<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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19891
SCHULER HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 99-0293125
(State or jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
828 Fort Street Mall, Suite 400
Honolulu, Hawaii 96813-4321
(Address of principal executive offices) (Zip code)
(808-521-5661)
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock October 31, 1999
--------------------- ----------------
$.01 par value 20,081,200
<PAGE>
SCHULER HOMES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Independent Accountants' Review Report .......................... 3
Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998 ......................................... 4
Consolidated Statements of Income - Three and nine months
ended September 30, 1999 and 1998 ......................... 5
Consolidated Statements of Cash Flows - Nine
months ended September 30, 1999 and 1998 .................. 6
Notes to Consolidated Financial Statements ...................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 11
PART II. OTHER INFORMATION................................................ 19
SIGNATURES ........................................................................ 20
</TABLE>
2
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
Schuler Homes, Inc.
We have reviewed the accompanying interim consolidated balance sheet of
Schuler Homes, Inc. as of September 30, 1999, and the related consolidated
statements of income for the three-month and nine-month periods ended
September 30, 1999 and 1998, and the consolidated statements of cash flows
for the nine-month periods ended September 30, 1999 and 1998. 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, 1998, 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 15, 1999, 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, 1998, 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 10, 1999
3
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,1999 December 31, 1998
----------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents (restricted-Note 1) ....................................... $ 6,650,000 $ 4,915,000
Real estate inventories (Note 2) .................................................... 432,000,000 325,166,000
Investments in unconsolidated joint ventures (Note 3) ............................... 9,369,000 23,998,000
Deferred income taxes ............................................................... 2,866,000 3,957,000
Intangibles, net .................................................................... 15,779,000 13,879,000
Other assets (Note 3) ............................................................... 21,932,000 13,628,000
----------------- -----------------
Total assets ........................................................................ $ 488,596,000 $ 385,543,000
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable .................................................................... $ 30,087,000 $ 15,954,000
Accrued expenses .................................................................... 18,831,000 16,703,000
Notes payable to banks (Note 4) ..................................................... 85,276,000 17,365,000
Notes payable to others ............................................................. 3,233,000 3,954,000
9% senior notes due 2008 ............................................................ 98,631,000 98,512,000
6-1/2% convertible subordinated debentures due 2003 ................................. 57,500,000 57,500,000
----------------- -----------------
Total liabilities ................................................................... 293,558,000 209,988,000
Commitments and contingencies (Notes 4 and 5)
Minority interest in consolidated subsidiary (Note 3) ............................... 1,522,000 --
Stockholders' equity (Notes 3 and 6):
Common stock, $.01 par value; 30,000,000 shares authorized;
20,928,158 and 20,892,465 shares issued at September 30, 1999 and December 31,
1998, respectively ............................................................. 214,000 209,000
Additional paid-in capital ...................................................... 95,965,000 93,201,000
Retained earnings ............................................................... 105,923,000 87,762,000
Treasury stock, at cost; 1,278,400 and 869,000 shares at September 30, 1999
and December 31, 1998, respectively........................................... (8,586,000) (5,617,000)
----------------- -----------------
Total stockholders' equity .......................................................... 193,516,000 175,555,000
----------------- -----------------
Total liabilities and stockholders' equity .......................................... $ 488,596,000 $ 385,543,000
----------------- -----------------
----------------- -----------------
</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,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- --------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Residential real estate sales (Note 3) ................... $ 128,335,000 $ 79,186,000 $ 355,851,000 $ 202,131,000
Costs and expenses:
Residential real estate sales ........................ 102,642,000 63,206,000 282,436,000 161,064,000
Selling and commissions .............................. 8,101,000 5,180,000 22,623,000 13,772,000
General and administrative ........................... 6,505,000 4,165,000 18,400,000 11,685,000
------------- ------------- --------------- -------------
Total costs and expenses ......................... 117,248,000 72,551,000 323,459,000 186,521,000
------------- ------------- --------------- -------------
Operating income ..................................... 11,087,000 6,635,000 32,392,000 15,610,000
Income from unconsolidated joint ventures ................ 556,000 750,000 893,0000 1,546,000
Minority interest in pretax income of consolidated
subsidiary (Note 3) .................................... (99,000) --- (272,000) ---
Other income (expense) (Note 4) .......................... (625,000) (1,618,000) (3,492,000) (3,492,000)
------------- ------------- --------------- -------------
Income before provision for income taxes .............. 10,919,000 5,767,000 29,521,000 13,664,000
Provision for income taxes (Note 7) ...................... 4,224,000 2,184,000 11,360,000 5,228,000
------------- ------------- --------------- -------------
Net income ............................................ $ 6,695,000 $ 3,583,000 $ 18,161,000 $ 8,436,000
------------- ------------- --------------- -------------
------------- ------------- --------------- -------------
Net income per share (Note 8):
Basic ................................................. $ 0.34 $ 0.18 $ 0.91 $ 0.42
------------- ------------- --------------- -------------
------------- ------------- --------------- -------------
Diluted ............................................... $ 0.33 $ 0.18 $ 0.91 $ 0.42
------------- ------------- --------------- -------------
------------- ------------- --------------- -------------
</TABLE>
See accompanying notes.
5
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------------
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................................... $ 18,161,000 $ 8,436,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization expense .................................... 3,366,000 2,387,000
Increase in allowance for doubtful accounts .............................. -- 96,000
(Income) loss from unconsolidated joint ventures ......................... (424,000) (1,463,000)
Change in principal balance of notes receivable .......................... 735,000 150,000
Minority interest ........................................................ 272,000 --
Changes in assets and liabilities, net of effects of purchase of additional
40% interest in Stafford:
(Increase) decrease in real estate inventories ............................. (56,093,000) (27,198,000)
(Increase) decrease in other assets ........................................ (2,327,000) (658,000)
Increase (decrease) in accounts payable .................................... 9,257,000 1,939,000
Increase (decrease) in accrued expenses .................................... 4,078,000 3,092,000
Change in deferred income taxes ............................................ 1,144,000 (83,000)
------------- -------------
Net cash provided by (used in) operating activities .................... (21,831,000) (13,302,000)
INVESTING ACTIVITIES:
Purchase of additional 40% interest in Stafford, net of cash acquired ......... (4,227,000) --
Acquisition of certain assets of Keys Homes ................................... (1,000,000) --
Investment in unconsolidated joint ventures ................................... (2,185,000) (1,000,000)
Advances to unconsolidated joint ventures ..................................... (517,000) (5,359,000)
Repayments of advances to unconsolidated joint ventures ....................... 975,000 262,000
Capital distributions from unconsolidated joint ventures ...................... 1,713,000 3,457,000
Purchase of furniture, fixtures, and equipment ................................ (1,004,000) (181,000)
------------- -------------
Net cash provided by (used in) investing activities .................... (6,245,000) (2,821,000)
FINANCING ACTIVITIES:
Proceeds from bank borrowings ................................................. 240,373,000 128,029,000
Principal payments on bank borrowings ......................................... (172,462,000) (208,113,000)
Principal payments on notes payables to others ................................ (729,000) --
Proceeds from issuance of senior notes, net of discount and offering costs .... -- 97,210,000
Refinancing of Stafford's debt ................................................ (29,378,000) --
Advances to affiliates (Note 3) ............................................... (5,810,000) --
Repayment of advances to affiliates ........................................... 255,000 --
Net decrease in discount on issuance of senior notes .......................... 119,000 65,000
Proceeds from issuance of common stock from exercise of stock options ......... 64,000 101,000
Proceeds from issuance of common stock under Employee Stock Purchase Plan ..... 348,000 --
Reacquisition of the Company's common stock ................................... (2,969,000) --
------------- -------------
Net cash provided by (used in) financing activities ................... 29,811,000 17,292,000
------------- -------------
Increase (decrease) in cash ................................................... 1,735,000 1,169,000
Cash and cash equivalents (restricted) at beginning of period ................. 4,915,000 3,842,000
------------- -------------
Cash and cash equivalents (restricted) at end of period ....................... $ 6,650,000 $ 5,011,000
------------- -------------
------------- -------------
</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, 1998
contained in the Company's 1998 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 Consolidated Financial Statements relating to 1998
have been reclassified to conform to the 1999 presentation.
