . . . . . . (891,000) 171,000
Proceeds from issuance of senior notes, net of discount. . . . . . . . . . . . . 98,408,000 --
Net decrease in discount on issuance of senior notes . . . . . . . . . . . . . . 65,000 --
Proceeds from issuance of common stock from exercise of stock options. . . . . . 101,000 --
------------ ------------
Net cash provided by (used in) financing activities. . . . . . . . . . . . 17,599,000 35,584,000
------------ ------------
Increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,169,000 (1,073,000)
Cash and cash equivalents (restricted) at beginning of period. . . . . . . . . . 3,842,000 1,619,000
------------ ------------
Cash and cash equivalents (restricted) at end of period. . . . . . . . . . . . . $ 5,011,000 $ 546,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
6
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. General
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
These financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements for the year ended December 31, 1997
contained in the Company's 1997 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.
Certain amounts in the accompanying unaudited consolidated financial
statements have been reclassified to conform to the 1998 presentation.
In July 1998, SHLR of Colorado, Inc. (a wholly-owned subsidiary of the
Company) was formed to invest in The Ranch-Southpointe II LLC for the
development and sale of a residential townhouse project in Lafayette,
Colorado.
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
homebuyers 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. The collection reserve relating to the sale of certain second
mortgage notes in 1997 results in a restriction on the Company's cash in
the amount of approximately $506,000.
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
7
<PAGE>
of building materials and labor, introduction of building code
modifications, and economic and real estate market conditions in general.
Accordingly, there exists at any date, a reasonable possibility that
changes in estimates will occur in subsequent periods.
Real estate inventories at September 30, 1998 consist of the following:
<TABLE>
<S> <C>
Unimproved land held for future development.................. $ 35,757,000
Development projects in progress............................. 247,278,000
Completed inventory (including lots held for sale)........... 35,234,000
------------
$318,269,000
------------
------------
</TABLE>
Completed inventory includes residential units which are substantially
ready for occupancy.
4. Notes Payable to Bank
At September 30, 1998, $79,007,000 of the Company's line of credit was
unused, of which $5,263,000 was restricted as to withdrawal for outstanding
but unused letters of credit.
In April 1998, the Company amended certain provisions of its Revolving
Credit Facility to provide for the issuance of the Senior Notes (see Note
9). Effective September 30, 1998, the Company reduced the amount of its
Revolving Credit Facility from $97,600,000 to $90,000,000. The Company has
a one-time option to increase the amount of the facility to $120,000,000.
In addition, the Company has a one-time option to reduce the amount of the
facility by $30,000,000 on an irrevocable basis, provided the facility has
been increased to $120,000,000 for at least six months. The facility
expires on July 1, 2001 and includes an option for the lenders to extend
the term for an additional year as of July 1 of each 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 September 30, 1998, the Company's outstanding
borrowings were at interest rates of LIBOR plus 1.75% (7.44% to 7.50%) and
prime plus 0% (8.25%). Effective October 1, 1998, the interest rates on the
Company's LIBOR borrowings decreased to LIBOR plus 1.5% (7.25%). The
interest rate on such LIBOR borrowings will not decrease below 7.25%, which
is 1.5% above the fixed interest rate of 5.75% under an interest-rate swap
agreement ($30,000,000 notional amount). 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, notes payable
to others, senior notes and the convertible subordinated debentures) of
approximately $2,319,000 during the quarter ended September 30, 1998.
Interest incurred during the quarter ended September 30, 1998 totaled
$3,686,000, of which approximately $2,599,000 was capitalized to real
estate inventories and approximately $1,087,000 was expensed and not
capitalized, as such interest related to assets which did not meet the
requirements for capitalization. The difference between the amount of
interest paid and the amount incurred is comprised of accrued interest
payable. Interest, previously capitalized to real estate inventories,
expensed as a component of cost of residential real estate sales during the
quarters ended September 30, 1998 and 1997 totaled $2,689,000 and
$1,558,000, respectively.
5. Related Party Transactions
From time to time, the Company engages the law firms in which directors of
the Company are partners. During the quarterly period ended September 30,
1998 and 1997, legal fees of approximately $74,000 and $3,000,
respectively, to such firms were incurred by the Company.
6. Income Taxes
During the three months ended September 30, 1998, the Company made income
tax payments of $2,561,000.
8
<PAGE>
7. Net Income Per Share
Basic net income per share for the quarter and nine months ended September
30, 1998 were computed using the weighted average number of common shares
outstanding during the periods of 20,113,323 and 20,106,346, respectively.
Basic net income per share for the quarter and nine months ended September
30, 1997 were computed using the weighted average number of common shares
outstanding during the periods of 20,100,177.
The computation of diluted net income per share for the quarters and nine
month periods ended September 30, 1998 and 1997 resulted in amounts greater
than the basic net income per share. Accordingly, the basic net income per
share is also presented as the diluted net income per share.
8. Commitments and Contingencies
In April 1996, the Company was served with a purported class action
complaint by owners of units and the Association of Owners of Fairway
Village at Waikele alleging, among other things, material construction
defects and deficiencies, misrepresentations regarding the cost of
insurance and breach of a covenant of good faith and fair dealing. In
connection with the Courts' denial of a class certification request, a
second action involving other homeowners at Fairway Village advancing the
same claims was initiated. The complaints do not specify an amount of
damages, but include a claim for punitive damages. It is likely both
actions will be consolidated for trial. Although this litigation is at an
early stage of discovery, based on its current understanding of the
lawsuits, the Company believes the claims to be largely without merit and
that potential third party defendants and insurance coverage exist to
offset a material portion of any damages from the alleged claims and the
litigation continues to be vigorously defended. A court date has been set
for April 1999 for the initial suit but will be reset for a later date if
the actions are consolidated. If these lawsuits were decided adversely to
the Company in all material respects, they collectively could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also 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.
9. Senior Notes
On May 6, 1998, the Company consummated its offering of $100,000,000
aggregate principal amount of 9% Senior Notes, which are due April 15,
2008. The Company received net proceeds from the offering of approximately
$97,200,000 (net of discounts and offering costs of approximately
$2,800,000). The Company used such proceeds to repay a portion of the
Company's borrowings under its line of credit. The offering costs will be
amortized over the term of the notes using the interest method. The
Company offered to exchange its Senior Notes for new notes evidencing the
same debt as the Senior Notes, which were registered pursuant to a Form S-4
Registration Statement filed with the U.S. Securities and Exchange
Commission on July 6, 1998. Pursuant to such exchange offer, all of the
Senior Notes were exchanged for new notes.
10. Stockholders' Equity
On July 31, 1998, the Company filed a Form S-8 Registration Statement with
U.S. Securities and Exchange Commission to register 500,000 shares of the
Company's common stock for issuance under the Company's Employee Stock
Purchase Plan.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those risks discussed herein,
and other risks detailed in the Company's Annual Report on Form 10-K and other
documents filed by the Company with the Securities and Exchange Commission from
time to time.
OVERVIEW
Schuler Homes, Inc. designs, constructs, markets and sells single-family
residences, townhomes and condominiums primarily to entry-level and first-time
move-up buyers. The Company operates in five geographic markets: Colorado,
Hawaii, Northern California, Oregon and Washington.
For the quarter ended September 30, 1998, sales of residential real estate
(revenue) were $79.2 million and operating income was $7.4 million, compared to
revenues of $61.1 million and operating income of $3.9 million during the third
quarter of 1997. Net income was $3.6 million ($0.18 per share) for the quarter
ended September 30, 1998, compared to net income of $1.8 million ($0.09 per
share) during the 1997 third quarter. From the third quarter of 1997 to the
third quarter of 1998, revenues grew 29.7%, net income grew 103.8%, the number
of units closed increased from 423 to 510 and operating profit margins improved
from 6.4% to 9.3%.
On May 6, 1998, the Company consummated its offering of $100 million
aggregate principal amount of 9% Senior Notes due 2008. The Company received
net proceeds from the offering of approximately $97.2 million (net of discounts
and estimated offering costs of approximately $2.8 million). The Company used
such net proceeds to repay a portion of the Company's borrowings under its line
of credit. The offering costs will be amortized over the term of the notes
using the interest method. In April 1998, the Company amended certain portions
of its Revolving Credit Facility to provide for the issuance of the Senior
Notes.
Subsequent to September 30, 1998, the Company acquired certain assets of
Keys Homes, Inc. (Keys), a Portland, Oregon homebuilder. Keys is engaged in the
construction and sale of single-family, duplex and cottage homes targeted for
the entry-level market. During the twelve months ended September 30, 1998, Keys
closed the sales of 193 homes generating revenues of approximately $23.8
million.
In July 1998, SHLR of Colorado, Inc. (a wholly-owned subsidiary of the
Company) was formed to invest in The Ranch-Southpointe II LLC for the
development and sale of a residential townhouse project in Lafayette, Colorado.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of the
Company's revenues represented by each income statement line item presented.
<TABLE>
<CAPTION>
Three months ended % change in dollar amounts
September 30, from
1998 1997 1997 to 1998
---- ---- --------------------------
<S> <C> <C> <C>
Residential real estate sales.................. 100.0% 100.0% 29.7%
Costs and expenses:
Residential real estate sales.............. 79.8 79.7 29.8
Selling and commissions.................... 6.5 7.7 9.5
General and administrative................. 5.3 6.5 6.8
---- ----
Total costs and expenses......... 91.6 93.9 26.6
Income from unconsolidated joint ventures...... 0.9 0.3 326.1
---- ----
Operating income........................... 9.3 6.4 88.3
Other income (expense)......................... (2.0) (1.8) 48.7
---- ----
Income before provision for income taxes... 7.3 4.6 103.6
Provision for income taxes..................... 2.8 1.7 103.2
---- ----
Net income............................... 4.5% 2.9% 103.8
---- ----
---- ----
</TABLE>
<TABLE>
<CAPTION>
Nine months ended % change in dollar amounts
September 30, from
1998 1997 1997 to 1998
---- ---- --------------------------
<S> <C> <C> <C>
Residential real estate sales.................. 100.0% 100.0% 23.6%
Costs and expenses:
Residential real estate sales.............. 79.7 80.8 21.9
Selling and commissions.................... 6.8 7.7 10.2
General and administrative................. 5.8 6.2 14.6
----- ----
Total costs and expenses......... 92.3 94.7 20.4
Income from unconsolidated joint ventures...... 0.8 0.1 705.2
----- ----
Operating income........................... 8.5 5.4 94.1
Other income (expense)......................... (1.7) (1.8) 21.0
---- ----
Income before provision for income taxes... 6.8 3.6 129.5
Provision for income taxes..................... 2.6 1.4 131.3
---- ----
Net income................................. 4.2% 2.2% 128.4
---- ----
---- ----
</TABLE>
11
<PAGE>
RESIDENTIAL REAL ESTATE SALES
The Company's sales of residential real estate (revenues) for the quarter ended
September 30, 1998 were approximately $79.2 million as compared to approximately
$61.1 million during the quarter ended September 30, 1997. This represents an
increase of approximately $18.1 million or 29.7 %. The increase in revenues
reflects a larger number of unit sales closed in the third quarter of 1998
relative to the third quarter of 1997, coupled with an increase in average sales
prices of homes closed. The Company's average sales price per unit closed in
the "consolidated" projects (see table below) increased 11.4% to $185,000 during
the third quarter of 1998, from an average sales price per unit closed of
$166,000 during the third quarter of 1997. The average sales prices of homes
closed increased in the Company's mainland United States divisions as a result
of the strength of the housing markets during the third quarter of 1998 in those
areas, while Hawaii's new home market remained soft. The increase in the
average sales price of homes closed in the Hawaii division was due primarily to
a difference in product mix between the periods.
The Company's sales of residential real estate (revenues) were approximately
$202.1 million for the nine months ended September 30, 1998, compared to $163.5
million during the same period in 1997, an increase of 23.6%. The increase is
attributable to the increase in the number and average sales price of unit
sales closed during the first nine months of 1998 compared to the first nine
months of 1997. The average sales price per unit closed was $180,000 during the
nine months ended September 30, 1998, compared to $178,000 during the nine
months ended September 30, 1997.
The following table sets forth the number of sales closed during the quarters
ended September 30, 1998 and 1997, which includes closings of homes and lots
sold pursuant to the Company's "zero-down" sales program and 100% of the sales
closed at projects developed by the Company's joint ventures in Hawaii and
Washington.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consolidated:
Colorado 303 288 788 703
Hawaii (1) 82 80 235 232
Northern California 24 3 59 3
Oregon 20 -- 44 --
---- ---- ----- ----
Total Consolidated 429 371 1,126 938
Unconsolidated Joint Ventures:
Hawaii (2) 7 13 17 23
Washington (3) 74 39 190 39
---- ---- ----- -----
Total 510 423 1,333 1,000
---- ---- ----- -----
---- ---- ----- -----
</TABLE>
(1) Includes homes and lots sold and closed pursuant to the Company's
"zero-down" sales program in Hawaii. The revenues associated with one
"zero-down" closing (during the first quarter of 1998) was deferred
during the nine months ended September 30, 1998 until the related note
receivable is paid in full. There were 3 and 19 "zero-down" closings
in the three and nine months ended September 30, 1997, respectively.
(2) Reflects 100% of the information with respect to the Company's two 50%
owned joint ventures in Hawaii, Iao Partners and Waiakoa Estates
Subdivision Joint Venture.
(3) Reflects 100% of the information with respect to Stafford Homes, in which
the Company acquired a 49% interest in July, 1997.
12
<PAGE>
COSTS AND EXPENSES - RESIDENTIAL REAL ESTATE SALES
Cost of residential real estate sales represents the acquisition and
development costs of a project attributable to the homes closed. 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 from approximately $48.7
million during the quarter ended September 30, 1997 to approximately $63.2
million during the same period in 1998, representing an increase of
approximately $14.5 million or 29.8%. This increase reflects a higher level of
unit and dollar sales closed during the third quarter of 1998 relative to the
third quarter of 1997. As a percentage of revenues, cost of residential real
estate sold was 79.8% and 79.7% for the quarters ended September 30, 1998 and
1997, respectively.
The cost of residential real estate sold increased to approximately $161.1
million during the nine months ended September 30, 1998 from approximately
$132.2 million during the same period in 1997, representing an increase of
approximately $28.9 million or 21.9%, primarily reflecting the larger volume of
home sales closed in 1998 as compared to 1997.
The cost of residential real estate sold as a percentage of sales decreased
to 79.7% for the nine months ended September 30, 1998 from 80.8% for the nine
months ended September 30, 1997. The decrease in the cost of residential real
estate sold as a percentage of sales reflects higher margins realized by the
Colorado division primarily due to an increase in average sales prices and
higher margins in the Company's Hawaiian operation primarily as a result of the
impact in 1997 of the recognition of costs related to the sale of second
mortgages associated with zero-down sales deferred in 1996.
Total interest incurred during the quarters ended September 30, 1998 and
1997 was approximately $3.7 million and $3.1 million, respectively. Of the
amounts incurred, approximately $1.1 million and $855,000 was expensed currently
(included in Other Expense) in the third quarters of 1998 and 1997,
respectively, and the remaining interest incurred was 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. The amount of previously capitalized interest, which
was expensed through cost of residential real estate sales, totaled $2.7 million
and $1.6 million during the quarters ended September 30, 1998 and 1997,
respectively.