Included in Cash and Cash Equivalents at September 30, 1999 is a restricted
amount of $712,000, which primarily represents a collection allowance
resulting from the sale of second mortgage notes.
In July 1999, the Company acquired certain assets of a homebuilder that
operates in Southern California and Arizona, thereby establishing two new
divisions of the Company. See Note 3.
2. Real Estate Inventories
Inventories which are substantially completed are carried at the lower of
cost or fair value less cost to sell. Fair value is determined by applying
a risk adjusted discount rate to estimates of future cash flows. In
addition, land held for future development or inventories under current
development are adjusted to fair value, only if an impairment to their
value is indicated.
The estimates of future cash flows require significant judgment relating to
the level of sales prices, rate of new home sales, amount of marketing
costs and price discounts needed in order to stimulate sales, rate of
increase in the cost of building materials and labor, introduction of
building code modifications, and 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.
7
<PAGE>
<TABLE>
<CAPTION>
Real estate inventories at September 30, 1999 consist of the following:
<S> <C>
Unimproved land held for future development............ $ 42,356,000
Development projects in progress...................... 346,518,000
Completed inventory (including lots held for sale)..... 43,126,000
---------------
$ 432,000,000
---------------
---------------
</TABLE>
Completed inventory includes residential units which are substantially
ready for occupancy.
3. Related Party Transactions
In January 1999, the Company exercised its option to purchase an additional
40% ownership interest in Stafford Homes (Stafford), increasing its total
ownership to 89%. As a result, the financial statements of Stafford for the
three-month and nine-month periods ended September 30, 1999 are
consolidated with those of the Company. In connection with this
transaction, the Company refinanced Stafford's existing debt, which
included $1,251,000 in certain notes payable to affiliates of Stafford.
Through October 1999, Stafford leased its main office building from an
affiliate of its President. The Company also leases its main office in
Oregon from a family member of the Division President of the Oregon
Division. During the quarter ended September 30, 1999, the Company incurred
total rental expense in connection with such leases of approximately
$32,000.
In connection with the acquisition of certain assets of Keys Homes, Inc.
(Keys) in October 1998, the Division President of the Company's Oregon
Division (formerly the president of Keys) earns a percentage of the profits
of the Oregon Division. In addition, included in Other Assets at September
30, 1999 is a note receivable of $1,000,000 from the Oregon Division
President, which was issued on January 4, 1999, is due on December 31,
2005, bears interest at 7%, and requires minimum annual payments of
$200,000 plus accrued but unpaid interest. Accrued interest receivable
relating to the note was approximately $52,000 at September 30, 1999.
During the quarter ended September 30, 1999, the Company sold 14 of its
homes for an aggregate sales price of $2,273,000 to a group of which the
Division President of the Company's Oregon Division is a member.
In connection with the acquisition in July 1999 that established the new
divisions in Southern California and Arizona, the owners of the seller, who
became officers of the new divisions, will retain an interest in the
profits of the two new divisions, until the sooner of the occurrence of
certain agreed upon events or December 31, 2004, which may be extended to
December 31, 2006. In connection with the acquisition, the Company issued
400,000 shares of its common stock and provided a loan to the seller in the
amount of $4,810,000, which is included in Other Assets. The loan is due on
December 31, 2004 and bears interest at 7%. Accrued interest receivable
relating to the loan was approximately $63,000 at September 30, 1999.
From time to time, the Company engages the law firm in which a director of
the Company is a partner. During the quarterly period ended September 30,
1999, no such legal fees were incurred by the Company.
4. Notes Payable to Banks
On October 1, 1999, the Company increased its Revolving Credit Facility
with a consortium of banks from $120,000,000 to $170,000,000. The Company
has a one-time option to reduce the amount of the facility by up to
$30,000,000 on an irrevocable basis, provided the facility has remained at
$170,000,000 for at least six months. The facility expires on July 1, 2002
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%. The
Company's ability to draw upon its line of credit is dependent upon meeting
certain financial ratios and covenants. As of September 30, 1999, the
Company met such
8
<PAGE>
financial ratios and covenants.
The Company entered into two interest rate swaps. One swap requires the
Company to pay a fixed rate of 5.75% on $30,000,000, while receiving in
return an interest payment at a floating one-month LIBOR. However, if the
one-month LIBOR resets at or above 7%, the swap reverses for that payment
period and no interest payments are exchanged. This interest rate swap
terminates on August 1, 2003. The second swap, which became effective on
August 9, 1999 and terminates on August 9, 2002, requires the Company to
pay interest at a floating one month LIBOR (5.21% on initial effective
date) on $30,000,000, while receiving in return an interest payment at a
fixed rate of 6.31%. The interest rate differential on these swaps to be
received or paid is recognized during the period as an adjustment to
interest incurred.
Notes Payable to Banks at September 30, 1999 consist of borrowings under
its credit facilities. At September 30, 1999, the Company's bank borrowings
were at interest rates of prime (8.25%) and LIBOR plus 1.5% (6.9%). At
September 30, 1999, $34,724,000 of the Company's $120,000,000 line of
credit is unused, of which $5,804,000 is restricted for outstanding but
unused letters of credit.
In April 1999, the Company entered into a separate 90-day $10,000,000 line
of credit with one of the banks included in the $120,000,000 Revolving
Credit Facility. In July 1999, the Company extended this line of credit for
an additional 90 days. This separate line of credit was canceled on October
1, 1999.
The interest amounts in this paragraph relate to Notes Payable to Banks,
Notes Payable to Others, Senior Notes and the Convertible Subordinated
Debentures. The Company paid interest of approximately $3,316,000 during
the quarter ended September 30, 1999. Interest incurred during the quarter
ended September 30, 1999 was approximately $4,777,000. All of such interest
was capitalized to real estate inventories except for $372,000, which was
expensed (included in Other Income (Expense)) and not capitalized, as such
interest did not meet the requirements for capitalization. Interest,
previously capitalized to real estate inventories, expensed as a component
of Cost of Residential Real Estate Sales during the quarter ended September
30, 1999 totaled $4,524,000.
5. Commitments and Contingencies
At September 30, 1999, the Company had land for residential development
under contract to purchase for approximately $4,000,000.
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.
Following the Court's denial of a class certification request, a second
action involving other homeowners at Fairway Village advancing the same
claims was initiated. While the Company believed the claims to be largely
without merit, during April 1999 a settlement agreement was entered into by
the Company, third party defendants, insurance carriers and all of the
plaintiffs in both lawsuits, except for the owners of three units. The
settlement amount incurred by the Company will be charged against the
warranty accruals previously established by the Company. Although the cost
of remediation for certain units called for under the settlement agreement
is not determinable until the work is completed, the Company believes that
the cost of such work will not exceed its warranty accruals. A new trial
date in December 1999 has been set for the initial suit, which has two
remaining plaintiffs. A trial date in April 2000 has been set in the second
action, which includes one remaining plaintiff. 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.
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
<PAGE>
6. Stockholders' Equity
During the quarter ended September 30, 1999, options to purchase 66,800
shares of common stock were granted. In addition, 31,628 shares were issued
on August 31, 1999 pursuant to the Company's Employee Stock Purchase Plan.
In November 1998, the Company adopted a stock repurchase program to
reacquire up to an aggregate of $10,000,000 of its outstanding common stock
through August 30, 1999 (subsequently extended through December 31, 2000).
As of September 30, 1999, the Company has repurchased 504,400 shares under
the program at a total cost of $3,585,650.
7. Income Taxes
During the three months ended September 30, 1999, the Company made income
tax payments of $4,250,000.
8. Net Income Per Share
Basic net income per share for the quarter and nine months ended September
30, 1999 were computed using the weighted average number of common shares
outstanding during the periods of 19,968,925 and 19,967,688, respectively.
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.
Diluted net income per share for the three months ended September 30, 1999
was computed by adding to net income the interest charged to Cost of
Residential Real Estate Sold of $842,000 (net of related income taxes)
which is applicable to convertible subordinated debentures, and dividing by
22,602,915, which represents the weighted average number of shares assuming
conversion of all convertible subordinated debentures. The computation of
diluted net income per share for the nine-month period ended September 30,
1999 and the three-month and nine-month periods ended September 30, 1998
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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, matters discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain "forward-looking statements" within the meaning of the
Private Securities Litigation Act of 1995 that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Forward-looking
statements are based on various factors and assumptions that include risks
and uncertainties, including but not limited to the costs and achievability
of Year 2000 compliance, the closing and profitability of sales in backlog
reported, the market for homes generally and in areas where the Company
operates, the availability and cost of land, changes in economic conditions
and interest rates, increases in raw material and labor costs, consumer
confidence, government regulation, weather conditions and general competitive
factors, all or each of which may cause actual results to differ materially.
In addition, other factors that might cause such a difference include 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 seven geographic markets:
Arizona, Colorado, Hawaii, Northern California, Oregon, Southern California
and Washington. Southern California and Arizona represent new geographic
markets for the Company, as a result of the July 1999 acquisition of certain
assets of Rielly Homes, Inc.
For the quarter ended September 30, 1999, sales of residential real
estate (revenues) were $128.3 million and operating income was $11.1 million,
compared to revenues of $79.2 million and operating income of $6.6 million
during the third quarter last year. Net income was $6.7 million ($0.33 per
share) for the quarter ended September 30, 1999, compared to net income of
$3.6 million ($0.18 per share) during the 1998 third quarter. For the third
quarter of 1998 compared to the third quarter of 1999, revenues grew 62.1%,
net income grew 86.9%, the number of units closed increased from 510 to 692
and operating profit margins improved from 8.4% to 8.6%.
In July 1999, the Company acquired certain assets of Rielly Homes, Inc.
("Rielly"), a homebuilder in Southern California and Phoenix, Arizona.
Founded by Tom Rielly in 1986, Rielly has built over 3,000 homes, focusing
primarily on the entry-level and first and second move-up markets. In 1998,
Rielly closed the sales of approximately 165 homes, generating revenues of
approximately $50.6 million.
11
<PAGE>
RESULTS OF OPERATIONS
The following tables set 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
1999 1998 1998 to 1999
------- ------- --------------
<S> <C> <C> <C>
Residential real estate sales .................... 100.0% 100.0% 62.1%
Costs and expenses:
Residential real estate sales ................ 80.0 79.8 62.4
Selling and commissions ...................... 6.3 6.5 56.4
General and administrative ................... 5.1 5.3 56.2
------- -------
Total costs and expenses ........... 91.4 91.6 61.6
------- -------
Operating income ................................. 8.6 8.4 67.1
Income from unconsolidated joint ventures ........ 0.4 0.9 (25.9)
Minority interest in pretax income of consolidated
subsidiary ...................................... -- -- --
Other income (expense) ........................... (0.5) (2.0) (61.4)
------- -------
Income before provision for income taxes ......... 8.5 7.3 89.3
Provision for income taxes ....................... 3.3 2.8 93.4
------- -------
Net income ................................... 5.2% 4.5% 86.9
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
Nine months ended % Change in Dollar Amounts
September 30, from
1999 1998 1998 to 1999
-------- ------- -------------------------
<S> <C> <C> <C>
Residential real estate sales .................... 100.0% 100.0% 76.0%
Costs and expenses:
Residential real estate sales ................ 79.4 79.7 75.4
Selling and commissions ...................... 6.3 6.8 64.3
General and administrative ................... 5.2 5.8 57.5
-------- -------
Total costs and expenses ........... 90.9 92.3 73.4
-------- -------
Operating income ................................. 9.1 7.7 107.5
Income from unconsolidated joint ventures ........ 0.2 0.8 (42.2)
Minority interest in pretax income of consolidated
subsidiary....................................... -- -- --
Other income (expense) ........................... (1.0) (1.7) --
-------- -------
Income before provision for income taxes ......... 8.3 6.8 116.0
Provision for income taxes ....................... 3.2 2.6 117.3
-------- -------
Net income ................................... 5.1% 4.2% 115.3
-------- -------
-------- -------
</TABLE>
RESIDENTIAL REAL ESTATE SALES
The Company's Residential Real Estate Sales (revenues) for the quarter
ended September 30, 1999 were approximately $128.3 million as compared to
approximately $79.2 million during the quarter ended September 30, 1998. This
represents an increase of approximately $49.1 million or 62.1%. The increase
in revenues reflects a larger number of unit sales closed at higher average
sales prices in the third quarter of 1999 relative to the third quarter of
1998. The Company's average sales price per unit increased to $202,000 during
the 1999 third quarter (excluding one sale under the Company's "zero-down"
sales program in Hawaii and 7 lot sales), an increase from an average sales
price per unit during the 1998 third quarter of $185,000.
12
<PAGE>
The Company's Residential Real Estate Sales (revenues) were
approximately $355.9 million for the nine months ended September 30, 1999,
compared to $202.1 million during the same period in 1998, an increase of
76.0%. The increase is attributable to the increase in the number and average
sales price of unit sales closed during the first nine months of 1999
compared to the first nine months of 1998. The average sales price per unit
closed was $194,000 during the nine months ended September 30, 1999, compared
to $180,000 during the nine months ended September 30, 1998.
As a result of the increase in the Company's ownership of Stafford to
89% in early 1999, the operating results of Stafford are consolidated with
those of the Company during the quarter and nine months ended September 30,
1999, contributing to the Company's higher 1999 revenues and average sales
prices as compared to 1998. Stafford's average sales price of home sales
closed was $253,000 during the quarter ended September 30, 1999 and $241,000
for the nine months ended September 30, 1999.
The following table sets forth the number of sales closed during the
three-month and nine-month periods ended September 30, 1999 and 1998, which
includes 100% of the sales closed at projects developed by the Company's
joint ventures.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
----------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Consolidated:
Colorado 339 303 995 788
Hawaii (1) 71 82 229 235
Northern California 76 24 159 59
Oregon 85 20 243 44
Washington (2) 71 -- 199 --
----------- -------------- ------------- -----------
Total Consolidated 642 429 1,825 1,126
Unconsolidated Joint Ventures:
Colorado (3) 36 -- 56 --
Hawaii (4) 5 7 16 17
Southern California (5) 9 -- 9 --
Washington (2) -- 74 -- 190
----------- -------------- ------------- -----------
Total 692 510 1,906 1,333
----------- -------------- ------------- -----------
----------- -------------- ------------- -----------
</TABLE>
(1) Includes homes and lots sold and closed pursuant to the Company's
"zero-down" sales program in Hawaii. The amount for the three months ended
September 30, 1999 includes one "zero-down" closing. The amount for the
nine months ended September 30, 1999 excludes 11 sales that closed prior to
January 1, 1999 under the Company's "zero-down" sales program, for which
the second mortgage notes were sold during the 1999 first quarter.
(2) Reflects 100% of the information with respect to Stafford Homes, which the
Company acquired a 49% interest in July 1997, which it increased to 89% in
January 1999.
(3) Reflects 100% of the information with respect to the Company's 50%-owned
joint venture in Colorado.
(4) Reflects 100% of the information with respect to the Company's two
50%-owned joint ventures in Hawaii.
(5) Reflects 100% of the information with respect to the Company's 24.5% to
49%-owned joint ventures in Southern California.
COSTS AND EXPENSES - RESIDENTIAL REAL ESTATE SALES
Costs and Expenses - 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.
Costs and Expenses - Residential Real Estate Sales increased from
approximately $63.2 million during the quarter ended September 30, 1998 to
approximately $102.6 million during the same period in 1999, representing an
increase of approximately $39.4 million or 62.4%. This increase reflects a
larger number of units closed and related increased revenue during the third
quarter of 1999 relative to the third quarter of 1998 and the consolidation
of Stafford's
13
<PAGE>
operating results with those of the Company during the quarter ended
September 30, 1999. As a percentage of revenues, Cost of Residential Real
Estate Sales was 80.0% and 79.8% during the quarters ended September 30, 1999
and 1998, respectively.
Costs and Expenses - Residential Real Estate Sales increased from
approximately $161.1 million during the nine months ended September 30, 1998
to approximately $282.4 million during the same period in 1999, representing
an increase of approximately $121.4 million or 75.4%, primarily reflecting a
larger number of units closed and related increased revenue during the first
nine months of 1999 relative to the same period in 1998.