Average debt outstanding was approximately $180.2 million and $167.5
million during the third quarters of 1998 and 1997, respectively. The Company's
average interest rate on its debt for the quarters ended September 30, 1998 and
1997 was approximately 8.0% and 7.3%, respectively. The increase from 7.3% to
8.0% is due primarily to the issuance of the Senior Notes at a 9% interest rate
in May, 1998. The Company's notes payable to banks 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
Selling costs and commissions represented approximately 6.5% and 7.7% of
sales of residential real estate during the quarters ended September 30, 1998
and 1997, respectively. Selling costs and commissions represented approximately
6.8% and 7.7% of sales of residential real estate during the nine months ended
September 30, 1998 and 1997, respectively. These decreases are a result of the
selling costs and commissions increasing at a lower rate than revenues.
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 $267,000 during the third
quarter of 1998 as compared to the same period in 1997 primarily due to
expansion at the Company's U. S. mainland divisions. As a percentage of sales,
13
<PAGE>
general and administrative expense decreased from 6.5% during the quarter
ended September 30, 1997 to 5.3% during the quarter ended September 30, 1998,
which is a result of general and administrative expenses increasing at a
lower rate than revenues.
General and administrative expenses increased by $1.5 million or 14.6%
during the first nine months of 1998 as compared to the same period in 1997. As
a percentage of sales, general and administrative expense was 5.8% and 6.2%
during the first nine months of 1998 and 1997, respectively, which is a result
of general and administrative expenses increasing at a lower rate than revenues.
INCOME FROM UNCONSOLIDATED JOINT VENTURES
Income from unconsolidated joint ventures represents the Company's 49%
interest in the operations of Stafford and its 50% interest in the operations
of two joint ventures in Hawaii. The increase in this income from the three and
nine months ended September 30, 1997 to the same period in 1998 is primarily the
result of the growth in income from the Company's 49% interest in Stafford
Homes.
OTHER INCOME (EXPENSE)
Other income (expense) represents (i) interest incurred less interest
capitalized to inventory (interest expense), (ii) amortization of financing
fees, net of amounts capitalized to inventory, and (iii) amortization of
goodwill and a covenant-not-to-compete related to the Melody Homes acquisition;
less interest income. The increase from the three and nine months ended
September 30, 1997 to the comparable periods in 1998 is primarily the result of
an increase in the amount of interest and financing fees expensed during the
third quarter of 1998 compared to the third quarter of 1997.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate for the third quarters of 1998 and
1997 was approximately 37.9%.
VARIABILITY OF RESULTS
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income. 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, and from fiscal quarter to
fiscal quarter.
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.
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
14
<PAGE>
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.
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 September 30, 1998 and 1997, which includes homes and
lots sold pursuant to the Company's "zero-down" sales program and 100% of
the backlog related to projects developed by the Company's joint ventures
in Hawaii and Washington.
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------ ------------------
Aggregate Aggregate
Number Sales Value Number Sales Value
------ ----------- ------- ------------
<S> <C> <C> <C> <C>
Consolidated:
Colorado 414 $ 69,841,000 344 $ 51,225,000
Hawaii 58 16,771,000 90 25,559,000
Northern California 28 4,619,000 16 2,180,000
Oregon 46 8,836,000 14 2,618,000
--- ------------ --- -------------
Total Consolidated 546 100,067,000 464 81,582,000
Unconsolidated Joint Ventures:
Hawaii 3 355,000 6 762,000
Washington 59 15,753,000 47 10,373,000
--- ------------ --- -------------
Total 608 $116,175,000 517 $ 92,717,000
--- ------------ --- -------------
--- ------------ --- -------------
</TABLE>
The average sales prices of the homes and lots comprising backlog for
consolidated projects at September 30, 1998 and 1997 were $183,000 and
$176,000, respectively. Due to the ability of buyers to cancel their sales
contracts, no assurances can be given that homes or residential lots in
backlog will result in actual closings.
YEAR 2000 COMPLIANCE
The Company has developed and is currently executing a plan designed to
make its computer systems Year 2000 compliant. The plan covers four stages
including (i) inventory, (ii) assessment, (iii) remediation, and (iv)
testing. The Company has substantially completed the inventory and
assessment stages for its systems and applications. The remediation
processes, which consist primarily of the replacement of computer software,
are currently underway. The remediation process is targeted to be largely
completed by December 31, 1998. Testing of these systems and applications are
targeted for completion by mid-1999.
The Company currently estimates that approximately $75,000 will be incurred
to address Year 2000 issues. As of September 30, 1998, approximately $50,000
has been incurred and expensed. The Company anticipates that its Year 2000
costs will be funded from operations, and does not expect to defer any other
information technology projects as a result of its Year 2000 efforts. The
Company does not anticipate the Year 2000 issue will have material adverse
15
<PAGE>
effects on the business operations or financial performance of the Company.
However, the failure of any internal system to achieve Year 2000 readiness could
result in material disruption to the Company's operations.
The Company has also initiated discussions with parties with whom it does
business to ensure that those parties have appropriate plans to remediate Year
2000 issues where their systems impact the Company's operations. The Company is
assessing the extent to which its operations are vulnerable should these
organizations fail to properly remediate the computer systems. Although the
Company believes that alternative sources of labor and materials will be
available, there can be no assurance that the inability of the Company's key
subcontractors and suppliers to attain Year 2000 compliance will not have a
material adverse effect on the business operations and financial performance of
the Company. Even where assurances are received from third parties there
remains a risk that failure of systems and products of other companies on which
the Company relies could have a material adverse effect on the Company.
In addition, the Company is materially reliant on third parties with
respect to its ability to collect sales proceeds and pay its vendors and
employees. Such third parties include governmental agencies in various
jurisdictions that record the conveyance of property, title and escrow
companies, banks and payroll processing firms. The Company intends to create a
contingency plan once responses from such third parties to questionnaires have
been received and evaluated.
The costs of Year 2000 compliance and the foregoing statements are based
upon management's best estimates at the present time, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the nature and amount of programming
required to upgrade or replace each of the affected programs, the rate and
magnitude of related labor and consulting costs and the success of the Company's
external customers and suppliers in addressing the Year 2000 issue. The
Company's evaluation is on-going and it expects that new and different
information will become available to it as that evaluation continues.
Consequently, there is no guarantee that all material elements will be Year 2000
ready in time.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses it liquidity and capital resources to, among other things,
(i) support its operations including its inventories of homes, home sites and
land; (ii) provide working capital; (iii) fund market expansion, including
acquisitions, investments in and advances to joint ventures, and start-up
operations; and (iv) make interest payments on outstanding debt.
CAPITAL RESOURCES
The Company anticipates continuing to acquire land for use in its future
homebuilding operations including finished lots and partially developed land.
The Company currently intends to acquire a portion of the land inventories
required in future periods through takedowns of lots subject to option contracts
entered into in prior periods and under new option contracts. The use of option
contracts lessens the Company's land-related risk and improves liquidity.
Because of increased demand for partially developed and finished lots in certain
of the markets where the Company builds homes, the Company's ability to acquire
lots using option contracts has been reduced or has become more expensive.
In connection with the purchase of its 49% interest in Stafford, the
Company entered into an agreement to make loans available to Stafford in an
aggregate principal amount of up to $10.0 million (increased from $5.0 million
as of June 1, 1998). In addition, the Company has an option to purchase the
remaining 51% interest in Stafford based on a pre-determined formula, subject to
certain contingencies. If the Company acquired a majority interest in Stafford,
which may occur as early as January 1999, the Company may refinance or assume
Stafford's existing debt. As of September 30, 1998, Stafford's total assets
were approximately $54.0 million and notes payable were approximately $37.8
million, of which $6.5 million was outstanding to the Company.
The Company anticipates that it has adequate financial resources to satisfy
its current and near-term capital
16
<PAGE>
requirements based on its current capital resources and additional liquidity
available under existing credit agreements. The Company believes that it can
meet its long-term capital needs (including, among other things, meeting
future debt payments and refinancing or paying off other long-term debt as it
becomes due) from operations and external financing sources, assuming that no
significant adverse changes in the Company's business, or general economic
conditions, occur as a result of the various risk factors described elsewhere
herein and in the Company's Annual Report on Form 10-K, in particular,
increases in interest rates.
LINES OF CREDIT AND NOTES PAYABLE
On May 6, 1998, the Company consummated its offering of $100 million
aggregate principal amount of 9% Senior Notes, which are due April 15, 2008.
The Company received net proceeds from the offering of approximately $97.2
million (net of discounts and estimated offering costs of approximately $2.8
million). The Company used such proceeds to repay a portion of the Company's
borrowings under its line of credit. The offering costs will be amortized over
the term of the notes using the interest method. In April 1998, the Company
amended certain provisions of its Revolving Credit Facility to provide for the
issuance of the Senior Notes.
Effective September 30, 1998, the Company reduced the amount of its Revolving
Credit Facility from $97.6 million to $90 million. The Company has a one-time
option to increase the amount of the facility to $120 million. In addition, the
Company has a one-time option to reduce the amount of the facility by $30
million on an irrevocable basis, provided the facility has been increased to
$120 million for at least six months. The Revolving Credit Facility expires on
July 1, 2001 and includes an option for the lenders to extend the term for an
additional year as of July 1 of each year. The Revolving Credit Facility
contains covenants, including certain financial covenants and also contains
provisions which may, in certain circumstances, limit the amount the Company may
borrow. At October 31, 1998 and September 30, 1998, the Company had bank notes
payable of approximately $23.7 million and $11.0 million, respectively.
The Company has no material off-balance sheet financing arrangements that
would tend to affect future liquidity. 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 1998. However, there can be
no assurance that the Company will not require additional financing within this
time frame. The Company may need to raise additional funds in order to support
more rapid expansion, respond to competitive pressures, acquire complementary
businesses or respond to unanticipated requirements. The Company may seek to
raise additional funds through private or public sales of debt or equity
securities, bank debt, or otherwise. There can be no assurance that such
additional funding, if needed, will be available on terms attractive to the
Company, or at all.
17
<PAGE>
SCHULER HOMES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1996, the Company was served with a purported class action
complaint by owners of units and the Association of Owners of Fairway
Village at Waikele alleging, among other things, material construction
defects and deficiencies, misrepresentations regarding the cost of
insurance and breach of a covenant of good faith and fair dealing. In
connection with the Courts' denial of a class certification request, a
second action involving other homeowners at Fairway Village advancing the
same claims was initiated. The complaints do not specify an amount of
damages, but include a claim for punitive damages. It is likely both
actions will be consolidated for trial. Although this litigation is at an
early stage of discovery, based on its current understanding of the
lawsuits, the Company believes the claims to be largely without merit and
that potential third party defendants and insurance coverage exist to
offset a material portion of any damages from the alleged claims and the
litigation continues to be vigorously defended. A court date has been set
for April 1999 for the initial suit but will be reset for a later date if
the actions are consolidated. If these lawsuits were decided adversely to
the Company in all material respects, they collectively could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also 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
manage-ment, have a material adverse effect on the financial condition of
the Company.
Items 2 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Document Description
-------- --------------------
<S> <C>
10.1 Second Amended and Restated Credit Agreement
between the Company, certain Banks, First Hawaiian
Bank and Bank of America NT & SA, dated September
30, 1998.
10.2 Guaranty by wholly-owned subsidiaries of the
Company, dated September 30, 1998, relating to
Second Amended and Restated Credit Agreement dated
September 30, 1998.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K. There were no reports on Form 8-K for the
quarter ended September 30, 1998.
18
<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 thereunto duly authorized.
SCHULER HOMES, INC.
Date: November 10, 1998 By: /s/ James K. Schuler
---------------------------------------
James K. Schuler
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: November 10, 1998 By: /s/ Pamela S. Jones
---------------------------------------
Pamela S. Jones
Senior Vice President of Finance,
Chief Financial Officer and
Director (principal financial officer)
Date: November 10, 1998 By: /s/ Douglas M. Tonokawa
----------------------------------------
Douglas M. Tonokawa
Vice President of Finance,
Chief Accounting Officer
(principal accounting officer)
19
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is dated
September 30, 1998, and, except as otherwise provided herein, effective as
of September 30, 1998, among SCHULER HOMES, INC., a Delaware corporation
(the "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 Borrower, 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 "Credit Facility") made available to the Borrower by the
Banks; and
WHEREAS, in connection therewith, the Borrower, the Banks and the
Administrative Agent executed certain Loan Documents (as defined in the Original
Credit Agreement); and
WHEREAS, the Borrower, 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 Borrower, the Guarantors, the Banks and the Administrative
Agent entered into that certain Amended and Restated Credit Agreement dated
March 27, 1997 (the "1997 Credit Agreement"), which amended the terms of the
Original Credit Agreement by, among other things, increasing the amount of the
Credit Facility to $137,600,000.00 and extending the Termination Date (as
defined in the Original Credit Agreement) to July 1, 1999; and
WHEREAS, the Borrower, the Guarantors, the Banks and the Agents entered
into that certain Second Amendment to Loan Documents dated April 29, 1998, which
further amended the terms of the 1997 Credit Agreement to permit the Borrower to
issue "Senior Notes" on a PARI PASSU basis with the Credit Facility; and
WHEREAS, the Borrower has requested the Banks and the Agents to further
amend the terms of the Credit Facility to reduce the amount of the Credit
Facility to $90,000,000.00 and to amend other provisions contained in the 1997
Credit Agreement; and
WHEREAS, the Banks and the Agents are willing to comply with such
request, upon and subject to the terms and conditions hereinafter set forth;
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the Borrower, the Banks and the Agents hereby
agree to amend and completely restate the 1997 Credit Agreement, as amended, 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 the
Borrower or any of its Subsidiaries, nor shall the Borrower or any of its
Subsidiaries 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.
"AGGREGATE COMMITMENT" means the combined Revolving Commitments
of the Banks, in the amount of U.S. NINETY MILLION DOLLARS (U.S.
$90,000,000.00), as such amount may be increased and then reduced pursuant to
this Agreement.
-2-
<PAGE>
"AGREEMENT" means this Second Amended and Restated 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,
Colorado, Oregon, Utah, and Washington.
"BANK" has the meaning specified in the introductory clause
hereto.
"BASE GRID" means the parameters for the Leverage Ratio and the
Interest Coverage Ratio as set forth in Section 7.02 herein.
"BORROWING" means a borrowing hereunder consisting of Advances
made to the Borrower 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 Borrower 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 any assets from Country Club Village,
unconsolidated Subsidiaries of the Borrower, and joint venture projects, such as
Iao Parkside, which are not consolidated in the Real Estate Inventories. 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 Borrower and its Subsidiaries to the Banks on
June 29, 1998, as identified and delivered to the Banks prior to the Closing
Date.
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"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"CAPITALIZED INTEREST" means any interest incurred by the
Borrower or any Subsidiary of the Borrower that is added to the assets of the
Borrower on the consolidated balance sheet of the Borrower and expensed in
future periods other than the current applicable period.
"CAPTIVE INSURANCE SUBSIDIARY" means a Subsidiary of the
Borrower 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 the Borrower or its Subsidiaries as part of their respective
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 Borrower and its Subsidiaries less all operating and non-operating expenses
of the Borrower and its Subsidiaries (including current and deferred taxes on
income, provision for taxes on unremitted foreign earnings which are included in
gross revenues, current additions to reserves, and other similar charges); all
determined in accordance with GAAP.