Costs and Expenses - Residential Real Estate Sales as a percentage of
revenues decreased from 79.7% for the nine months ended September 30, 1998 to
79.4% for the nine months ended September 30, 1999. The decrease in the cost
of residential real estate sold as a percentage of revenues reflects higher
margins realized by the Colorado division.
Total interest incurred during the quarters ended September 30, 1999 and
1998 was approximately $4.8 million and $3.7 million, respectively. The
increase in interest incurred reflects the higher level of average debt
outstanding. Of the amounts incurred, approximately $372,000 and $1.1 million
were expensed currently (included in Other Income (Expense)) in the third
quarters of 1999 and 1998, 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 $4.5 million and $2.7 million during the quarters ended
September 30, 1999 and 1998, respectively.
Average debt outstanding was approximately $244.7 million and $180.2
million during the third quarters of 1999 and 1998, respectively, reflecting
the increase in debt outstanding associated with the increase in the
Company's ownership in Stafford and simultaneous refinancing of Stafford's
debt, as well as the higher volume of inventories in the Company's U.S.
mainland divisions. The Company's average interest rate on its debt for the
quarters ended September 30, 1999 and 1998 was approximately 7.8% and 8.0%,
respectively. 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 6.3% and 6.5% of
sales of residential real estate during the quarters ended September 30, 1999
and 1998, respectively. Selling costs and commissions represented
approximately 6.3% and 6.8% of sales of residential real estate during the
nine months ended September 30, 1999 and 1998, 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 Expenses include salaries, office and other
administrative costs. Indirect costs attributable to specific projects are
capitalized and deducted as part of Costs and Expenses - Residential Real
Estate Sales.
General and Administrative Expenses increased by $2.3 million during the
third quarter of 1999 as compared to the same period in 1998, primarily due
to expansion at the Company's U. S. mainland divisions and the consolidation
of Stafford's operating results with those of the Company during the quarter
and nine months ended September 30, 1999. As a percentage of sales, General
and Administrative Expenses decreased from 5.3% during the quarter ended
September 30, 1998 to 5.1% during the quarter ended September 30, 1999. This
decrease is a result of General and Administrative Expenses increasing at a
lower rate than revenues.
General and Administrative Expenses increased by $6.7 million or 57.5%
during the first nine months of 1999 as compared to the same period in 1998.
As a percentage of sales, General and Administrative Expense decreased from
5.8% during the first nine months of 1998 to 5.2% during the first nine
months of 1999. This decrease is a result of General and Administrative
Expenses increasing at a lower rate than revenues.
14
<PAGE>
INCOME FROM UNCONSOLIDATED JOINT VENTURES
During the first three quarters of 1999, Income from Unconsolidated
Joint Ventures represents (i) the Company's 50% interest in the operations of
two joint ventures in Hawaii, (ii) beginning in the second quarter of 1999,
the Company's 50% interest in its joint venture in Colorado and (iii)
beginning in the third quarter of 1999, the Company's 24.5% interest in a
joint venture in Southern California. During the comparable periods in 1998,
Income from Unconsolidated Joint Ventures represented the Company's 49%
interest in the operations of Stafford in addition to its 50% interest in the
operations of two joint ventures in Hawaii. The decrease in this income from
the first three and nine months of 1998 to the same period in 1999 is
primarily the result of Stafford being accounted for as a consolidated
subsidiary for the quarter and nine months ended September 30, 1999, rather
than an unconsolidated joint venture, due to the increase of the Company's
ownership interest to 89% in January 1999.
MINORITY INTEREST IN PRETAX INCOME OF CONSOLIDATED SUBSIDIARY
Minority Interest in Pretax Income of Consolidated Subsidiary
represents the income relating to the 11% of Stafford not owned by the
Company.
OTHER INCOME (EXPENSE)
Other Income (Expense) consists primarily of (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 covenants-not-to-compete; less interest income.
The decrease in Other Income (Expense) of $993,000 from the third quarter of
1998 to the third quarter of 1999, is primarily due to a lower ratio of debt
to inventory under development, offset by additional interest expense
resulting from the consolidation of Stafford.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate for the third quarters of 1999
and 1998 was approximately 38.7% and 37.9%, respectively.
VARIABILITY OF RESULTS; OTHER FACTORS
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 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, geographic area
to geographic area, and from fiscal quarter to fiscal quarter.
Certain of the Company's currently planned projects as well as future
projects, particularly in Hawaii, 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 on the mainland United States
further exposes the Company to risks inherent in those markets. For example,
the Company will encounter construction issues and risks such as expansive
soils and extreme seasonal weather conditions in Colorado (dissimilar to
those encountered in Hawaii).
15
<PAGE>
The Company will continue to consider its expansion into additional
selected residential housing markets in the United States mainland and into
certain foreign countries and into other related industries. The Company
would consider the acquisition of or joint venture with an existing company,
as it has done in the past, as well as its own 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.
In addition, the Company believes that the market price of its common stock
may at times be adversely affected due to the Company's relatively small size
when compared to certain other publicly traded national homebuilding firms.
The Company further believes that the price of its common stock may be
adversely affected due to the relatively low trading volume for its shares.
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, 1999 and 1998, 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 unconsolidated joint
ventures.
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
----------------------------- ------------------------------
Aggregate Aggregate
Number Sales Value Number Sales Value
--------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Consolidated:
Colorado 621 $ 114,218,000 414 $ 69,841,000
Hawaii 97 26,955,000 58 16,771,000
Northern California 114 30,280,000 28 4,619,000
Oregon 66 12,763,000 46 8,836,000
Washington 77 21,662,000 -- --
--------- ------------- ---------- -------------
Total Consolidated 975 205,878,000 546 100,067,000
Unconsolidated Joint Ventures:
Colorado 41 7,156,000 -- --
Hawaii 6 820,000 3 355,000
Southern California 10 3,063,000 -- --
Washington -- -- 59 15,753,000
--------- ------------- ---------- -------------
Total 1,032 $216,917,000 608 $ 116,175,000
--------- ------------- ---------- -------------
--------- ------------- ---------- -------------
</TABLE>
The average sales prices of the homes and lots comprising backlog for
consolidated projects at September 30, 1999 and 1998 were $211,000 and
$183,000, 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.
16
<PAGE>
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, assessment,
remediation and testing stages for its systems and applications. The Company
expects to complete the remainder of its testing prior to the end of 1999.
The Company currently estimates that approximately $80,000 will be
incurred to address Year 2000 issues. As of September 30, 1999, approximately
$77,000 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 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. 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. 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. We
have received assurances that systems have been remediated to address Year
2000 issues from a majority of the parties with which discussions were
initiated. Even where assurances are received from these parties, there
remains a risk that failure of systems and products of these parties and
other companies on which the Company relies could have a material adverse
effect on the Company.
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 its 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. 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
undeveloped, 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 January 1999, the Company increased its ownership interest in
Stafford to 89% and refinanced Stafford's existing debt. The Company
anticipates that it will acquire the remaining 11% interest in Stafford in
January 2001.
17
<PAGE>
The Company anticipates that it has adequate financial resources to
satisfy its current and near-term capital 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 as a result of the
various risk factors, particularly increases in interest rates, described
elsewhere herein and in the Company's Annual Report on Form 10-K.
NOTES PAYABLE
On October 1, 1999, the Company increased its Revolving Credit Facility
with a consortium of banks from $120.0 million to $170.0 million. The Company
has a one-time option to reduce the amount of the facility by up to $30.0
million on an irrevocable basis, provided the facility has remained at $170.0
million for at least six months. The facility expires on July 1, 2002 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 under the credit agreement, the
interest rate may vary from LIBOR plus 1.5% to 2% or prime plus 0% to 0.25%.
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. In April 1999, the Company entered
into a separate 90-day $10.0 million line of credit with one of the banks
included in the $120.0 million Revolving Credit Facility (extended for an
additional 90 days in July 1999 and cancelled on October 1, 1999). At October
31, 1999, and September 30, 1999, the Company had bank notes payable of
approximately $104.6 million and $85.3 million, respectively.
COMMITMENTS
At October 31, 1999, the Company had commitments to purchase parcels of
land for approximately $4.0 million. The Company expects to utilize a
combination of cash flow from operations and bank financing to purchase these
land parcels. The Company intends to consummate the purchases of these land
parcels during 1999 and 2000. However, no assurances can be given that these
purchases will be completed.
In November 1998, the Company adopted a stock repurchase program to
reacquire up to an aggregate of $10 million of its outstanding common stock
through August 30, 1999 (subsequently extended through December 31, 2000). As
of September 30, 1999, the Company has repurchased 504,400 shares under the
program at a total cost of $3.6 million.
The Company has no material commitments or 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
1999. 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.
18
<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.
Following the Court's denial of a class certification request, a second
action involving other homeowners at Fairway Village advancing the same
claims was initiated. While the Company believed the claims to be largely
without merit, during April 1999 a settlement agreement was entered into by
the Company, third party defendants, insurance carriers and all of the
plaintiffs in both lawsuits, except for the owners of three units. The
settlement amount incurred by the Company will be charged against the
warranty accruals previously established by the Company. Although the cost
of remediation for certain units called for under the settlement agreement
is not determinable until the work is completed, the Company believes that
the cost of such work will not exceed its warranty accruals. A new trial
date in December 1999 has been set for the initial suit, which has two
remaining plaintiffs. A trial date in April 2000 has been set in the second
action, which includes one remaining plaintiff. 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.
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 Third Amended and Restated Credit Agreement
between the Company, certain Banks, First
Hawaiian Bank and Bank of America, N.A., dated
as of September 30, 1999.
10.2 Guaranty by wholly-owned subsidiaries of the
Company to certain Banks, First Hawaiian Bank
and Bank of America, N.A., dated as of
September 30, 1999.
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, 1999.
19
<PAGE>
SCHULER HOMES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
SCHULER HOMES, INC.
Date: November 10, 1999 By: /s/ James K. Schuler
---------------------------------------
James K. Schuler
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: November 10, 1999 By: /s/ Pamela S. Jones
---------------------------------------
Pamela S. Jones
Senior Vice President of Finance,
Chief Financial Officer and
Director (principal financial officer)
Date: November 10, 1999 By: /s/ Douglas M. Tonokawa
--------------------------------
Douglas M. Tonokawa
Vice President of Finance,
Chief Accounting Officer
(principal accounting officer)
20
<PAGE>
THIRD AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Dated as of September 30, 1999
SCHULER HOMES, INC.,
as the Borrower,
CERTAIN FINANCIAL INSTITUTIONS,
as the Banks,
FIRST HAWAIIAN BANK,
as the Administrative and Syndication Agent,
BANK OF AMERICA, N.A.,
as the Documentation Agent
BANC OF AMERICA SECURITIES, LLC,
as the Sole Lead Arranger and Sole Book Manager
<PAGE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDED AND RESTATED CREDIT AGREEMENT is dated SEPTEMBER 30,
1999, and, except as otherwise provided herein, effective as of OCTOBER 1, 1999,
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 syndication agent for the Banks (the
"Administrative Agent"), and BANK OF AMERICA, N.A., formerly BANK OF AMERICA
NT&SA, a national banking association, as documentation 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 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 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, the Banks and the Agents entered into that certain
Second Amended and Restated Credit Agreement dated September 30, 1998 (the "1998
Credit Agreement"), which reduced the amount of the Credit Facility to
$90,000,000.00; and
WHEREAS, the 1998 Credit Agreement was amended by that certain First
Amendment to Second Amended and Restated Credit Agreement dated January 21,
1999; and
WHEREAS, the Borrower, the Banks and the Agents entered that certain
Second Amendment to Second Amended and Restated Credit Agreement dated July 2,
1999, which increased the amount of the Credit Facility to $120,000,000.00 and
extended the Termination Date to July 1, 2002; and
<PAGE>
WHEREAS, the 1998 Credit Agreement was further amended by that certain
Third Amendment to Second Amended and Restated Credit Agreement dated July 22,
1999; and
WHEREAS, the Borrower has requested the Banks and the Agents to further
amend the terms of the Credit Facility to increase the amount of the Credit
Facility to $170,000,000.00 and to amend other provisions contained in the 1998
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;
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 1998 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 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.
-2-
<PAGE>
"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. ONE HUNDRED SEVENTY MILLION DOLLARS (U.S.
$170,000,000.00), as such amount may be reduced pursuant to this Agreement.
"AGREEMENT" means this Third 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%.
"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 50%; 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.
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"BUSINESS PLAN" means that certain plan with budget and cash flow
projections presented by the Borrower and its Subsidiaries to the Banks on June
22, 1999, as identified and delivered to the Banks prior to the Closing Date.
"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) 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.
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"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.
"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) 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.
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"DEFAULT" means any event or circumstance which, with the giving
of notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DEVELOPMENT RATIO" means Real Estate Development Assets divided
by Real Estate Indebtedness.
"DOCUMENTATION AGENT" means Bank of America N.A., in its capacity
as documentation agent for the Banks hereunder, and any successor agent.
"ENTITLED LAND" means all land 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).
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"GAAP" means generally accepted accounting principles set forth
from time to time in statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state
or other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) 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, SHLR OF COLORADO, INC., a
Colorado corporation, SSHI LLC, a Delaware limited liability company, SHLR OF
NEVADA, INC., a Nevada corporation, and SRHI LLC, a Delaware limited liability
company.
"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
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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.
"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; (h) any indebtedness which is
guaranteed, directly or indirectly, by such Person; and (i) all indebtedness
referred to in clauses (a) through (h) 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 unless such indebtedness is
guaranteed, directly or indirectly (including general partner liability), by
such Person as a joint venture partner, 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.).
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"INTER-BANK AGREEMENT" means an agreement executed by and among
the Administrative Agent, as administrative and syndication agent for the Banks,
the Documentation Agent as documentation agent for the Banks, and the Banks,
which shall supplement the provisions of Article IX hereof, relative to the
administration of the credit facility established by this Agreement.
"INTEREST 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
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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 state of The United States, which is
formed for the purpose of developing one or more specific real estate projects.
"KULALEI PROPERTY" means 193 improved subdivided lots in the Ewa
by Gentry development in Ewa, Oahu, Hawaii.
"LAND UNDER DEVELOPMENT" means all land 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.
"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
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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:
(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
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(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 66.6% 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 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.
"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
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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) Subordinated Debt of the Borrower (including the Borrower's
existing subordinated convertible debentures);
(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 charges, or levies to the extent that payment thereof shall
not at the time be required to be made;
(vi) in addition to matters permitted in item (ii) above,
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;
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(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) Senior Debt 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");
(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
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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 11% 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, which shall include the acquisition of a
49% interest in Reilly Homes Madison, LLC, a Delaware limited liability
company, a 49% interest in Reilly Carlsbad, LLC, a Delaware limited
liability company, a 24.5% interest in Venturanza Del Verde, LLC, a
Delaware limited liability company, a 50% interest in Fairway Farms, LLC,
a Delaware limited liability company and a 50% interest in PH-Reilly
Orange Groves, LLC, a Delaware limited liability company.
(g) Loan receivable from Rielly Homes, Inc. Thomas Rielly or
Bruce Rielly in amounts not to exceed $8.0 million.
"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.
"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
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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:
(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
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(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 outstanding amount
under: (1) the Aggregate Commitment; (2) the Subordinated Debt of the
Borrower (including the Borrower's existing subordinated convertible
debentures); (3) the Senior Debt; 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 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.
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<PAGE>
"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 DEBT" means all monetary obligations, evidenced by
bonds, debentures, notes or similar instruments which are or are intended to
be issued pursuant to a registration statement under the Securities Act of
1933 or an exemption from the registration requirements thereunder, of the
Borrower or its Subsidiaries, including principal and interest thereon,
unless such obligation, by its terms or by the terms of any agreement or
instrument pursuant to which such obligation is issued, is subordinated in
right of payment to the Obligations of the Borrower hereunder. The term
"Senior Debt" shall include the "Senior Notes".
"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
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<PAGE>
payment of any portion of such lender's or creditor's Indebtedness until the
Obligations of the Borrower hereunder have been paid in full.
"SURETY INSTRUMENTS" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, shipside
bonds, surety bonds and similar instruments.