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"CONSOLIDATED TANGIBLE NET WORTH" means the Tangible Net Worth
of the Borrower 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
the Borrower or its Subsidiaries 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 the Borrower, its Subsidiaries 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 the
Borrower or its Subsidiaries as part of their respective real estate development
business, on which a building permit has been issued and construction has begun,
and for which the Borrower or its Subsidiaries has entered into a written
Contract for Sale.
"CONTROLLED GROUP" means the Borrower, its Subsidiaries and all
Persons (whether or not incorporated) under common control or treated as a
single employer with the Borrower and its Subsidiaries 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 Borrower.
"COUNTRY CLUB VILLAGE SUBORDINATE MORTGAGE" means the
Subordinate Mortgage, Security Agreement and Financing Statement dated February
9, 1993, filed in the Office of the Assistant Registrar of the Land Court of the
State of Hawaii as Document No. 1996140, as amended by Amended and Restated
Subordinate Mortgage, Security Agreement and Financing Statement dated April 7,
1994, filed in said Office as Document No. 2149634, in favor of HCI (America)
Inc., which encumbers Lots 3878 and 3879 in Country Club Village.
"DEFAULT" means any event or circumstance which, with the giving
of notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DEVELOPMENT RATIO" means Real Estate Development Assets divided
by Real Estate Indebtedness.
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"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
the Borrower or its Subsidiaries as part of their respective 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 Borrower
or any Subsidiary of the Borrower 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.
"FORM 1001" has the meaning specified in subsection 3.01(f).
"FORM 4224" has the meaning specified in subsection 3.01(f).
"GAAP" means generally accepted accounting principles set forth
from time to time in statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
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"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GUARANTOR" or "GUARANTORS" means, singularly or collectively,
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, MELODY
MORTGAGE CO., a Colorado corporation, SHLR OF WASHINGTON, INC., a Washington
corporation, SHLR OF UTAH, INC., a Utah corporation and SHLR OF COLORADO, INC.,
a Colorado corporation.
"GUARANTY" means an agreement or agreements in form and
substance satisfactory to the Banks and the Agents, duly executed by the
Guarantors, jointly and severally guaranteeing the due and punctual payment of
the Note, and the observance and performance of the Borrower's obligations under
the Loan Documents.
"GUARANTY OBLIGATION" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person, whether or not contingent (a) to purchase, repurchase
or otherwise acquire such primary obligations or any property constituting
direct or indirect security therefor, or (b) to advance or provide funds (i) for
the payment or discharge of any such primary obligation, or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof; in each case
(a), (b), (c) or (d), including arrangements wherein the rights and remedies of
the holder of the primary obligation are limited to repossession or sale of
certain property of such Person. The amount of any Guaranty Obligation shall be
deemed equal to the stated or determinable amount of the primary obligation in
respect of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof.
Notwithstanding the foregoing, if the primary obligor is a Subsidiary of the
Borrower, the term "Guaranty Obligation" shall not include any direct or
indirect liability of the Borrower with respect to any primary obligation of
such Subsidiary, which the Borrower itself would not otherwise be prohibited
from assuming or limited in undertaking, pursuant to the terms of this
Agreement.
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"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 Borrower (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 payable and accrued expenses as set
forth in the consolidated financial statements of the Borrower 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 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 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 Borrower'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.
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"INTEREST COVERAGE RATIO" means, with respect to the Borrower
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.
"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 Borrower, in its Notice of Borrowing
or Notice of Conversion/Continuation;
PROVIDED THAT:
(i) if any Interest Period pertaining to a LIBO Rate
Advance would otherwise end on a day which is not a Business
Day, that Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period pertaining to a LIBO Rate
Advance that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest 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 the Borrower and for the account of the Borrower or its
Subsidiaries, 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 the Borrower and for the account of the Borrower or its
Subsidiaries, 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 any of the Authorized States, which is formed
for the purpose of developing one or more specific real estate projects.
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"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 the Borrower or its Subsidiaries as part of their respective 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 Borrower 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 the Borrower and
for the account of the Borrower or its Subsidiaries, pursuant to the terms and
conditions set forth in Article II of this Agreement.
"LEVERAGE RATIO" means total Indebtedness of the Borrower and
its Subsidiaries, on a consolidated basis, including all Quantifiable Contingent
Liabilities, but not including all accounts payables and accrued expenses as set
forth in the consolidated financial statements of the Borrower and its
Subsidiaries entered into in the ordinary course of business pursuant to
ordinary terms; 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 Quarter following the Closing
Date; thereafter, the Leverage Ratio for each succeeding Quarter will be
determined as of the end of the preceding Quarter (such determination to be made
no later than seventy-five (75) days after the end of such preceding Quarter,
based upon the Leverage Ratio Certificate provided to the Administrative Agent
by the Borrower, 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 Borrower, 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 Borrower, or the Majority Banks
within five (5) Business Days after receipt of such notification.
"LEVERAGE RATIO/INTEREST COVERAGE RATIO/BASE GRID CERTIFICATE"
means a certificate more particularly described in Section 6.02(e) of this
Agreement.
"LEVERAGE RATIO (1997)" means total Indebtedness of the Borrower
and its Subsidiaries, on a consolidated basis, including all accounts payables
and accrued expenses as set forth in the consolidated financial statements of
the Borrower 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.
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"LIBO RATE" means, for each Interest Period in respect of LIBO
Rate Advances comprising part of the same Borrowing, either (i) the rate of
interest per annum (rounded upward to the nearest 1/16th of 1%) equal to the
rate for deposits in U.S. dollars with a maturity approximately equal to such
Interest Period which appears on the Telerate Screen LIBO Page (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, or (ii) if no such rate of interest
appears on the Telerate Screen LIBO Page for such specified Interest Period, the
rate of interest per annum equal to the rate for deposits in U.S. Dollars with a
maturity occurring immediately before or immediately after such specified
Interest Period, whichever is higher, as determined by the Administrative Agent
from the Telerate Screen LIBO Page (or such other display page on the Telerate
System as may replace such page) at approximately 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. Any LIBO Rate determined on the basis of the rate
displayed on the Telerate Screen LIBO Page in accordance with the foregoing
provisions of this paragraph shall be subject to corrections, if any, made in
such rate and displayed by the Telerate System within one hour of the time when
such rate is first displayed by such service.
"LIBO RATE "A" ADVANCE" means any outstanding LIBO Rate Advance
during a time when the Leverage Ratio and the Interest Coverage Ratio then in
effect (computed on a Quarterly basis in advance) are as follows:
(i) the Leverage Ratio is less than 1.35 to 1 and the Interest
Coverage Ratio is greater than 2.00 to 1; or
(ii) the Leverage Ratio is less than 1.50 to 1 and the Interest
Coverage Ratio is greater than 2.50 to 1.
"LIBO RATE "B" ADVANCE" means any outstanding LIBO Rate Advance
during a time when the Leverage Ratio and the Interest Coverage Ratio then in
effect (computed on a Quarterly basis in advance) are as follows:
(i) the Leverage Ratio is less than or equal to 1.35 to 1 and
the Interest Coverage Ratio is greater than or equal to 1.75 to 1, but less than
2.00 to 1; or
(ii) the Leverage Ratio is less than or equal to 1.50 to 1 and
the Interest Coverage Ratio is greater than or equal to 2.00 to 1, but less than
2.50 to 1; or
(iii) the Leverage Ratio is less than or equal to 1.60 to 1 and
the Interest Coverage Ratio is greater than or equal to 2.50 to 1.
"LIBO RATE "C" ADVANCE" means any outstanding LIBO Rate Advance
during a time when the Leverage Ratio and the Interest Coverage Ratio then in
effect (computed on a Quarterly basis in advance) are as follows:
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(i) the Leverage Ratio is greater than 1.35 to 1, but less
than or equal to 1.50 to 1, and the Interest Coverage Ratio is greater than or
equal to 1.75 to 1, but less than 2.00 to 1; or
(ii) the Leverage Ratio is greater than 1.50 to 1, but less
than or equal to 1.60 to 1, and the Interest Coverage Ratio is greater than or
equal to 2.00 to 1, but less than 2.50 to 1.
"LIBO RATE ADVANCE" means an Advance that bears interest based
on the LIBO Rate.
"LOAN DOCUMENTS" means this Agreement, the Note, the Guaranty,
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 Borrower or its Subsidiaries 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 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 the Borrower or its Subsidiaries as
part of their respective 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.
"NOTE" means the promissory note, as amended and restated, and
dated the date of this Agreement, executed by the Borrower in favor of the
Administrative Agent (as agent for the Banks), evidencing the Borrower's
agreement to repay all amounts outstanding under the Aggregate Commitment,
together with all interest thereon, as provided therein.
"NOTICE OF BORROWING" means a notice given by the Borrower, 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
Borrower, to the Administrative Agent pursuant to Section 2.06, in substantially
the form of EXHIBIT B.
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"NOTICE OF SWING-LINE BORROWING" means a notice given by the
Borrower, 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 Borrower 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).
"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 Subordinate Mortgage;
(ii) the existing Indebtedness and obligations of the
Borrower as a joint venture partner in Iao Partners (including
any Indebtedness of Iao Partners for which there is recourse to
the Borrower); PROVIDED, HOWEVER, that the Borrower 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 Borrower
(including the Borrower's existing subordinated convertible
debentures) in the amount of $57,500,000.00;
(iv) Indebtedness, not to exceed $10,000,000 in the
aggregate, created or arising under a conditional sale or other
title retention agreement, or incurred as purchase money
financing, with respect to property acquired by the Borrower or
any of its Subsidiaries; provided that the rights and remedies
of the seller under such agreement in the event of default are
limited to repossession or sale of such property;
(v) Indebtedness to the extent incurred upon the
indorsement of an instrument in order to negotiate the same, and
for taxes, assessments, governmental
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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
Borrower's or any of its Subsidiaries' real estate development
businesses), not to exceed $10,000,000 in the aggregate, incurred in
the ordinary course of the Borrower's and its Subsidiaries' 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 Borrower's or any of its Subsidiaries' real estate
development businesses and (b) associated with the acquisition of
Melody Homes, Inc. and Melody Mortgage Co. by the Borrower;
(ix) the Senior Notes and any guaranties thereof by any
Guarantor;
(x) the Guaranty; and
(xi) Indebtedness in respect of the Aggregate Commitment
hereunder.
"PERMITTED INVESTMENT" means
(a) the creation of or investment in a wholly-owned
Subsidiary of the Borrower which is used exclusively as an exchange
vehicle to facilitate a like-kind exchange under Section 1031 of the
Code;
(b) loan receivables from sales incentive programs, not to
exceed $10,000,000.00;
(c) any one of the following dollar denominated investments,
maturing within one year from the date of acquisition, selected by
the Borrower:
(i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or
issued by any agency thereof and backed by the full faith and
credit of the United States;
(ii) marketable direct obligations issued by any
state of the United States or any political subdivision of
any such state or any public instrumentality thereof and, at
the time of acquisition, having the highest credit rating
obtainable from either Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc. ("S&P") or Moody's Investors
Service, Inc. ("Moody's");
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(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 Borrower);
(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);
(d) the acquisition of the remaining 51% interest in SSHI LLC, a
Delaware limited liability company ("Stafford"), pursuant to the terms
of that certain Interest Purchase Agreement dated as of July 31, 1997,
entered into by and among SSHI LLC, Brien Stafford, Stafford
Construction, Inc., the Borrower and SHLR of Washington, Inc.. Upon the
acquisition of the majority ownership interest in Stafford by the
Borrower, (i) Stafford shall be considered a Subsidiary of the Borrower
and shall be subject to the provisions of Section 6.12 herein, (ii) the
Unencumbered real estate assets of Stafford may be included in the
determination of the Borrowing Base, and (iii) the Borrower shall be
permitted to make additional investments in Stafford for the purpose of
repaying Stafford's existing indebtedness and fund the ongoing
operations of Stafford;
(e) a $1,000,000 non-recourse capital investment in the Ranch at
South Pointe, LLC, through SHLR of Colorado, Inc.; and
(f) the investment (including advances and guaranties) in
unconsolidated Subsidiaries of the Borrower or joint ventures (in which
the Borrower is a joint venture partner) which are involved in home
building in the principal markets of the Borrower or its Subsidiaries,
provided such investment shall not exceed $10,000,000 in the aggregate
subsequent to December 31, 1997.
"PERSON" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture or
Governmental Authority.
"PLAN" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower, any of its Subsidiaries or any member of the
Controlled Group sponsors or maintains or to which the Borrower, any of its
Subsidiaries or any member of the Controlled Group makes, is making or is
obligated to make contributions.
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<PAGE>
"PREMIUM PAYMENTS" means (i) payments that are to be made by
the Borrower to Amfac Property Development Corp., if the average sales price
for or number of homes built by the Borrower on parcels of land in the
Waikele master-planned community exceeds the applicable amount set forth in
the purchase agreement between the Borrower and Amfac Property Development
Corp. for such parcels; (ii) payments that are to be made by the Borrower to
Gentry Homes, Ltd., if the Borrower 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 Borrower to HCI (America) Inc., in the
event the Borrower constructs more than 580 units in Country Club Village.
"PRIME RATE" means, for any day, the lending rate of interest
announced publicly from time to time by First Hawaiian Bank as its "prime
interest rate", which rate shall not necessarily be the best or lowest rate
charged by First Hawaiian Bank from time to time. Any change in the prime
interest rate announced by First Hawaiian Bank shall take effect at the opening
of business on the day specified in the public announcement of such change.
"PRIME RATE "A" ADVANCE" means any outstanding Prime Rate
Advance during a time when the Leverage Ratio and the Interest Coverage Ratio
then in effect (computed on a Quarterly basis in advance) are as follows:
(i) the Leverage Ratio is less than 1.35 to 1 and the Interest
Coverage Ratio is greater than 2.00 to 1; or
(ii) the Leverage Ratio is less than 1.50 to 1 and the Interest
Coverage Ratio is greater than 2.50 to 1.
"PRIME RATE "B" ADVANCE" means any outstanding Prime Rate
Advance during a time when the Leverage Ratio and the Interest Coverage Ratio
then in effect (computed on a Quarterly basis in advance) are as follows:
(i) the Leverage Ratio is less than or equal to 1.35 to 1 and
the Interest Coverage Ratio is greater than or equal to 1.75 to 1, but less than
2.00 to 1; or
(ii) the Leverage Ratio is less than or equal to 1.50 to 1 and
the Interest Coverage Ratio is greater than or equal to 2.00 to 1, but less than
2.50 to 1; or
(iii) the Leverage Ratio is less than or equal to 1.60 to 1 and
the Interest Coverage Ratio is greater than or equal to 2.50 to 1.
"PRIME RATE "C" ADVANCE" means any outstanding Prime Rate
Advance during a time when the Leverage Ratio and the Interest Coverage Ratio
then in effect (computed on a Quarterly basis in advance) are as follows:
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(i) the Leverage Ratio is greater than 1.35 to 1, but less
than or equal to 1.50 to 1, and the Interest Coverage Ratio is greater than or
equal to 1.75 to 1, but less than 2.00 to 1; or
(ii) the Leverage Ratio is greater than 1.50 to 1, but less
than or equal to 1.60 to 1, and the Interest Coverage Ratio is greater than or
equal to 2.00 to 1, but less than 2.50 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
Borrower 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 Borrower 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 Borrower
(including the Borrower's existing subordinated convertible debentures) in the
amount of $57,500,000.00; (3) the Senior Notes; and (4) 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 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 Borrower, 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
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<PAGE>
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 Borrower or any of its Subsidiaries
means the chief executive officer, the president, or the chief financial officer
of the Borrower or such Subsidiary, 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 Borrower, 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.