"SWING-LINE ADVANCE" means a disbursement of loan proceeds in
connection with a Swing-Line Borrowing, pursuant to the terms and conditions
set forth in Article II of this Agreement, and shall consist of Prime Rate
Advances only.
"SWING-LINE BORROWING" means a borrowing hereunder consisting
of Swing-Line Advances made to the 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, 2002, 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 any other state, 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 any other state; 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 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 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) 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 refers to any action taken
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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 and conditions
hereinafter set forth, to make Swing-Line Advances to the Borrower from time to
time
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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, 1999, and evidenced by a Borrowing Base Certificate delivered by
the Borrower, to the Administrative Agent no later than September 30, 1999.
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 (i) the outstanding
principal amount of Senior Debt, and (ii) 50% of the outstanding principal
amount of new Subordinated Debt (i.e., Subordinated Debt incurred after the
effective date of this Agreement), 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 (i) the principal
amount of Senior Debt, and (ii) 50% of the principal amount of new
Subordinated Debt, is less than the aggregate amount of all outstanding
Advances and Swing-Line Advances and all issued and outstanding Letters of
Credit at the date of such determination, the 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
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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 (i) the principal amount of Senior
Debt, and (ii) 50% of the principal amount of new Subordinated Debt.
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.
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(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 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 (i) the Administrative
Agent shall convert, no less than weekly, 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, (ii) all Swing-Line Advances which are not converted as
provided in subsection 2.04(b)(i) shall be repaid by the Borrower (from its
own funds or through a Borrowing) no later than seven (7) days after the date
of the Swing-Line Borrowing therefor, and (iii) all Swing-Line Advances shall
automatically be converted into Advances upon the occurrence of a Default or
an Event of Default.
(c) [RESERVED]
(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) Business
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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 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 Ten Million Dollars ($10,000,000),
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 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
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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 Twenty-Five Million Dollars ($25,000,000), 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 (including any required deposits for like-kind
exchanges under Section 1031 of the Code), and to support capital and
performance requirements and obligations of the Captive Insurance Subsidiary,
and not in contravention of any provision of this Agreement or any
Requirement of Law.
2.06 CONVERSION AND CONTINUATION ELECTIONS.
(a) The 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
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(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 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
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a LIBO Rate Advance to a Prime Rate Advance on a day that is not the last day
of the Interest Period for such LIBO Rate Advance, as provided in Section
3.04 below.
2.07 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENT. 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) after the
Aggregate Commitment has been increased to $170,000,000 for a period of not
less than six months, and only on a one time basis, 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; 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,
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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 the Borrower or of any of its Subsidiaries, the
Borrower shall use 100% of the proceeds of such sale, net of commissions and
closing costs (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, 2000, and not earlier than April 1st
of each subsequent year, and not later than June 30, 2000, and not later than
June 30th of each subsequent year, and the concurrence of all of
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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
(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,
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.
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2.10 INTEREST.
(a) Subject to subsection (c) of this Section, each LIBO
Rate "A" Advance, each LIBO Rate "B" Advance, each LIBO Rate "C" Advance,
each Prime Rate "A" Advance, each Prime Rate "B" Advance and each Prime Rate
"C" Advance shall bear interest on the outstanding principal amount thereof,
from the date when made until it becomes due, at a rate per annum equal to
the LIBO Rate or the Prime Rate, as the case may be, PLUS, the Applicable
Margin.
(b) Interest on each Advance and on each Swing-Line Advance
shall be paid in arrears on each Interest Payment Date. Interest shall also
be paid on any portion of Advances or Swing-Line Advances prepaid pursuant to
Sections 2.07 and 2.08; provided, however, that interest on Prime Rate
Advances shall be paid in arrears on the Interest Payment Date immediately
following the date of such prepayment. Interest shall be paid on demand
during the existence of any Event of Default.
(c) During the existence of any Event of Default, the
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) MODIFICATION FEES.
(i) The Borrower shall pay to the Administrative
Agent on the Closing Date, for the account of each Bank which has committed
to fund the "Increase Amount" (as shown on Schedule "1"), non-refundable fees
in an amount equal to four-tenths of one percent (0.40%) of the amount of
such Bank's "Increase Amount" (as shown on Schedule "1"), for an aggregate
fee of $200,000.00.
(ii) The Borrower shall pay to the Administrative
Agent on the Closing Date, for the account of each Bank which has funded the
"Existing Revolving Commitment" (as shown on Schedule "1") and which has also
committed to fund the "Increase Amount" (as shown on Schedule "1"),
non-refundable fees in an amount equal to one-tenth of one percent (0.10%) of
the amount of such Bank's "Increase Amount" (as shown on Schedule "1"), for
an aggregate fee of $30,000.00.
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(iii) The Borrower shall pay to the Administrative
Agent on the Closing Date, for the account of each Bank which has funded the
"Existing Revolving Commitment" (as shown on Schedule "1") and which has not
committed to fund the "Increase Amount" (as shown on Schedule "1"),
non-refundable fees in the amount of $5,000.00.
(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;
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
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(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 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
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forth in those letter agreements between the Borrower and the Administrative
Agent dated September 30, 1998 and July 2, 1999.
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 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
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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 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.
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(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 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
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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 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.
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(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 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
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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 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
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Agent that all Advances which would otherwise be made by that Bank as LIBO
Rate Advances shall be instead Prime Rate Advances.
3.03 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If any Bank shall determine that, due to either (i) the
introduction of or any change (other than any change by way of imposition of
or increase in reserve requirements to the extent included the calculation of
the LIBO Rate) in or in the interpretation of any law or regulation or (ii)
the compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), enacted
after the Closing Date, there shall be any increase in the cost to such Bank
of agreeing to make or making, funding or maintaining any LIBO Rate Advances,
then the 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; 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 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
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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 June
30, 1999, 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 June 30, 1999, 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, 1999.
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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
August 1, 1999.
(i) TAX CLEARANCE CERTIFICATE. A tax clearance certificate
for the Borrower and each Guarantor, issued as of no earlier than August 1,
1999, 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 business and to own the
property that it now carries on and owns. Melody Homes, Inc. has all requisite
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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 the
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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.
(m) SSHI LLC: SSHI LLC is a Delaware limited liability
company, validly existing and in good standing under the laws of the State of
Delaware, is solvent, and has all requisite limited liability company power
and authority to carry on the business and to own the property that it now
carries on and owns. SSHI LLC has all requisite limited liability company
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 members of SSHI
LLC, and no other company action of or for such company is requisite to the
execution and delivery of the Guaranty.
(n) SHLR OF NEVADA, INC.: SHLR of Nevada, Inc. is a Nevada
corporation, validly existing and in good standing under the laws of the
State of Nevada, 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 Nevada, 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
Nevada, Inc., and no other corporate action of or for such company is
requisite to the execution and delivery of the Guaranty.
(o) SRHI LLC: SRHI LLC is a Delaware limited liability
company, validly existing and in good standing under the laws of the State of
Delaware, is solvent, and has all requisite limited liability company power
and authority to carry on the business and to own the property that it now
carries on and owns. SRHI LLC has all requisite limited liability company
power and authority to
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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 members of SRHI LLC, and no other
company 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 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
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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.
5.11 NO MATERIAL ADVERSE EFFECT. Since the Closing Date, 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.
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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;
(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
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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, and (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 showing for each item (i) through (v) above, the comparison between such
Quarter and previous Quarters (beginning with the Quarter ending June 30,
1999).
(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.
(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
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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;
(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:
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(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 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.
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6.10 [RESERVED]
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 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 November 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
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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.
7.02 LEVERAGE RATIO.
(a) Subject to the Base Grid as provided in subsection 7.02(b),
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,
1999, and as of the end of each Quarter thereafter, to exceed 1.60 to 1.
(b) 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
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(4) the Borrower shall be in compliance with the Base
Grid parameters at the end of the Carve-Out Period.
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(b) 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;
provided, however, the Borrower shall notify the Banks and the Agents of such
investments or acquisitions in states where the Borrower is currently not
operating no later than forty-five (45) days after each Quarter.
(b) make other investments in an amount which shall not exceed
$2,000,000 in a Captive Insurance Subsidiary;
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(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", "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, or such
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similar statutes under the laws of the applicable state, 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
applicable state; 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 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.
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)
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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 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.