"SENIOR NOTES" means the 9% Senior Notes maturing 2008, in the
principal amount of US$100,000,000 issued by the Borrower pursuant to that
certain Prospectus dated July 7, 1998.
"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 the Borrower or its
Subsidiaries (including subordinated debentures and subordinated convertible
debentures) to another lender or creditor who has expressly agreed by virtue of
documents or instruments acceptable to the Majority Banks, that the Indebtedness
of such entity to such lender or creditor is subordinated to the Obligations of
the Borrower 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 Borrower hereunder have been paid in full.
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<PAGE>
"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 Borrower 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, 2001, unless extended by the
Banks pursuant to subsection 2.09.
"UNENCUMBERED" when used to describe real property owned by the
Borrower or any of its Subsidiaries, means property which is not subject to any
lien, whether the same is recorded, unrecorded, springing, resulting from a
court judgment or arbitration award, or otherwise; PROVIDED, (i) that the filing
of an application for mechanic's or materialman's lien on such real property
under Chapter 507, Hawaii Revised Statutes, or such similar statutes under the
laws of the other Authorized States, shall not prevent such property from being
Unencumbered, as long as the Borrower or its Subsidiaries 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 Borrower or its Subsidiaries
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 the laws of the other Authorized States; 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 Borrower or
its Subsidiaries 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 the Borrower or its Subsidiaries as part of their respective 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.
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<PAGE>
"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 the Borrower or its Subsidiaries as part of their respective
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 the Borrower or its Subsidiaries as part of their respective
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
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
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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 Borrower, its Subsidiaries 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 Borrower.
ARTICLE II
THE CREDITS
2.01 AMOUNTS AND TERMS OF COMMITMENTS. Each Bank severally agrees,
on the terms and conditions hereinafter set forth, to make Advances to the
Borrower 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
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and conditions hereinafter set forth, to make Swing-Line Advances to the
Borrower 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 Borrower 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 Borrower 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
August 31, 1998, and evidenced by a Borrowing Base Certificate delivered by
the Borrower, to the Administrative Agent no later than September 30, 1998.
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 Borrower, 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 Borrower 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 Borrower 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
hereunder, shall not exceed the Borrowing Base, as determined by the
Administrative Agent for any succeeding month, less the outstanding principal
amount of the Senior Notes, 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, less the principal amount
of the Senior Notes, is less than the aggregate amount of all outstanding
Advances
<PAGE>
and Swing-Line Advances and all issued and outstanding Letters of Credit at
the date of such determination, the Borrower 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, less the principal amount of the Senior
Notes.
2.03 PROCEDURE FOR BORROWING.
(a) Each Borrowing shall be made upon the Borrower's
irrevocable written notice delivered 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 the Borrowing available to the Administrative Agent for the
account of the Borrower at the Administrative Agent's Payment Office by 11:00
a.m. Honolulu, Hawaii time on the Borrowing date requested by the Borrower in
funds immediately available to the Administrative Agent. The proceeds of all
such Advances will then be made available to the Borrower by the Administrative
Agent at such office by crediting the account of the Borrower on the books of
First Hawaiian Bank or such other accounts as the Borrower, 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, development and land acquisition
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in the Authorized States and, subject to the prior written approval of the
Majority Banks in their sole discretion, other 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 Borrower 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 five (5) LIBO Rate Advances in effect.
2.04 PROCEDURE FOR SWING-LINE BORROWING.
(a) Each Swing-Line Borrowing shall be made upon the
Borrower's irrevocable written notice delivered 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 the Administrative Agent shall
convert, no less than semi-monthly, all Swing-Line Advances 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 Borrower), if the
outstanding balance of all Swing-Line Advances is $1,000,000 or more, 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, no less
than semi-monthly, of a Swing-Line Borrowing, and will notify each Bank of any
repayment of a Swing-Line Borrowing by the Borrower, from its own funds, as
described in subsection 2.04(b)(i) above.
(d) If the Administrative Agent shall convert a Swing-Line
Advance into an Advance, the Administrative Agent will notify each Bank of such
conversion, of the amount of such Bank's Commitment Percentage therein, and the
date (which shall be not less than one (1)
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Business Day after the date of such notification) for such conversion (with a
copy of such notification being given to the Borrower). 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, development and land
acquisition in the Authorized States and, subject to the prior written approval
of the Majority Banks in their sole discretion, other 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 Borrower 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
Borrower has converted the same into LIBO Rate Advances, in accordance with
Section 2.06(a)(i) hereof.
2.05 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT.
(a) Each Issuance shall be made upon the Borrower's
irrevocable written request delivered 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
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Agent prior to 11:00 a.m. Honolulu, Hawaii time), together with an Application
and Agreement for Standby Letter of Credit in the form attached hereto as
EXHIBIT D (as the same may be revised by the 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 Borrower 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 Ten Million Dollars ($10,000,000), and the amount
available to the Borrower 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 Borrower
pursuant to Section 2.11(d) of this Agreement, the Borrower 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 Borrower 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 Borrower 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 Borrower or its
Subsidiaries in connection with their real estate development businesses in the
Authorized States (including any required deposits for like-kind exchanges under
Section 1031 of the Code), and to support capital and performance
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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 Borrower 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 Borrower to continue such Advance as, and convert such Advance
into, a LIBO Rate Advance, shall terminate.
(b) The Borrower 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
(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 Borrower 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 Borrower shall
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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 Borrower, 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 five (5) LIBO Rate Advances in effect.
(f) The Borrower 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 OPTION TO REQUEST AN INCREASE; VOLUNTARY TERMINATION OR
REDUCTION OF COMMITMENTS.
(a) The Borrower shall have a one time option, during the term
of the Credit Facility, to submit a written request to the Administrative Agent
and the Banks for an increase, in an amount up to $30,000,000, to the Aggregate
Commitment, such that the Aggregate Commitment may be increased up to a maximum
amount of $120,000,000; provided, however, that the Banks shall have no
obligation to approve such request. The Borrower shall provide the
Administrative Agent with such information and materials as the Administrative
Agent and the Banks may require for their review and consideration of the
Borrower's request. Upon the concurrence of all of the Banks, in their sole and
absolute discretion, the Aggregate Commitment shall be increased by the amount
approved by all of the Banks; provided, however, that if any Bank does not
concur to the increase (the "Non-Concurring Bank"), any of the other Banks may
elect to acquire and assume all or a part of such Non-Concurring Bank's share of
the increase; provided, further, however, that the Aggregate Commitment shall
not exceed $120,000,000 and such increase shall be subject to all such terms and
conditions as the Banks may require, and the Loan Documents shall be amended in
accordance therewith.
(b) The Borrower may, (i) at the end of any Quarter and 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 (ii) only on a one time basis and if the Aggregate Commitment has
been increased as provided in subsection 2.07(a) for a period of at least six
months, at the end of any Quarter and upon not less than five Business Days'
prior notice to the Administrative Agent (which shall promptly notify each Bank
thereof), 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 $30,000,000;
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PROVIDED that no such termination or reduction 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
Borrower 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
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
Borrower 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
Borrower, 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 Borrower to the Administrative Agent, in the amount of or
greater than $15,000,000, and (iii) prepay Swing-Line Advances or Prime Rate
Advances, in an amount less than $15,000,000, 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
Borrower, 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 Borrower, the Borrower 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 Borrower 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 the Borrower or any of its
Subsidiaries sells (other than a sale to the Borrower or any other Subsidiary)
any portion of any property or assets of the Borrower or any of its Subsidiaries
for $10,000,000.00 or more, or if the Borrower or any of its Subsidiaries sells,
in a single transaction, all or substantially all of the property or assets of
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the Borrower or of any of its Subsidiaries, the Borrower 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 Borrower shall provide at least three
Business Days' prior notice 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 Borrower, 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 Borrower, the
Borrower 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 Borrower 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. If the Sale Proceeds are used to
prepay Prime Rate Advances (other than Swing-Line Advances) in whole or in
part, then the Borrower shall provide at least one Business Day's prior
notice 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 Borrower 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
Borrower made not earlier than April 1, 1999, and not earlier than April 1st of
each subsequent year, and not later than June 30, 1999, and not later than June
30th of each subsequent year, and the concurrence of all of the Banks, in their
sole and absolute discretion, the Termination Date may be extended for an
additional period of one year; provided, however, and except for any request to
extend the Termination Date made in 1999, that the Borrower shall have, in the
immediately preceding year, exercised its option, and all of the Banks shall
have concurred, to extend the Termination Date; provided, further, if any Bank
does not concur in the extension of the Termination Date (the "Dissenting
Bank"), the Borrower may:
(i) request that the Dissenting Bank continue its
Commitment Percentage until the original Termination Date; or
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(ii) 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
(iii) 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
(iv) notwithstanding the provisions of Section 2.07(b),
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 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 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
Borrower's obligations to such Dissenting Bank hereunder.
(c) As a condition to such extension as provided
hereinabove, the Banks may require the Borrower to pay an extension fee, in an
amount to be determined by the Banks and agreed to by the Borrower.
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.
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(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(b) 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
Borrower agrees 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 Borrower 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 Borrower shall pay such Bank interest at the highest rate
permitted by law applicable to such Bank.
2.11 FEES.
(a) EXTENSION FEES. The Borrower shall pay to the
Administrative Agent on the Closing Date, for the account of each Bank,
extension fees in an amount equal to two-tenths of one per cent (0.20%) of the
amount of such Bank's Revolving Commitment (for an aggregate fee of
$180,000.00).
(b) COMMITMENT FEE. The Borrower 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 and the Interest Coverage 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 on the first day of such Quarter:
(A) the Leverage Ratio is less than 1.35 to 1
and the Interest Coverage Ratio is greater than 2.00 to 1; or
(B) the Leverage Ratio is less than 1.50 to 1
and the Interest Coverage Ratio is greater than 2.50 to 1;
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then the percentage for the commitment fee shall be equal to 0.125%;
(ii) if on the first day of such Quarter:
(A) the Leverage Ratio is less than or equal to
1.35 to 1 and the Interest Coverage Ratio is greater than or
equal to 1.75 to 1, but less than 2.00 to 1; or
(B) the Leverage Ratio is less than or equal to
1.50 to 1 and the Interest Coverage Ratio is greater than or
equal to 2.00 to 1, but less than 2.50 to 1; or
(c) the Leverage Ratio is less than or equal to
1.60 to 1 and the Interest Coverage Ratio is greater than or
equal to 2.50 to 1;
then the percentage for the commitment fee shall be equal to 0.18%; and
(iii) if on the first day of such Quarter:
(A) the Leverage Ratio is greater than 1.35 to
1, but less than or equal to 1.50 to 1, and the Interest
Coverage Ratio is greater than or equal to 1.75 to 1, but less
than 2.00 to 1; or
(B) the Leverage Ratio is greater than 1.50 to
1, but less than or equal to 1.60 to 1, and the Interest
Coverage Ratio is greater than or equal to 2.00 to 1, but less
than 2.50 to 1;
then the percentage for the commitment fee shall be equal to 0.25%;
PROVIDED, HOWEVER, that (1) if the Borrower fails to provide the Leverage
Ratio/Interest Coverage Ratio/Base Grid 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 Borrower shall pay to the
Administrative Agent for the account of each Bank an unused facility fee equal
to one-fifth of one percent (0.20%) per annum of the amount equal to the
difference between (i) such Bank's Revolving Commitment (less such Bank's
Commitment Percentage of any issued and outstanding Letters of Credit) and (ii)
such Bank's Commitment Percentage of the outstanding principal balance of all
Advances made hereunder, computed on a daily balance basis in arrears,
commencing as of the Closing Date, and becoming due and payable on the last
Business Day of each Quarter, with the final payment to be made on the
Termination Date; PROVIDED HOWEVER that in the case of the Administrative Agent,
the unused facility fee shall be equal to one-fifth of one percent (0.20%) of
the amount equal to the difference between (i) the Administrative Agent's
Revolving Commitment (less the
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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 Borrower 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 Borrower 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 Borrower and the Administrative Agent dated September 30, 1998.
The Borrower 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 Borrower and the Agents dated September 30, 1998.
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; provided,
however, all fees for Letters of Credit shall be calculated based upon a year of
360 days.
(b) All computations of interest payable in respect of Prime
Rate Advances shall be made on the basis of a year of 365 days, and actual days
elapsed. All computations of interest payable in respect of LIBO Rate Advances
shall be made on the basis of a 360-day year and actual days elapsed. Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
(c) The Administrative Agent will, with reasonable
promptness, notify the Borrower and the Banks of each determination of the
Borrowing Base, of the Leverage Ratio and the Interest Coverage Ratio; PROVIDED
that any failure to do so shall not relieve the Borrower 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
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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 Interest Coverage 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 and the Interest
Coverage Ratio. The Administrative Agent will with reasonable promptness
notify the Borrower 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
Borrower of any liability hereunder or provide the basis for any claim
against the Administrative Agent.
2.13 PAYMENTS BY THE BORROWER.
(a) All payments (including prepayments) to be made by the
Borrower 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 1:00 p.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
Borrower 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 1:00 p.m. Honolulu,
Hawaii time, shall be deemed to have been received on the immediately succeeding
Business Day and any applicable interest or fee shall continue to accrue.
(b) Whenever any payment hereunder shall be stated to be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be; subject to
the provisions set forth in the definition of "Interest Period" herein.
(c) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Banks hereunder that the Borrower will not make such payment in full as and when
required hereunder, the Administrative Agent may assume that the Borrower has
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 Borrower 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
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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 Borrower
of such failure to fund and, upon demand by the Administrative Agent, the
Borrower 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 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
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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 Borrower agrees that any Bank so
purchasing a participation from another Bank pursuant to this Section may, to
the fullest extent permitted by law, exercise all its rights of payment
(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
Borrower 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 Borrower 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 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 Borrower 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 Borrower 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
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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 Borrower 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 Borrower, 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 Borrower 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 Borrower 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 Borrower shall make such deductions; and
(iii) the Borrower 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
Borrower of Taxes or Other Taxes, the Borrower 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 the Borrower 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 Borrower
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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 Borrower 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 Borrower's or the
Administrative Agent's reasonable request to that effect, deliver to the
Borrower 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 Borrower will not be required to pay any additional
amounts in respect of United States Federal income tax pursuant to subsection
3.01(d) to any Bank for the account of any Lending Office of such Bank:
(i) if the obligation to pay such additional amounts
would not have arisen but for a failure by such Bank to comply with its
obligations, if any, under subsection 3.01(f) in respect of such Lending
Office;
(ii) if such Bank shall have delivered to the
Borrower 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 Borrower 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 Borrower
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 Borrower 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
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administration thereof (whether or not having the force of law) after
the date of delivery of such Form 1001.
(h) If the Borrower is 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 Borrower 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 Borrower 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 Borrower 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 Borrower shall prepay in full all LIBO Rate
Advances of that Bank then outstanding, together with interest accrued thereon,
either on the last day of the Interest Period thereof if that Bank may lawfully
continue to maintain such LIBO Rate Advances to such day, or immediately, if
that Bank may not lawfully continue to maintain such LIBO Rate Advances,
together with any amounts required to be paid in connection therewith pursuant
to Section 3.04.
(c) If the Borrower is required to prepay any LIBO Rate
Advance immediately as provided in subsection 3.02(b), then concurrently with
such prepayment, the Borrower 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 Borrower 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.
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3.03 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If any Bank shall determine that, due to either (i) the
introduction of or any change (other than any change by way of imposition of or
increase in reserve requirements to the extent included the calculation of the
LIBO Rate) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), enacted after
the Closing Date, there shall be any increase in the cost to such Bank of
agreeing to make or making, funding or maintaining any LIBO Rate Advances, then
the Borrower 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
Borrower 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 Borrower shall not be required to pay
to any Bank any amount under this subsection 3.03(b) which reflects compensation
for such increased capital requirement which was effective more than 180 days
prior to the date of such demand, unless such increased capital requirement is
made retroactive by such (i) Capital Adequacy Regulation, (ii) change therein,
(iii) change in the interpretation or administration thereof, or (iv) compliance
with any Capital Adequacy Regulation.
(c) Any Bank claiming reimbursement or compensation pursuant
to this Section 3.03 shall deliver to the Borrower (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 Borrower agrees to reimburse each Bank and
to hold each Bank harmless from any loss or expense which such Bank may sustain
or incur as a consequence of:
(a) the failure of the Borrower to make any payment or
mandatory prepayment of principal of any LIBO Rate Advance (including payments
made after any acceleration thereof);
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(b) the failure of the Borrower to borrow, continue or
convert an Advance after the Borrower has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Borrower to make any prepayment after
the Borrower 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(b); or
(f) the prepayment (including pursuant to Section 2.08) of a
LIBO Rate Advance on a day which is not the last day of the Interest Period with
respect thereto;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBO Rate Advances hereunder or from
fees payable to terminate the deposits from which such funds were obtained, such
amount or amounts to include, without limitation, an amount equal to the excess,
if any, of (i) the amount of interest which would have accrued on the amount so
prepaid, not prepaid, not paid, not borrowed, not continued or converted, or
converted at the time of such action or failure to act for the period from the
date of such action or failure to act to the last day of the then current
Interest Period (or, in the case of a failure to borrow, continue or convert,
the Interest Period which would have commenced on the date of such failure) at
the LIBO Rate in effect for such Interest Period over (ii) the amount of
interest which would accrue to such Bank on such amount by placing such amount
on deposit for a comparable period with leading banks in the London Interbank
Market. Such Bank shall deliver to the Borrower (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 Borrower 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
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to the Borrower 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 Borrower may revoke any
Notice of Borrowing or Notice of Conversion/Continuation then submitted by
it. If the Borrower does not revoke such notice, the Banks shall make,
convert or continue the Advances, as proposed by the Borrower, in the amount
specified in the applicable notice submitted by the Borrower, 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 Borrower 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 Borrower through the Administrative
Agent under Section 3.02(a), unless the Borrower 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
Borrower, the Borrower 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 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 Borrower's obligations to such Affected
Bank hereunder.
3.07 SURVIVAL. The agreements and obligations of the Borrower 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 Borrower 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
Borrower, the Administrative Agent and each of the Banks.
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(b) OTHER LOAN DOCUMENTS. The Note executed by the
Borrower, in favor of the Administrative Agent, as agent for the Banks, the
Guaranty executed by the Guarantors, the Inter-Bank Agreement executed by the
Banks and the Agents, and all other Loan Documents.
(c) RESOLUTIONS: INCUMBENCY.
(i) Copies of the resolutions of the board of
directors of the Borrower approving and authorizing the execution,
delivery and performance by the Borrower of this Agreement, and the
other Loan Documents to be delivered hereunder by the Borrower,
certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Borrower; and
(ii) Copies of the resolutions of the respective
board of directors of the Guarantors approving and authorizing the
execution, delivery and performance by the Guarantors of the Guaranty,
certified as of the Closing Date by the Secretary or an Assistant
Secretary of such Guarantor; and
(iii) Certificates of the Secretary or Assistant
Secretary of the Borrower and each Guarantor certifying the names and
true signatures of the officers of such entity 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 Borrower
and the Guarantors and addressed to the Administrative Agent and the Banks,
substantially in the form of EXHIBIT E.
(e) PAYMENT OF FEES. The Borrower shall have paid all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with fees and disbursements of counsel for First
Hawaiian Bank.
(f) CERTIFICATES. A Borrowing Base Certificate dated
September 15, 1998, an initial Leverage Ratio/Interest Coverage Ratio/Base Grid
Certificate, and a compliance certificate signed by a Responsible Officer of
the Borrower, 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 August 31, 1998, 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 Borrower and its Subsidiaries as of June 30, 1998.
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(h) CERTIFICATE OF GOOD STANDING. A certificate of good
standing for the Borrower and each Guarantor, issued by the appropriate agency
of the state of incorporation for such entity 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 April 1, 1998.
(i) TAX CLEARANCE CERTIFICATE. A tax clearance certificate
for the Borrower and each Guarantor, issued as of no earlier than April 1, 1998,
by the appropriate agency of the state of incorporation for such entity 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 entity, up to and including the date of such certificate, have been paid.
(j) 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:
(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 Borrower herein, and by the
Guarantors in the Guaranty, 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
Borrower, hereunder shall constitute a representation and warranty by the
Borrower hereunder, as of the applicable effective date thereof, that the
conditions in this Section 4.02 are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and
each Bank that:
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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 the Guaranty
and to observe and perform all of the provisions and conditions thereof. The
execution and delivery of the Guaranty 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 the Guaranty.
(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 the Guaranty and to observe and
perform all of the provisions and conditions thereof. The execution and
delivery of the Guaranty 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 the Guaranty.
(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 the Guaranty
and to observe and perform all of the provisions and conditions thereof. The
execution and delivery of the Guaranty 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 the Guaranty.
(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, and the State of Colorado, as applicable, is solvent, and has all
requisite corporate power and authority to carry on the
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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 the Guaranty and to observe and perform all of the provisions and
conditions thereof. The execution and delivery of the Guaranty 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 the Guaranty.
(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 the Guaranty and to observe and perform all of the
provisions and conditions thereof. The execution and delivery of the Guaranty
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 the Guaranty.
(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 the Guaranty and to observe and perform all of the
provisions and conditions thereof. The execution and delivery of the Guaranty
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 the Guaranty.
(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, 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 the Guaranty and
to observe and perform all of the provisions and conditions thereof. The
execution and delivery of the Guaranty 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 the Guaranty.
(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 the Guaranty and to observe and perform all of the provisions and
conditions thereof. The execution and delivery of the Guaranty 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 the Guaranty.
(j) SHLR OF WASHINGTON, INC.: SHLR 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
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the property that it now carries on and owns. SHLR of Washington, Inc. has
all requisite corporate power and authority to execute and deliver the
Guaranty and to observe and perform all of the provisions and conditions
thereof. The execution and delivery of the Guaranty have been duly
authorized by the board of directors of SHLR of Washington, Inc., and no
other corporate action of or for such company is requisite to the execution
and delivery of the Guaranty.
(k) SHLR OF UTAH, INC.: SHLR of Utah, Inc. is a Utah
corporation, validly existing and in good standing under the laws of the State
of Utah, 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.
SHLR of Utah, Inc. has all requisite corporate power and authority to execute
and deliver the Guaranty and to observe and perform all of the provisions and
conditions thereof. The execution and delivery of the Guaranty have been duly
authorized by the board of directors of SHLR of Utah, Inc., and no other
corporate action of or for such company is requisite to the execution and
delivery of the Guaranty.
(l) SHLR OF COLORADO, INC.: SHLR of Colorado, Inc. 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. SHLR of Colorado, Inc. has all requisite corporate power and
authority to execute and deliver the Guaranty and to observe and perform all of
the provisions and conditions thereof. The execution and delivery of the
Guaranty have been duly authorized by the board of directors of SHLR of
Colorado, Inc., and no other corporate action of or for such company is
requisite to the execution and delivery of the Guaranty.
5.02 TAX RETURNS AND PAYMENTS. All material tax returns and reports
of the 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 the Borrower or any of its Subsidiaries or upon the properties or assets or
income of the Borrower or its Subsidiaries, which are due and payable, have been
paid.
5.03 LITIGATION. There is, to the knowledge of the Borrower, no
action, suit, proceeding or investigation pending at law or in equity or before
any Governmental Authority, or threatened against or affecting the 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. Neither the
Borrower nor any of its Subsidiaries are in violation of or in default with
respect to any term or provision of its Articles of Incorporation or Bylaws, and
neither the Borrower or any of its Subsidiaries is, to the best knowledge of the
Borrower, 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 Borrower and the
Guaranty by the Subsidiaries will not result in any such violation, or be in
conflict with or constitute a default under any such term or provision, or
result
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in the creation of any mortgage, lien or charge on any of the properties or
assets of the Borrower or its Subsidiaries; and there is no term or provision
of the Borrower's or any Subsidiaries' Articles of Incorporation or Bylaws,
or any mortgage, indenture, contract, agreement or instrument applicable to
the Borrower or its Subsidiaries or by which the Borrower or any Subsidiary
may be bound, which may adversely affect the business or prospects or
condition (financial or other) of the Borrower, any of its Subsidiaries, or
any of their respective properties or assets.
5.05 COMPLIANCE WITH LAW. The consummation of the transactions
contemplated by the Loan Documents will not conflict with or result in a
breach of any law, statute, ordinance, regulation, order, writ, injunction,
judgment of any court or governmental instrumentality, domestic or foreign,
applicable to the 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 Borrower and its Subsidiaries 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 Borrower has not employed
or engaged any broker, finder or agent who may claim a commission or fee or
other compensation with respect to the Aggregate Commitment or the
transactions described herein. Without in any way limiting the generality of
Section 10.05 of this Agreement, the Borrower will indemnify and hold each
Bank harmless from any and all claims of brokers or other claims for
commissions or fees in connection with the Aggregate Commitment and the
transactions described herein, and will further hold each Bank harmless and
indemnify each Bank against all losses, damages, costs and charges (including
attorneys' fees) which such Bank may sustain because of such claims or in
consequence of defending against such claims.
5.09 COMPLIANCE WITH FUNDING STANDARDS. The Borrower and each
Subsidiary 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.
5.10 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the
Advances are intended to be and shall be used solely for the purposes set
forth in and permitted by this Agreement, and are intended to be and shall be
used in compliance with Section 7.01. Neither the Borrower nor any of its
Subsidiaries is generally engaged in the business of purchasing or selling
Margin Stock or extending credit for the purpose of purchasing or carrying
Margin Stock.
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5.11 NO MATERIAL ADVERSE EFFECT. Since September 30, 1998
there has been no Material Adverse Effect.
5.12 REGULATED ENTITIES. None of the Borrower, any Subsidiary of
the Borrower or any Person controlling the 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 Indebtedness.
5.13 FULL DISCLOSURE. None of the representations or warranties
made by the Borrower or any of its Subsidiaries in the Loan Documents as of
the date such representations and warranties are made or deemed made, and
none of the statements contained in each exhibit, report, statement or
certificate furnished by or on behalf of the Borrower or any of its
Subsidiaries in connection with the Loan Documents (including the offering
and disclosure materials delivered by or on behalf of the Borrower 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 Borrower covenants and agrees that, so long as any Bank shall
have any commitment to extend credit hereunder, or any Advance, Swing-Line
Advance, or Letter of Credit shall remain unpaid or unsatisfied, unless the
Majority Banks waive compliance in writing:
6.01 FINANCIAL STATEMENTS. The Borrower 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 Borrower's annual
10-K Report filed with the Securities and Exchange Commission, which includes
a copy of the audited consolidated balance sheet of the Borrower and its
Subsidiaries 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 Borrower or its Subsidiaries); and (ii) a copy of the
consolidating reports of the Borrower and all of its Subsidiaries;
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(b) as soon as available, but not later than forty-five
(45) days after the end of each Quarter, (i) a copy of the Borrower's
quarterly 10-Q Report filed with the Securities and Exchange Commission,
which includes a copy of the unaudited consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such Quarter and the related
consolidated statements of income, shareholders' equity and cash flows for
the period commencing on the first day and ending on the last day of such
Quarter, and certified by an appropriate Responsible Officer of the Borrower
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 Borrower and its Subsidiaries; and
(ii) a copy of the consolidating reports of the Borrower 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 Borrower
files with the Securities and Exchange Commission or any national securities
exchange.
6.02 CERTIFICATES; OTHER INFORMATION. The Borrower 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 Borrower, in the
form of EXHIBIT F-1 stating that, to the best of such officer's knowledge,
the Borrower and its Subsidiaries 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 Borrower and its Subsidiaries 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 Borrower or its Subsidiaries 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
Borrower owned by James K. Schuler as of the end of such Quarter, (ii) the
minimum Consolidated Tangible Net Worth of the Borrower and its Subsidiaries
as of the end of such Quarter, (iii) the Consolidated Net Earnings for the
Borrower and its 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 Borrower
and its Subsidiaries as of the end of such Quarter, and (vi) the Capitalized
Interest for the Borrower and its Subsidiaries 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 June 30,
1998).
(b) not later than forty-five (45) days after the end of
each Quarter a certificate of a Responsible Officer of the Borrower, in the
form of EXHIBIT F-2 for each project in which the Borrower or any of its
Subsidiaries 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.
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(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 later than twenty-five (25) days after the end of such
month, a certificate of a Responsible Officer of the Borrower, in the form of
EXHIBIT F-3 for each project in which the Borrower or any of its Subsidiaries
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 Borrower,
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/Interest Coverage Ratio/Base Grid Certificate
of a Responsible Office of the Borrower, in the form of EXHIBIT F-5,
containing a calculation of the total Indebtedness of the Borrower and its
Subsidiaries, and the Consolidated Tangible Net Worth of the Borrower and its
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 Borrower and its Subsidiaries for the next three (3) 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 Borrower 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;
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(b) of any breach or non-performance of, or any default
under, any contractual obligation (including a contractual obligation by
which any of its property is bound) of the Borrower or any of its Subsidiary
which could result in a Material Adverse Effect;
(c) of the commencement of, or any material development
in, any litigation or proceeding affecting the Borrower or any of its
Subsidiary 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 Borrower 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 Borrower setting forth
details of the occurrence referred to therein, and stating what action the
Borrower proposes to take with respect thereto and at what time. Each notice
under subsection 6.03(a) shall describe with particularity any and all
clauses or provisions of this Agreement that have been breached or violated.
6.04 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause
its Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the 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 Borrower shall comply, and shall
cause each of its Subsidiaries to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over
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 Borrower
shall maintain and shall cause each of its Subsidiaries to maintain books,
accounts, and records in accordance with GAAP and permit employees or agents
of the 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
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reasonable times during normal business hours, upon reasonable advance notice
to the Borrower; 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 Borrower at any time during normal business hours and without advance
notice.
6.07 MINIMUM TANGIBLE NET WORTH. The Borrower shall maintain the
Consolidated Tangible Net Worth, as at the end of each Quarter, at a level
equal to or greater than (a) $138,000,000, plus (b) fifty percent (50%) of
Consolidated Net Earnings cumulative since January 1, 1998, provided that in
no event shall such amount be decreased as a result of any losses sustained
after such date, plus (c) ninety percent (90%) of net proceeds received from
any Equity Offering, and from any conversion of a subordinated convertible
debenture, consummated or effected after the Closing Date.
6.08 PRESERVATION OF CORPORATE EXISTENCE. The Borrower shall, and
shall cause each Subsidiary to, 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 Borrower represents have been provided to the Banks.