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(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
(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
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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.
(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
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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.
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
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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.
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
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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 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
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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 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 AND DOCUMENTATION AGENT EACH IN INDIVIDUAL
CAPACITY. First Hawaiian Bank and its Affiliates and Bank of America, N.A.
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 was not the Administrative Agent and Bank of
America, N.A. was not the Documentation Agent hereunder and without notice to
or consent of the Banks. With respect to its Advances, First Hawaiian Bank
and Bank of America 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 Documentation Agent, respectively, and the terms
"Bank" and "Banks" shall include First Hawaiian Bank and Bank of America,
N.A. in their individual capacities.
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
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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 N.A. 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 N.A.
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,
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affect the rights or duties of the Administrative Agent under this Agreement
or any other Loan Document.
10.02 NOTICES
(a) All notices, requests and other communications provided for
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission), provided that any matter transmitted by
the 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:
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(a) pay or reimburse First Hawaiian Bank (including First
Hawaiian Bank in its capacity as Administrative Agent) within five Business Days
after demand (subject to subsection 4.01(d)) for all reasonable out-of-pocket
costs and expenses incurred by First Hawaiian Bank (including in its capacity as
Administrative Agent) in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
other Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including the reasonable fees and disbursements of counsel, with
respect thereto; and
(b) pay or reimburse each Bank and the Administrative Agent
within 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
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obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not
been made or such enforcement or set-off had not occurred.
10.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that (i) the 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,
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except to the extent such information was or becomes generally available to
the public other than as a result of a disclosure by such Bank; PROVIDED,
HOWEVER, that any Bank may disclose such information (A) at the request or
pursuant to any requirement of any Governmental Authority to which such Bank
is subject or in connection with an examination of such Bank by any such
authority; (B) pursuant to subpoena or other court process; (C) when required
to do so in accordance with the provisions of any applicable Requirement of
Law; (D) to the extent reasonably required in connection with any litigation
or proceeding to which the Administrative Agent, any Bank or their respective
Affiliates may be party; (E) to the extent reasonably required in connection
with the exercise of any remedy hereunder or under any other Loan Document;
and (F) to such Bank's independent auditors and other professional advisors.
Notwithstanding the foregoing, the 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
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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 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
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COURTS OF THE STATE OF HAWAII OR OF THE UNITED STATES FOR THE DISTRICT OF
HAWAII, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
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 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: Vice President of Finance
"Borrower"
FIRST HAWAIIAN BANK, as Administrative
Agent and Syndication Agent
By /s/ Russell A. Loo
--------------------------------------
Name: Russell A. Loo
Title: Assistant Vice President
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, N.A, as Documentation
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/ Russell A. Loo
--------------------------------------
Name: Russell A. Loo
Title: Assistant Vice President
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
BANK OF AMERICA N.A, 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
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ADDRESS FOR PAYMENTS:
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
BANK BOSTON, NA
By /s/ Paul F. DiVito
--------------------------------------
Name: Paul F. DiVito
Title: Managing Director
-75-
<PAGE>
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
-76-
<PAGE>
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
-77-
<PAGE>
U.S. Bank National Association
By /s/ Ann B. Caldwell
--------------------------------------
Name: Ann B. Caldwell
Title: Vice President
ADDRESS FOR NOTICES:
U.S. Bank National Association
10800 NE 8th Street, Suite 1000
Bellevue, WA 98004
Attention: Ann B. Caldwell
DOMESTIC AND OFFSHORE LENDING OFFICE:
U.S. Bank National Association
10800 NE 8th Street, Suite 1000
Bellevue, WA 98004
Attention: Ann B. Caldwell
ADDRESS FOR PAYMENTS:
U.S. Bank National Association
Commercial Loan Service Center West
555 SW Oak PL-7
Portland, Oregon 97204
-78-
<PAGE>
EXHIBIT "A-1"
NOTICE OF BORROWING
To: First Hawaiian Bank Date:
------------------------------
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
Schuler Homes, Inc. (the "Borrower"), refers to the Third Amended and
Restated Credit Agreement dated , executed by and among
the Borrower, First Hawaiian Bank (as administrative and syndication agent for
the Banks therein listed), Bank of America, N.A. (as documentation agent for the
Banks therein listed) and Bank of America, N.A., Bank Boston, NA, Bank of
Hawaii, Bank One, Arizona, NA, U.S. Bank National Association and First Hawaiian
Bank (the "Credit Agreement"), and hereby gives you notice irrevocably, pursuant
to Section 2.03 of the Credit Agreement, of the Borrowing specified herein:
1. The Business Day for the proposed Borrowing shall be
, .
---- -----------
2. The aggregate amount of the proposed Borrowing is $
.
------------
3. The Borrowing shall be comprised of:
(a) $ of Prime Rate Advances;
-----------------
(b) $ of LIBO Rate Advances with an Interest
-----------------
Period of 1 month
(c) $ of LIBO Rate Advances with an Interest
-----------------
Period of 2 months
(d) $ of LIBO Rate Advances with an Interest
-----------------
Period of 3 months
(e) $ of LIBO Rate Advances with an Interest
-----------------
Period of 6 months
All capitalized terms used herein have the same meaning such terms have
in the Credit Agreement.
The undersigned hereby certifies, on behalf of the Borrower, that the
following statements are true on the date hereof, and will be true on the date
of the proposed Borrowing, before and after giving effect thereto and to the
application of the proceeds therefrom:
(i) the representations and warranties of the Borrower
contained in Article V of the Credit Agreement are true and correct as though
made on and as of the date of the proposed Borrowing (except to the extent such
representations and warranties relate to an earlier date, in which case they are
true and correct as of such earlier date); and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such proposed Borrowing.
SCHULER HOMES, INC.
By:
---------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT "A-2"
NOTICE OF SWING-LINE BORROWING
To: First Hawaiian Bank Date:__________________
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
Schuler Homes, Inc. (the "Borrower"), refers to the Third Amended and
Restated Credit Agreement dated_______________________, executed by and among
the Borrower, First Hawaiian Bank (as administrative and syndication agent for
the Banks therein listed), Bank of America, N.A. (as documentation agent for the
Banks therein listed) and Bank of America, N.A., Bank Boston, NA, Bank of
Hawaii, Bank One, Arizona, NA, U.S. Bank National Association and First Hawaiian
Bank (the "Credit Agreement"), and hereby gives you notice irrevocably, pursuant
to Section 2.04 of the Credit Agreement, of the Swing-Line Borrowing specified
herein:
1. The Business Day for the proposed Swing-Line Borrowing shall be
_______________,_______________________.
2. The aggregate amount of the proposed Swing-Line Borrowing is
$__________________.
3. The Swing-Line Borrowing shall be comprised of Prime Rate
Advances.
All capitalized terms used herein have the same meaning such terms
have in the Credit Agreement.
The undersigned hereby certifies, on behalf of the Borrower, that the
following statements are true on the date hereof, and will be true on the
date of the proposed Swing-Line Borrowing, before and after giving effect
thereto and to the application of the proceeds therefrom:
(i) the representations and warranties of the Borrower
contained in Article V of the Credit Agreement are true and correct as though
made on and as of the proposed Swing-Line Borrowing (except to the extent
such representations and warranties relate to an earlier date, in which case
they are true and correct as of such earlier date); and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such proposed Swing-Line Borrowing.
SCHULER HOMES, INC.
By:_________________________________
Title:______________________________
<PAGE>
EXHIBIT "B"
NOTICE OF CONVERSION/CONTINUATION
To: First Hawaiian Bank Date:______________________________
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
Schuler Homes, Inc. (the "Borrower"), refers to the Third Amended and
Restated Credit Agreement dated_______________________, executed by and among
the Borrower, First Hawaiian Bank (as administrative and syndication agent
for the Banks therein listed), Bank of America, N.A. (as documentation agent
for the Banks therein listed), and Bank of America, N.A., Bank Boston, NA,
Bank of Hawaii, Bank One, Arizona, NA, U.S. Bank National Association, and
First Hawaiian Bank (the "Credit Agreement"), and hereby gives you notice
irrevocably, pursuant to Section 2.06 of the Credit Agreement, of the
Conversion/Continuation specified herein:
1. The Business Day for the proposed Conversion/Continuation shall be
____________________,____________________________.
2. CONVERSION: The aggregate amount of the proposed Conversion is $
______________________.
The Conversion shall consist of:
(a) $_________________of Prime Rate Advances shall be
converted into LIBO Rate Advances with an Interest Period of
______months.
(b) $_________________of LIBO Rate Advances with an Interest
Period of______months shall be converted into Prime Rate
Advances.