6.09 APPRAISAL. Independent FIRREA appraisals may be requested
from the Borrower, and the Borrower shall provide such appraisals, if
required to conform with FDICIA guidelines or other banking laws, rules or
regulations.
6.10 AUTHORIZED STATES. The Borrower shall restrict its business,
and shall cause each Subsidiary to restrict its business, except as provided
below, only to the Authorized States. If the Borrower wishes to obtain the
consent of the Majority Banks for any proposed deviation from the above, the
Borrower 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 Borrower 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 Borrower 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 Borrower in comparison to the
Business Plan.
6.12 SUBSIDIARIES. Each Subsidiary of the Borrower shall
unconditionally and jointly and severally guarantee the obligations of the
Borrower under the Loan Documents pursuant to the Guaranty. The guarantee
obligations of each Guarantor will be a Permitted Indebtedness and senior to
all Subordinated Debt, but PARI PASSU with any guaranties of such Subsidiary
provided
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in support of the Senior Notes. To the extent that the Borrower or its
Subsidiaries are permitted under this Agreement to incorporate or otherwise
form new Subsidiaries, the Borrower agrees that such new Subsidiary shall be
added as a Guarantor under this Agreement and the Guaranty, and shall execute
such Guaranty; provided, however, that the Captive Insurance Subsidiary shall
not be subject to this section.
6.13 YEAR 2000 COVENANT. The Borrower shall reasonably take
appropriate actions to ensure that the Borrower and its Subsidiaries are Year
2000 Compliant in a timely manner, but in no event later than June 30, 1999,
except to the extent that the failure to be Year 2000 Compliant could not
reasonably be expected to have a material adverse effect on the Borrower's or
its Subsidiaries' business and operations or to have a material adverse
economic impact upon the Borrower or its Subsidiaries. The term "Year 2000
Compliant" shall mean, in regard to any property or entity, that all
software, hardware, equipment, goods or systems utilized by or material to
the physical operations, business operations, or financial reporting of such
property or entity (collectively, the "Systems") will properly perform date
sensitive functions before, during and after the year 2000. In furtherance
of this covenant, the Borrower, in addition to any other necessary actions,
shall perform a comprehensive review and assessment of all material Systems
of the Borrower and its Subsidiaries, and shall adopt a detailed plan, with
itemized budget, for the testing, remediation, and monitoring of such
Systems. In addition, the Borrower shall make reasonable inquiries of and
request reasonable validation that each of the following are similarly Year
2000 Compliant: (a) all major tenants or other major entities from which the
Borrower or its Subsidiaries receives payments; and (b) all major
contractors, suppliers, service providers and vendors of the Borrower and/or
its Subsidiaries. As used in the previous sentence, "major" shall mean
entities the failure of which to be Year 2000 Compliant would have a material
adverse effect on the Borrower's or its Subsidiaries' business and
operations, or a material adverse economic impact upon the Borrower or its
Subsidiaries. The Borrower, within thirty business days of the
Administrative Agent's written request, shall provide to the Administrative
Agent such certifications or other evidence of the Borrower's compliance with
the terms of this paragraph as the Administrative Agent may from time to time
reasonably require.
ARTICLE VII
NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, so long as any Bank
shall have any commitment to extend credit hereunder, or any Advance,
Swing-Line Advance, or Letter of Credit shall remain unpaid or unsatisfied,
unless the Majority Banks waive compliance in writing:
7.01 USE OF PROCEEDS. The Borrower shall not and shall not suffer
or permit any of its Subsidiaries to use any portion of the proceeds of any
Advance, directly or indirectly, (i) to purchase or carry Margin Stock, (ii)
to repay or otherwise refinance indebtedness of the Borrower or others
incurred to purchase or carry Margin Stock, (iii) to extend credit for the
purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any
security in any transaction that is subject to Section 13 or 14 of the
Securities Exchange Act of 1934 and regulations promulgated under such act.
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7.02 LEVERAGE RATIO.
(a) Effective as of June 30, 1998, the Borrower shall not,
and shall not permit its Subsidiaries to, allow the Leverage Ratio (1997),
measured as of the end of the Quarter ending June 30, 1998, to exceed 1.35 to
1.
(b) Subject to the Base Grid as provided in subsection
7.02(c), the Borrower shall not, and shall not permit its Subsidiaries to,
allow the Leverage Ratio, measured as of the end of the Quarter ending
September 30, 1998, and as of the end of each Quarter thereafter, to exceed
1.60 to 1.
(c) Notwithstanding the requirements of the Leverage Ratio
provided hereinabove and the Interest Coverage Ratio provided in Section
7.04, the Borrower shall not, and shall not permit its Subsidiaries to,
exceed the Base Grid parameters as provided below:
(i) if the Interest Coverage Ratio is greater than or
equal to 1.75 to 1, but less than 2.00 to 1, then the Leverage
Ratio shall be less than or equal to 1.35 to 1;
(ii) if the Interest Coverage Ratio is greater than or
equal to 2.00 to 1, but less than 2.50 to 1, then the Leverage
Ratio shall be less than or equal to 1.50 to 1; and
(iii) if the Interest Coverage Ratio is greater than or
equal to 2.50 to 1, then the Leverage Ratio shall be less than
or equal to 1.60 to 1.
The Borrower shall have the option to exceed the Base Grid
parameters for two consecutive Quarters (the "Carve-Out Period") upon written
notice to the Administrative Agent, provided the following conditions are
satisfied:
(1) during the Carve-Out Period, the Borrower shall
not, and shall not permit its Subsidiaries to, allow the Interest Coverage
Ratio to be less than 1.75 to 1;
(2) during the Carve-Out Period, the Borrower shall
not, and shall not permit its Subsidiaries to, allow the Leverage Ratio to
exceed 1.60 to 1;
(3) the Administrative Agent and the Majority Banks
shall have approved the Borrower's financial statements, certificates (as
required by Sections 6.01 and 6.02), demonstrating the Borrower's compliance
with all other financial covenants contained in Section 7.02 for the
Carve-Out Period, and the Borrower's plan to return to compliance with the
Base Grid parameters; and
(4) the Borrower shall be in compliance with the
Base Grid parameters at the end of the Carve-Out Period.
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If the Borrower exercises this option, the Borrower shall be
required to maintain compliance with the Base Grid parameters for a period of at
least four consecutive Quarters before it may be permitted to exercise the
option again.
7.03 DEVELOPMENT RATIO. The Borrower shall not, and shall not permit
its Subsidiaries to, allow the Development Ratio, measured as of the end of each
Quarter, to be less than 1.50 to 1.
7.04 INTEREST COVERAGE RATIO. Subject to the Base Grid as provided
in Section 7.02(c), the Borrower shall not, and shall not permit its
Subsidiaries to, allow the Interest Coverage Ratio, measured as of the end of
each Quarter on a rolling four (4) Quarters basis, to be less than 1.75 to 1.
7.05 NO REPAYMENT OF SUBORDINATED DEBT. The Borrower shall not repay
or permit any of its Subsidiaries to repay any of the Subordinated Debt, without
the prior written consent of the Banks, which consent may be withheld in the
sole discretion of any Bank.
7.06 ADDITIONAL INDEBTEDNESS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, assume, or become or remain liable
for or committed to incur, directly or indirectly, any Indebtedness or Guaranty
Obligation in excess of an aggregate amount of $10,000,000, other than the
Permitted Indebtedness.
7.07 ADDITIONAL INVESTMENTS AND ACQUISITIONS. The Borrower shall
not, and shall not permit any of its Subsidiaries to, except as provided below,
directly or indirectly, invest in, purchase or acquire any interest in real
property (fee or leasehold) or any stocks, bonds, notes, debentures or other
securities of or acquire by purchase or otherwise all or substantially all of
the business or assets, or stock, partnership interests or other evidence of
ownership (beneficial or otherwise) or make any other investment in, any
corporation, association, partnership, organization or individual; or directly
or indirectly, make or commit to make any loan, advance, guaranty or extension
of credit to any corporation, association, partnership, organization or
individual; or directly or indirectly, assume, endorse, be or become liable for,
or guarantee directly or indirectly any debt or obligation of any corporation,
association, partnership, organization or individual; PROVIDED HOWEVER, that
notwithstanding the foregoing, the Borrower and its Subsidiaries may:
(a) make other real estate investments or acquisitions, not in
contravention of any provision of this Agreement or any Requirement of Law, and
the total capital commitment (the "Total Project Investment") and the capital
commitment outstanding at any one time (the "Peak Net Investment") for which
shall not exceed the following designated amounts for a single project (multiple
phases of a project are considered in the aggregate and not as separate
projects):
<TABLE>
<CAPTION>
State Peak Net Investment Total Project Investment
----- ------------------- ------------------------
<S> <C> <C>
Hawaii $50,000,000 $75,000,000
Colorado $30,000,000 $75,000,000
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California $25,000,000 $75,000,000
Washington $20,000,000 $50,000,000
Oregon $20,000,000 $50,000,000
Utah $20,000,000 $50,000,000
</TABLE>
(The Borrower and the Banks acknowledge that, as of the Closing Date, the
Borrower has existing agreements for real estate investments or acquisitions
which are excluded from this provision.)
(b) make other investments in an amount which shall not exceed
$2,000,000 in a Captive Insurance Subsidiary;
(c) make any other Permitted Investment, without the necessity
of obtaining the consent of the Majority Banks; and
(d) make such guaranties as may be necessary in support of the
Senior Notes.
If the Borrower wishes to obtain the consent of the Majority Banks for any
proposed deviation from the above, the Borrower 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 Borrower or its
Subsidiaries 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 Borrower 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 Borrower shall not, and shall not permit any of its
Subsidiaries to, acquire or obtain any interest in, or contract to acquire or
obtain any interest in, any Unentitled Land.
(b) The Borrower shall not, and shall any permit any of its
Subsidiaries to, allow their inventory of Completed Unsold Homes to exceed the
applicable levels set forth in SCHEDULE 2 attached hereto.
(c) The Borrower shall not, and shall not permit any of its
Subsidiaries to, 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 Borrower 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 Borrower and/or any of its Subsidiaries
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",
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"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 Borrower and its Subsidiaries 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 Borrower and its Subsidiaries not incurred in connection with the
borrowing of money or the obtaining of advances or credit and which do not in
the aggregate materially detract from the value of their assets or property;
(iv) mechanics' and materialmen's liens which have attached pursuant to
Chapter 507, Hawaii Revised Statutes, as long as the Borrower or its
Subsidiaries 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 Borrower's or any of its Subsidiaries' 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 Borrower or any of its 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. The Borrower shall not, and shall
not permit its Subsidiaries to, engage in any development of a residential or
commercial building having more than four (4) stories, other than Country Club
Village.
7.11 [Reserved]
7.12 TRANSFER OF ASSETS TO CAPTIVE INSURANCE SUBSIDIARY. Except as
may be permitted in Section 7.07, the Borrower or any of its Subsidiaries shall
not transfer any assets or property to any of the Borrower's Subsidiaries,
without the prior written consent of the Banks, which consent may be withheld by
the Banks in their sole discretion.
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ARTICLE VIII
EVENTS OF DEFAULT
8.01 EVENT OF DEFAULT. Any of the following shall constitute an
"Event of Default":
(a) NON-PAYMENT. The Borrower fails to pay, when and as
required to be paid herein, (i) any amount of principal of any Advance or
Swing-Line Advance; or (ii) any interest, fee or other amount payable
hereunder or pursuant to any other Loan Document, unless such failure to pay
such interest, fee or other charge is remedied within five (5) Business Days
after the due date therefor; or
(b) REPRESENTATION OR WARRANTY. Any representation or
warranty by the Borrower made or deemed made herein or which is contained in any
certificate, document or financial or other statement by or on behalf of the
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. The Borrower fails to perform or
observe any term, covenant or agreement contained in Section 7.01; or
(d) OTHER DEFAULTS. Except as provided in subsection
8.01(l) below, the 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 the Borrower knew of such failure or (ii)
the date upon which written notice thereof is given to the Borrower by the
Administrative Agent or any Bank; or
(e) CROSS-DEFAULT. The Borrower or any Subsidiary of the
Borrower (i) fails to make any payment in respect of any other Indebtedness
or Guaranty Obligation having an aggregate principal amount for the Borrower
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 (ii) 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 any
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 (iii) fails to make any payment in respect of or
perform or
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observe in any material respect any other condition or covenant of the Senior
Notes, if the effect is an event of default under the Senior Notes; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or any
of its Subsidiaries (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 Subsidiary by the Borrower or another Subsidiary of the
Borrower; (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 the Borrower or any of its
Subsidiaries, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of such party's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Borrower or any of its Subsidiaries admits the material
allegations of a petition against it in any Insolvency Proceeding, or an order
for relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Borrower or any of its Subsidiaries acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its property or business; or
(h) ERISA.
(i) there shall exist an accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, with respect to any Plan (other than a
Multi-employer Plan) which does or would be reasonably expected to have
a Material Adverse Effect;
(ii) there shall occur a Reportable Event with
respect to any Plan (other than a Multi-employer Plan) which does or
would be reasonably expected to have a Material Adverse Effect;
(iii) any liability to the PBGC shall be incurred by
the 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) The 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
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(i) MONETARY JUDGMENTS. One or more non-interlocutory
judgments, orders or decrees shall be entered against the Borrower or any of its
Subsidiaries involving in the aggregate (existing at any one time for such
entity) a liability (not fully covered by independent third-party insurance) as
to any single or related series of transactions, incidents or conditions, of
$5,000,000 or more, and the same shall remain unsatisfied, unvacated, unbonded
or unstayed pending appeal for a period of 60 days after the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or
decree shall be rendered against the Borrower or any of its Subsidiaries which
does or would reasonably be expected to have a Material Adverse Effect, and
there shall be any period of 10 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(k) LOSS OF LICENSES. Any Governmental Authority shall
revoke or fail to renew any license, permit or franchise of the Borrower or any
Subsidiary of the 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 Material Adverse Effect; or any such
entity shall suffer the imposition of any restraining order, escrow, suspension
or impound of funds in connection with any proceeding (judicial or
administrative) with respect to any license, permit or franchise and such
imposition does or would reasonably be expected to have a Material Adverse
Effect; or
(l) COMPLETED UNSOLD HOMES. The 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 the
Borrower knew of such failure or (ii) the date upon which written notice thereof
is given to the Borrower 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 Borrower 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 Borrower; 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 Borrower, or to remain active and involved in the
management of, and formation of policy for, the Borrower; 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 Borrower shall, within a
reasonable time thereafter, appoint a successor chairman of the board, chief
executive officer, and president of the Borrower, subject to the approval of the
Majority Banks, which approval shall not be unreasonably withheld.
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(n) ADVERSE CHANGE. There shall occur a Material Adverse
Effect, and the existence thereof shall continue unremedied for a period of 30
days after the earlier of (i) the date upon which a Responsible Officer of the
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
Borrower 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 Borrower
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 Borrower;
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 Borrower 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 Borrower, 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 Borrower, any
Subsidiary or Affiliate of the Borrower, 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 Borrower, its Subsidiaries 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 Borrower, or any Subsidiary or any Affiliate of the
Borrower.
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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, 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 Borrower), 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 Borrower 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 Borrower, and each of its 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
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and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial
and other condition and creditworthiness of the Borrower, and each of its
Subsidiaries, 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 Borrower 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 Borrower.
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 Borrower 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 Borrower and without limiting the obligation of the Borrower 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 Borrower. 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 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
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which rendered the exemption from or 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 Borrower, and any and all Subsidiaries and Affiliates of the Borrower 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 Borrower, 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 Borrower, 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 Bank of America NT&SA.
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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 Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks and the Borrower 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 Borrower 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;
(e) amend this Section 10.01 or Section 2.15 or any
provision providing for consent or other action by all Banks;
(f) discharge any Guarantor;
(g) amend any of the Events of Default set forth in Section
8.01; or
(h) amend the definition of Majority 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.
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10.02 NOTICES
(a) All notices, requests and other communications provided
for hereunder shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission), provided that any matter
transmitted by the Borrower 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 Borrower hereunder shall be signed by a Responsible Officer of the
Borrower, 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 Borrower or the Administrative Agent, to such other address as shall be
designated by such party in a written notice to the other parties, and if
directed to each other party, at such other address as shall be designated by
such party in a written notice to the Borrower 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 Borrower acknowledges and agrees 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 Borrower. 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 Borrower to give such notice and the Administrative Agent and
the Banks shall not have any liability to the Borrower 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 Borrower 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 Borrower 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
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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 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 Borrower 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 Borrower's
execution, delivery, enforcement or performance of this Agreement and any other
Loan Documents, or the Borrower's use of the proceeds of the Advances, or
arising from the action or failure to act of the Borrower, any of its
Subsidiaries or their respective 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 Borrower or any other Person or against or in payment of any or all
of the Obligations. To the extent that the Borrower makes 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.
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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 Borrower 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 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 Borrower (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.
10.08 ASSIGNMENTS, PARTICIPATIONS, ETC.
(a) Upon notice to the Administrative Agent and the
Borrower, 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 Borrower (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 Borrower 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 Borrower 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 Borrower 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 Borrower and provided to it by
the Borrower or any Subsidiaries of the Borrower, or by the Administrative Agent
on the Borrower's or such Subsidiary's behalf, in connection with this Agreement
or any other Loan Document, and neither such Bank nor any of its Affiliates
shall disclose any such information for any purpose or in any manner other than
pursuant to the terms contemplated by this Agreement, except to the extent such
information was or becomes generally available to the public other than as a
result of a disclosure by such Bank; PROVIDED, HOWEVER, that
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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 Borrower authorizes each Bank to disclose
to any assignee and proposed assignee, and to any Participant and any
prospective Participant, such financial and other information in such Bank's
possession concerning the Borrower or its 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
Borrower in connection with the Banks' credit evaluation of the Borrower
prior to entering into this Agreement; PROVIDED that, unless otherwise agreed
by the Borrower, 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
Borrower to or for the account of the assigning or pledging Bank in accordance
with the terms of this Agreement shall satisfy the Borrower's obligations
hereunder in respect of such assigned Advances to the extent of such payment.
No such assignment shall release the assigning Bank from its obligations
hereunder.
10.09 SET-OFF. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists, each Bank is authorized at any
time and from time to time, without prior notice to the Borrower, any such
notice being waived by the Borrower 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 Borrower 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 Borrower 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 Borrower 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 Borrower hereby irrevocably
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authorizes the Administrative Agent to debit any deposit account of the
Borrower 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 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 Borrower 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 Borrower, 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 BORROWER,
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
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OF HAWAII, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
BORROWER, 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 BORROWER, THE ADMINISTRATIVE AGENT, AND THE BANKS IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF
THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE BORROWER, 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 BORROWER, 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 BORROWER,
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 [Reserved]
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 Borrower, 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
Borrower 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
SCHULER HOMES, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
"Borrower"
FIRST HAWAIIAN BANK, as Administrative
Agent and Co-Syndication 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 and Co-Syndication Agent
By /s/ Cynthia K. Hamilton
--------------------------------
Name: Cynthia K. Hamilton
Title: Vice President
ADDRESS FOR NOTICES:
Bank of America National Trust and Savings
Association
5 Park Plaza, Suite 500
Irvine, California 92614-8525
Attention: Cynthia K. Hamilton
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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
ADDRESS FOR PAYMENTS:
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
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BANK OF AMERICA NT&SA, as a Bank
By /s/ Cynthia K. Hamilton
--------------------------------
Name: Cynthia K. Hamilton
Title: Vice President
ADDRESS FOR NOTICES:
Bank of America National Trust and
Savings Association
5 Park Plaza, Suite 500
Irvine, California 92614-8525
Attention: Cynthia K. Hamilton
DOMESTIC AND OFFSHORE LENDING OFFICE:
Bank of America National Trust and
Savings Association
5 Park Plaza, Suite 500
Irvine, California 92614-8525
Attention: Toni Fishel
ADDRESS FOR PAYMENTS:
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BANK ONE, ARIZONA, NA
By /s/ Rhonda R. Williams
--------------------------------
Name: Rhonda R. Williams
Title: Vice President
ADDRESS FOR NOTICES:
Bank One, Arizona, N.A.
Corporate Real Estate
201 North Central Avenue
Phoenix, AZ 85004
DOMESTIC AND OFFSHORE LENDING OFFICE:
Bank One, Arizona, N.A.
Corporate Real Estate
201 North Central Avenue
Phoenix, AZ 85004
ADDRESS FOR PAYMENTS:
Bank One, Arizona, N.A.
Real Estate Loan Administration
201 North Central Avenue
Phoenix, AZ 85004
Attn: Real Estate Loan Administration
AZ1-1328
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BANK BOSTON, NA
By /s/ Nicholas Whiting
--------------------------------
Name: Nicholas Whiting
Title: Vice President
ADDRESS FOR NOTICES:
BANKBOSTON, N.A.
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, GA 30346
DOMESTIC AND OFFSHORE LENDING OFFICE:
BANKBOSTON, N.A.
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, GA 30346
ADDRESS FOR PAYMENTS:
BANKBOSTON, N.A.
Commercial Loan Services
100 Rustcraft Road
Dedham, MA 02026
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BANK OF HAWAII
By /s/ Joyce Y. Sakai
--------------------------------
Name: Joyce Y. Sakai
Title: Vice President
ADDRESS FOR NOTICES:
Bank of Hawaii
CIPLD #366
130 Merchant Street
Honolulu, Hawaii 96813
Attention: Joyce Sakai
DOMESTIC AND OFFSHORE LENDING OFFICE:
Bank of Hawaii
CIPLD #366
130 Merchant Street
Honolulu, Hawaii 96813
Attention: Joyce Sakai
ADDRESS FOR PAYMENTS:
Bank of Hawaii
CIPLD #366
130 Merchant Street
Honolulu, Hawaii 96813
Attention: Joyce Sakai
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AND the undersigned Guarantors consent to the foregoing amendments
and reaffirms their obligations under those certain Guaranties dated
September 30, 1998 (the "Guaranty"), and covenants that the
execution and delivery of the Second Amended and Restated Credit Agreement
shall not in any way affect, impair or diminish their obligations under the
Guaranty.
As of the date hereof, the Guarantors have no claims, defenses or
offsets against the Lender or against the Guarantors' obligations under the
Guaranty, whether in connection with the negotiations for or closing of the
Credit Facility or any prior amendments thereof, of the Second Amended and
Restated Credit Agreement, or otherwise, and if any such claims, defenses or
offsets exist, they are hereby irrevocably waived and released.
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SCHULER HOMES OF OREGON, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
MELODY HOMES, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SCHULER REALTY/MAUI, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
-81-
<PAGE>
SCHULER REALTY/OAHU, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
LOKELANI CONSTRUCTION CORPORATION
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
MELODY MORTGAGE CO.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SHLR OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SHLR OF UTAH, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SHLR OF COLORADO, INC.
By /s/ Douglas M. Tonokawa
--------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
-82-
<PAGE>
EXHIBIT 10.2
GUARANTY
This Guaranty is made by 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, MELODY MORTGAGE CO., a Colorado
corporation, SHLR OF WASHINGTON, INC., a Washington corporation, SHLR OF
COLORADO, INC., a Colorado corporation, and SHLR OF UTAH, INC., a Utah
corporation (collectively referred to as the "Guarantors", and individually
referred to as a "Guarantor").
WHEREAS, (i) Schuler Homes, Inc., a Delaware corporation (the
"Borrower"), (ii) the banks from time to time party to the Credit Agreement,
as herein defined (collectively referred to as the "Banks", and individually
referred to as a "Bank"), (iii) FIRST HAWAIIAN BANK, a Hawaii corporation, as
administrative and co-syndication agent for the Banks (the "Administrative
Agent"), and (iv) 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"), entered into that certain Second Amended and
Restated Credit Agreement dated September 30, 1998 (the "Credit Agreement"),
relating to a revolving credit facility (the "Credit Facility") in the principal
amount of $90,000,000.00 made available to the Borrower by the Banks; and
WHEREAS, the Guarantors are subsidiaries of the Borrower and deem it
to be to the Guarantors' financial benefit that the Banks make the Credit
Facility available to the Borrower; and
NOW, THEREFORE, as an essential inducement to the Banks and the
Agents to make the Credit Facility available to the Borrower pursuant to the
terms of the Credit Agreement, and as a consideration for so doing, the
Guarantors hereby agree with the Banks and the Agents, and with each holder
of the Note evidencing the Credit Facility and each holder of any interest in
the Note (each holder of the Note and each holder of any interest therein
being hereinafter collectively and individually called the "Holder"), as
follows:
1. DEFINITIONS As used herein, the following terms shall have the
following meanings:
(a) "INDEBTEDNESS" shall mean (i) all sums due and payable under the
Note, including, without limitation, principal, interest, fees and charges
thereunder; and (ii) any and all other indebtedness or liability of the
Borrower to the Banks and/or the Agents under or arising out of the Credit
Facility or the Loan Documents, including, as to (i) and (ii) above, any
extension, renewal, reduction, compromise, indulgence, variation or
modification thereof.
(b) "OBLIGATIONS" shall mean each and every agreement, covenant and
condition to be observed or performed by the Borrower under the Loan
Documents.
(c) "EXPENSES" shall mean all costs and expenses, including, but not
limited to, attorneys' fees, incurred in connection with the enforcement by
the Banks and the Agents of its rights against
<PAGE>
the Borrower under the Loan Documents and against the Guarantors hereunder,
following any default in the due and punctual payment of the Indebtedness, or
observance and performance of the Obligations, by the Borrower.
2. INDEBTEDNESS AND OBLIGATIONS GUARANTEED. The Guarantors hereby
jointly and severally, absolutely, irrevocably and unconditionally guarantee
the payment of the Indebtedness and the observance and performance of the
Obligations. In connection therewith, the Guarantors will pay to the Banks
and the Agents, on demand, all of the Expenses, and will indemnify and hold
the Banks and the Agents harmless from and against any loss, cost, liability
or expense which the Banks and/or the Agents may sustain or incur by reason
of the failure of the Borrower to pay all of the Indebtedness or to observe
and perform all of the Obligations.
3. UNCONDITIONAL AND ABSOLUTE PAYMENT GUARANTY. This is an
unconditional and absolute guaranty of payment and not merely a guaranty of
collection, and if for any reason, any Indebtedness shall not be paid when
and as due and payable, or any Obligation shall not be observed or performed
when the same is required to be observed or performed, the Guarantors
undertake promptly to pay all such Indebtedness, and to observe and perform,
or to cause the appropriate party to observe and perform, each of such
Obligations, regardless of any defense or setoff or counterclaim which the
Borrower may have or assert, and regardless of whether or not any Holder or
anyone on behalf of any Holder shall have instituted any suit, action or
proceeding or exhausted its remedies or taken any steps to enforce any rights
against any of such parties or any other person to collect all or part of any
such amounts, or to compel any such performance, either pursuant to the Loan
Documents, or at law or in equity, and regardless of any other condition or
contingency.
4. WAIVER. The Guarantors hereby unconditionally waive any and all
statutory and common law suretyship defenses that now or hereafter may be
available to the Guarantors, including, without limitation (a) any
requirement that any Holder in the event of any default by the Borrower first
make demand upon, or seek to enforce remedies against, the Borrower or any
other guarantor or any security or collateral held by the Banks or the Agents
at any time, or to pursue any other remedy in its power, before being
entitled to payment from the Guarantors of the amounts payable by the
Guarantors hereunder, or before proceeding against the Guarantors; (b) the
defense of the statute of limitations in any action hereunder or for the
collection of any Indebtedness or the performance of any Obligation; (c) any
defense that may arise by reason of (i) the incapacity, lack of authority,
death or disability of the Borrower, any Guarantor or any other person or
entity, (ii) the revocation or repudiation of this Guaranty by the
Guarantors, or the revocation or repudiation of any of the Loan Documents by
the Borrower or any other person or entity, (iii) the failure of the Banks or
the Agents to file or enforce a claim against the estate (either in
administration, bankruptcy or any other proceeding) of the Borrower or any
other person or entity, (iv) the unenforceability in whole or in part of the
Loan Documents or any other document, instrument, or agreement referred to
therein, or any limitation on the liability of the Borrower thereunder, or
any limitation on the method or terms of payment thereunder, which may now or
hereafter be caused or imposed in any manner whatsoever, (v) the election by
the Banks and the Agents, in any proceeding instituted under the federal
Bankruptcy Code, of the application of Section 1111(b)(2) of the federal
Bankruptcy Code, or (vi) any borrowing or grant of a security interest under
Section 364 of the federal Bankruptcy Code; (d) diligence, presentment,
demand for payment, protest, notice of discharge, notice of
2
<PAGE>
acceptance of this Guaranty, and indulgences and notices of any other kind
whatsoever; (e) any defense based upon an election of remedies (including, if
available, an election to proceed by non-judicial foreclosure) by the Banks
and the Agents which destroys or otherwise impairs any subrogation rights of
the Guarantors or the right of the Guarantors to proceed against the Borrower
for reimbursement, or both; (f) any defense based upon any taking,
modification or release of any collateral or guaranties for the Indebtedness
of the Borrower to the Banks and the Agents, or any failure to perfect any
security interest in, or the taking of any other action or the failure to
take any other action with respect to any collateral securing payment of the
Indebtedness or performance of the Obligations; (g) any rights or defenses
based upon an offset by the Guarantors against any obligation now or
hereafter owed to the Guarantors by the Borrower; or (h) any right of
appraisement with regard to the value of any collateral which the Banks may
apply as a credit to the obligations of the Borrower, through foreclosure or
otherwise, and agrees that the determination by an independent appraiser
appointed by the Banks or the Agents of the value of such collateral shall be
binding upon the Guarantors for all purposes; it being the intention hereof
that the Guarantors shall remain fully liable, as principal, until the full
payment of the Indebtedness, full performance of all the Obligations, and
termination of the obligations of the Banks and the Agents under the Loan
Documents, notwithstanding any act, omission or thing which might otherwise
operate as a legal or equitable discharge of the Guarantors.
5. NO RELEASE OF GUARANTY. The obligations, covenants, agreements
and duties of the Guarantors under this Guaranty shall not be released,
affected, stayed or impaired, except upon the express written consent of the
Banks and the Agents, by (a) any assignment, indorsement or transfer, in
whole or in part, of the Note, although made without notice to or the consent
of the Guarantors; or (b) any alteration, compromise, modification,
acceleration, extension or change to or of the time or manner of payment of
any of the Indebtedness, or the performance or observance of any of the
Obligations; or (c) any increase or reduction in the rate of interest or
amount of principal payable on the Note, or any other Indebtedness; or (d) the
voluntary or involuntary liquidation, sale or other disposition of all or
substantially all of the assets of the Borrower or the Guarantors; or (e) any
receivership, insolvency, bankruptcy, reorganization, dissolution or other
similar proceedings, affecting the Borrower or the Guarantors or any of their
assets; or (f) any release of any property from the lien and security
interest created by any of the Loan Documents, the subordination of any such
lien or security interest, or the acceptance of additional or substitute
property as security under the Loan Documents; or (g) the release or
discharge of the Borrower from the observance or performance of any
agreement, covenant, term or condition contained in the Loan Documents; or
(h) the foreclosure of any lien or security interest on any property securing
repayment of the Indebtedness, or the acceptance of a deed or assignment of
any such property in lieu of foreclosure; or (i) any action which the Holder
may take or omit to take by virtue of the Loan Documents or through any
course of dealing with the Borrower; or (j) the release of any existing
guarantor or the addition of a new guarantor; or (k) the operation of law or
any other cause, whether similar or dissimilar to the foregoing.
6. WAIVER OF SUBROGATION. The Guarantors hereby waive, release and
discharge any claim or right the Guarantors may have to be subrogated to the
rights of the Holder following payment of the Indebtedness and performance of
the Obligations. This waiver, release and discharge shall
3
<PAGE>
continue even after the Indebtedness has been paid in full, the Obligations
performed, and the obligations of the Banks and the Agents under the Loan
Documents terminated.
7. SUBORDINATION OF INDEBTEDNESS. Any indebtedness of the Borrower
now or hereafter held by any Guarantor is hereby subordinated to the
Indebtedness of the Borrower to the Holder; and, upon the request of the
Holder, such indebtedness of the Borrower to the Guarantors shall be
collected, enforced and received by the Guarantors as trustee for the Holder
and shall be paid over to the Holder on account of the Indebtedness of the
Borrower to the Holder without reducing or affecting in any manner the
liability of the Guarantors under the other provisions of this Guaranty.
8. CLAIMS IN BANKRUPTCY. The Guarantors will file all claims
against the Borrower in any bankruptcy or other proceeding in which the
filing of claims is required or permitted by law upon any indebtedness of the
Borrower to any Guarantor or claim against the Borrower by any Guarantor, and
the Guarantors hereby assign to the Banks and the Agents all rights of the
Guarantors thereunder. If the Guarantor does not file any such claim, the
Banks and the Agents, as attorney-in-fact for such Guarantor, is hereby
authorized to do so in the name of the Guarantor or, in the discretion of the
Banks and the Agents, to assign the claim and to cause proof of claim to be
filed in the name of the nominee of the Banks and the Agents. The Banks, the
Agents or their nominee shall have the sole right to accept or reject any
plan proposed in such proceeding and to take any other action which a party
filing a claim is entitled to take. In all such cases, whether in
administration, bankruptcy or otherwise, the person or persons authorized to
pay such claim shall pay to the Banks and the Agents the full amount payable
on such claim up to the amounts due under this Guaranty, and, to the full
extent necessary for that purpose, the Guarantors hereby assign to the Banks
and the Agents all of the Guarantors' rights to any such payments or
distributions to which the Guarantors would otherwise be entitled; provided,
however, that the Guarantors' obligations hereunder shall not be satisfied
except to the extent that the Banks and the Agents receive cash by reason of
any such payment or distribution. If the Banks and the Agents receive
anything hereunder other than cash, the same shall be held as collateral for
the payment of all amounts due under this Guaranty.
9. FINANCIAL CAPACITY.
(a) The Guarantors hereby agree, as a material inducement to the
Banks and the Agents to enter into the Second Amendment, to furnish to the
Banks and the Agents such financial statements, reports and information as
required by Sections 6.01 and 6.02 of the Credit Agreement. The Banks and
the Agents agree to keep confidential all of the financial information which
it receives in connection herewith, except that such information may be
provided to any assignee as provided in Section 17 hereof.
(b) The Guarantors will promptly notify each Bank through the
Administrative Agent of the commencement of, or any material development in,
any litigation or proceeding affecting any Guarantor which, if adversely
determined, would reasonably be expected to have a Material Adverse Effect
(as defined in the Credit Agreement); or in which the relief sought is an
injunction or other stay of the performance of this Guaranty. Such notice
shall be accompanied by a written statement by the chief executive officer,
the president or the chief financial officer of such Guarantor, or any
4
<PAGE>
other officer having substantially the same authority and responsibility,
setting forth details of the occurrence referred to therein, and stating what
action the Guarantors propose to take with respect thereto and at what time.
10. CONDITION OF BORROWER. The Guarantors are fully aware of the
financial condition of the Borrower and are executing and delivering this
Guaranty based solely upon the Guarantors' own independent investigation of
all matters pertinent hereto, and are not relying in any manner upon any
representation or statement of the Banks or the Agents. The Guarantors
represent and warrant that the Guarantors are in a position to obtain and the
Guarantors hereby assume full responsibility for obtaining, any additional
information concerning the Borrower's financial condition and any other
matter pertinent hereto as the Guarantors may desire, and the Guarantors are
not relying upon or expecting the Banks or the Agents to furnish to the
Guarantors any information now or hereafter in the possession of the Banks or
the Agents concerning the same or any other matter. By executing this
Guaranty, the Guarantors knowingly acknowledge and accept the full range of
risks encompassed within a contract of this type. The Guarantors shall have
no right to require the Banks or the Agents to obtain or disclose any
information with respect to the Indebtedness or the Obligations, the
financial condition or character of the Borrower, the Borrower's ability to
pay the Indebtedness or perform the Obligations, the existence of any
collateral or security for any or all of the Indebtedness or the Obligations,
the existence or non-existence of any other guaranties of all or any part of
the Indebtedness or the Obligations, or any action or non-action on the part
of the Banks, the Agents, the Borrower, or any other person, or any other
matter, fact or occurrence whatsoever.
11. REPRESENTATIONS AND WARRANTIES. Each of the Guarantors represents
and warrants to the Banks and the Agents that:
(a) TAX RETURNS AND PAYMENTS. All material tax returns and reports
of each Guarantor 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 currently payable
without penalty or interest and those currently being contested in good
faith) upon any Guarantor or upon any Guarantor's properties, assets or
income which are due and payable have been paid.
(b) LITIGATION. There is, to the knowledge of the Guarantors, no
action, suit, proceeding or investigation pending at law or in equity or
before any Governmental Authority (as defined in the Credit Agreement), or
threatened against or affecting any Guarantor, an adverse ruling in which
would or might materially impair the ability of the Guarantors to observe and
perform the Guarantors' obligations under this Guaranty or have a material
adverse effect upon the legality, validity, binding effect or enforceability
of this Guaranty.
(c) COMPLIANCE WITH OTHER INSTRUMENTS; NONE BURDENSOME. To the best
of their knowledge, no Guarantor is in violation of or in default with
respect to any provision of any mortgage, indenture, contract, agreement or
instrument applicable to such Guarantor, or by which such Guarantor is bound,
and there is no provision of any mortgage, indenture, contract, agreement or
instrument applicable to any Guarantor or by which any Guarantor is bound
which materially adversely affects, or in the future (so far as the
Guarantors can now foresee) will materially adversely affect, the
5
<PAGE>
business or prospects or condition (financial or other) of any Guarantor or
of any Guarantor's properties or assets.
(d) FINANCIAL STATEMENTS. Any financial statements heretofore
delivered to the Banks and the Agents by the Guarantors are true and correct
in all respects, and fairly represent the respective financial conditions of
the subjects thereof as of the respective dates thereof; and no materially
adverse change has occurred in the financial conditions reflected therein
since the respective dates thereof.
12. BANKRUPTCY. Until all Indebtedness has been paid to the Banks
and the Agents, all Obligations have been performed, and the obligations of
the Banks and the Agents under the Loan Documents have been terminated, the
Guarantors shall not, without the prior written consent of the Banks and the
Agents, commence or join with any other person in commencing any bankruptcy,
reorganization or insolvency proceedings of or against the Borrower. The
obligations of the Guarantors under this Guaranty shall not be altered,
limited or affected by any proceeding, voluntary or involuntary, involving
the bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of the Borrower or by any defense which the Borrower may have by
reason of the order, decree or decision of any court or administrative body
resulting from any such proceeding. The Guarantors acknowledge and agree
that any interest on the Indebtedness which accrues after the commencement of
any such proceeding (or, if interest on any portion of the Indebtedness
ceases to accrue by operation of law by reason of the commencement of said
proceeding, such interest as would have accrued on any such portion of the
Indebtedness if said proceeding had not been commenced) shall be included in
the Indebtedness, since it is the intention of the parties that the amount of
the Indebtedness which is guaranteed by the Guarantors pursuant to this
Guaranty should be determined without regard to any rule of law or order
which may relieve the Borrower of any portion of such Indebtedness. The
Guarantors will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to pay
the Banks and the Agents, or allow the claim of the Banks and the Agents in
respect of, any such interest accruing after the date on which such
proceeding is commenced. In the event that all or any portion of the
Indebtedness is paid or all or any part of the Obligations are performed by
the Borrower, the obligations of the Guarantors hereunder shall continue and
remain in full force and effect in the event that all or any part of such
payment or performance is avoided or recovered directly or indirectly from
the Banks or the Agents as a preference, fraudulent transfer or otherwise in
such proceeding.
13. REMEDIES CUMULATIVE. The liability of the Guarantors, and all
rights, powers and remedies of the Banks and the Agents hereunder and under
any other agreement now or at any time hereafter in force between the Banks,
the Agents and the Guarantors relating to the Indebtedness or the
Obligations, shall be cumulative and not exclusive or alternative, and such
rights, powers and remedies shall be in addition to all other rights, powers
and remedies given to the Banks and the Agents by law.
14. AMENDMENTS; CONTINUING LIABILITY. The terms of this Guaranty
may not be modified or amended except by a written agreement executed by the
Guarantors with the consent in writing of the Holder. The obligations of the
Guarantors under this Guaranty shall be continuing obligations and a separate
cause of action shall be deemed to arise in respect of each default
hereunder. The
6
<PAGE>
Guarantors will from time to time deliver, upon request of the Holder,
satisfactory acknowledgments of the Guarantors' continued liability hereunder.
15. MERGER OR CONSOLIDATION OF GUARANTORS. No Guarantor will
consolidate or merge with or into another corporation, person or entity,
whether or not affiliated with such Guarantor without the written consent of
the Holder (which consent shall not be unreasonably withheld). No
consolidation or merger (with or without the consent of the Holder) shall
release, affect or impair the continuing liability and obligation of the
Guarantors under this Guaranty.
16. NOTICES. Any notice or demand to be given or served hereunder
shall be in writing and personally delivered, or sent by registered or
certified mail addressed as follows:
To the Banks and
the Agents at: 999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
To Guarantors at: 828 Fort Street Mall, 4th Floor
Honolulu, Hawaii 96813
Any such address may be changed from time to time by the addressee by serving
notice to the other party as above provided. Service of such notice or
demand shall be deemed complete on the date of actual delivery or at the
expiration of the second day after the date of mailing if mailed in Hawaii,
whichever is earlier.
The Guarantors hereby irrevocably authorize the Agents to accept
facsimile ("FAX") transmissions of such notices, requests, demands and
documents, provided such transmission is signed by an officer of any
Guarantor. The Guarantors shall and do hereby hold the Agents harmless from,
and indemnify the Agents against, any loss, cost, expense, claim or demand
which may be incurred by or asserted against the Agents by virtue of the
Agents acting upon any such notices, requests, demands or documents
transmitted in accordance with the above provisions. Any such FAX
transmission shall, at the Agents' request, be separately confirmed by
telephone conference between the Agents and the authorized officer described
above, and shall be followed by transmission of the actual "hard copy" of the
notice, request, demand or document in question.
17. PARTIES IN INTEREST. All covenants, agreements, terms and
conditions contained in this Guaranty shall be binding on the Guarantors and
the Guarantors' respective successors, successors in trust and assigns, and
shall bind, inure to the benefit of and be enforceable by the Holder from
time to time. This Guaranty is assignable by the Banks and the Agents with
respect to all or any portion of the Indebtedness or the Obligations without
notice to or consent of the Guarantor, and when so assigned, the Guarantors
shall be liable to the assignee as to any such portion, without in any manner
affecting the liability of the Guarantors with respect to any of the
Indebtedness or Obligations retained by the Banks or the Agents.
7
<PAGE>
18. GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS. This
Guaranty shall be construed and interpreted in accordance with and shall be
governed by the laws of the State of Hawaii. The Banks and the Agents may
bring any action or proceeding to enforce this Guaranty, or any action or
proceeding arising out of this Guaranty, in any court or courts of the State
of Hawaii or the United States District Court for the District of Hawaii. If
the Banks and the Agents commence such an action in a court located in the
State of Hawaii, or the United States District Court for the District of
Hawaii, the Guarantors hereby agree that the Guarantors will submit and does
hereby irrevocably submit to the personal jurisdiction of such courts; if
served by mail will acknowledge receipt of a copy of the summons and
complaint within the statutory time limit and in the manner set forth on the
notice and summons; and will not attempt to have such action dismissed,
abated, or transferred on the ground of FORUM NON CONVENIENS or similar
grounds; provided, however, that nothing contained herein shall prohibit the
Guarantors from seeking, by appropriate motion, to remove an action brought
in a Hawaii state court to the United States District Court for the District
of Hawaii. If such action is so removed, however, the Guarantors shall not
seek to transfer such action to any other district nor shall the Guarantors
seek to transfer to any other district any action which the Banks and the
Agents originally commenced in the United States District Court for the
District of Hawaii. Any action or proceeding brought by the Guarantors
arising out of this Guaranty shall be brought solely in a court of competent
jurisdiction located in the State of Hawaii or in the United States District
Court for the District of Hawaii.
19. PARAGRAPH HEADINGS. The headings of paragraphs herein are
inserted only for convenience and shall in no way define, describe or limit
the scope or intent of any provision of the Guaranty.
20. LIABILITY JOINT AND SEVERAL. The obligations of each Guarantor
hereunder shall be joint and several.
21. COUNTERPARTS. This Guaranty may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument, and in making proof of this
Guaranty, it shall not be necessary to produce or account for more than one
such counterpart.
IN WITNESS WHEREOF, the Guarantors have executed this instrument as
of September 30, 1998.
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SCHULER HOMES OF OREGON, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
8
<PAGE>
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
MELODY HOMES, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SCHULER REALTY/MAUI, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SCHULER REALTY/OAHU, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
LOKELANI CONSTRUCTION CORPORATION
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
MELODY MORTGAGE CO.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SHLR OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
9
<PAGE>
SHLR OF COLORADO, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
SHLR OF UTAH, INC.
By /s/ Douglas M. Tonokawa
-------------------------------
Name: Douglas M. Tonokawa
Title: VP Finance
10
<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 SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,011,000
<SECURITIES> 0
<RECEIVABLES> 1,267,000
<ALLOWANCES> 0
<INVENTORY> 318,269,000
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 373,956,000
<CURRENT-LIABILITIES> 0
<BONDS> 57,500,000
0
0
<COMMON> 209,000
<OTHER-SE> 93,201,000
<TOTAL-LIABILITY-AND-EQUITY> 373,956,000
<SALES> 202,131,000
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 186,521,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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