3. CONTINUATION: The aggregate amount of the proposed Continuation
is $_________________.
The Continuation shall consist of :
(a) $__________________of LIBO Rate Advances with an Interest
Period of________________months shall be continued at LIBO Rate
Advances with the same Interest Period.
(b) $__________________of LIBO Rate Advances with an Interest
Period of________________months shall be continued at LIBO Rate
Advances, but with an Interest Period of____________months.
All capitalized terms used herein have the same meaning such terms
have in the Credit Agreement.
The undersigned hereby certifies, on behalf of the Borrower, that the
following statements are true on the date hereof, and will be true on the
date of the proposed Conversion/Continuation, before and after giving effect
thereto and to the application of the proceeds therefrom:
Exhibit "B"
Page 1 of 2
<PAGE>
(i) the representations and warranties of the Borrower
contained in Article V of the Credit Agreement are true and correct as though
made on and as of the date of the proposed Conversion/Continuation (except to
the extent such representations and warranties relate to an earlier date, in
which case they are true and correct as of such earlier date); and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such proposed Conversion/Continuation.
SCHULER HOMES, INC.
By:_________________________________
Title:______________________________
Exhibit "B"
Page 2 of 2
<PAGE>
EXHIBIT "C"
REQUEST FOR ISSUANCE OF LETTER OF CREDIT
To: First Hawaiian Bank Date:______________________________
999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
Schuler Homes, Inc. (the "Borrower"), refers to the Third Amended and
Restated Credit Agreement dated_________________________, executed by and among
the Borrower, First Hawaiian Bank (as administrative and syndication agent for
the Banks therein listed), Bank of America, N.A. (as documentation agent for the
Banks therein listed) and Bank of America, N.A., Bank Boston, NA, Bank of
Hawaii, Bank One, Arizona, N.A., U.S. Bank National Association and First
Hawaiian Bank (the "Credit Agreement"), and hereby gives you notice irrevocably,
pursuant to Section 2.05 of the Credit Agreement, of the request for Issuance of
a Letter of Credit specified herein:
1. The Business Day for the requested Issuance shall be
_____,______________.
2. The amount of the requested Letter of Credit is $______________.
3. The applicant for the Letter of Credit is______________________.
Attached hereto is an Application and Agreement for Standby Letter of
Credit executed by the Borrower, in connection with the requested Issuance.
All capitalized terms used herein have the same meaning such terms
have in the Credit Agreement.
The undersigned hereby certifies, on behalf of the Borrower, that the
following statements are true on the date hereof, and will be true on the
date of the requested Issuance, before and after giving effect thereto:
(i) the representations and warranties of the Borrower
contained in Article V of the Credit Agreement are true and correct as though
made on and as of such date (except to the extent such representations and
warranties relate to an earlier date, in which case they are true and correct
as of such date); and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such requested Issuance.
SCHULER HOMES, INC.
By:_________________________________
Title:______________________________
<PAGE>
EXHIBIT "D"
[Form of Application and Agreement for Standby Letter of Credit]
<PAGE>
EXHIBIT "E"
__________________, 1999
First Hawaiian Bank
999 Bishop Street
Honolulu, Hawaii 96813
Bank of America N.A.
_______________________________
_______________________________
Bank Boston, NA
_______________________________
_______________________________
Bank of Hawaii
111 South King Street
Honolulu, Hawaii 96813
Bank One, Arizona, N.A.
_______________________________
_______________________________
U.S. Bank
_______________________________
_______________________________
Re: Schuler Homes, Inc.; Schuler Homes of California, Inc.;
Schuler Homes of Oregon, Inc.; Schuler Homes of Washington,
Inc.; Melody Homes, Inc.; Schuler Realty/Maui, Inc.;
Schuler Realty/Oahu, Inc.; Lokelani Construction
Corporation; Melody Mortgage Co.; SHLR of Washington, Inc.;
SHLR of Colorado, Inc.; SHLR of Utah, Inc.; SSHI LLC; SHLR
OF NEVADA, INC.; SRHI LLC
Ladies and Gentlemen:
We have acted as counsel for Schuler Homes, Inc., a Delaware corporation
(the "Borrower"); and 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,
EXHIBIT "E"
(Page 1 of 5)
<PAGE>
_________________, 1999
Page 2
Inc., a Washington corporation; SHLR of Colorado, Inc., a Colorado
corporation; SHLR of Utah, Inc., a Utah corporation; SSHI LLC, a Delaware
limited liability company; SHLR OF NEVADA, INC., a Nevada corporation; and
SRHI LLC, a Delaware limited liability company (collectively, the
"Guarantors"), in connection with an amendment to the credit facility made
available to the Borrower by First Hawaiian Bank, Bank of America N.A., Bank
Boston, NA, Bank of Hawaii, Bank One, Arizona, N.A. and U.S. Bank (the
"Banks"), under the Third Amended and Restated Credit Agreement dated
__________, effective as of __________________ (the "Credit Agreement"). We
are rendering this opinion pursuant to Section 4.01(d) of the Credit
Agreement. Except as otherwise defined herein, capitalized terms used but
not defined herein have the meanings given to them in the Credit Agreement.
As used herein, the term "Loan Documents" shall mean the Credit
Agreement and the Third Amended and Restated Promissory Note dated____________
________, in the principal amount of $170,000,000 executed by the Borrower in
favor of the Banks, and the Guaranty dated_______________________, executed
by the Guarantors in favor of the Banks.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Loan Documents by the various parties and upon originals or
copies certified to our satisfaction of such records, documents,
certificates, opinions, memoranda and other instruments as in our judgment
are necessary or appropriate to enable us to render the opinion expressed
below.
Where we render an opinion "to the best of our knowledge" or concerning
an item "known to us" or our opinion otherwise refers to our knowledge, it is
based solely upon (a) an inquiry of attorneys within this firm who perform
legal services for the Borrowers, (b) receipt of a certificate executed by an
officer of the Borrowers covering such matters, and (c) such other
investigation, if any, that we specifically set forth herein.
In rendering this opinion, we have assumed the genuineness and
authenticity of all signatures on original documents (except the signatures
of officers of the Borrowers on the Loan Documents); the authenticity of all
documents submitted to us as originals; the conformity to originals of all
documents submitted to us as copies; the accuracy, completeness and
authenticity of certificates of public officials; and the due authorization,
execution and delivery of all documents (except the due authorization,
execution and delivery by the Borrowers of the Loan Documents) where
authorization, execution and delivery are prerequisites to the effectiveness
of such documents. We have also assumed that all individuals executing and
delivering documents had the legal capacity to so execute and deliver; that
you have received all documents you were to receive under the Loan Documents;
and that the Loan Documents are obligations binding upon you.
Our opinion is expressed with respect only to the federal laws of the
United States of America, the laws of the State of Hawaii and the General
Corporations Law of the States of
EXHIBIT "E"
(Page 2 of 5)
<PAGE>
___________________, 1999
Page 3
Delaware, California, Washington, Oregon, Colorado, Utah and Nevada. We
express no opinion as to whether the laws of any particular jurisdiction
apply, and no opinion to the extent that the laws of any jurisdiction other
than those identified above are applicable to the subject matter hereof.
We express no opinion relative to the applicability or effect of any
law, rule or regulation relating to securities or to the sale or issuance
thereof.
On the basis of the foregoing, in reliance thereon, and with the
foregoing qualifications, we are of the opinion that:
1. Schuler Homes, Inc. has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of
Delaware, and is qualified to do business in and is in good standing under
the laws of the State of Hawaii, and any other state in which it may conduct
its business. Schuler Homes of California, Inc. has been duly incorporated
and is a validly existing corporation in good standing under the laws of the
State of California, and is qualified to do business in and is in good
standing under the laws of the State of California, and any other state in
which it may conduct its business. Schuler Homes of Oregon, Inc. has been
duly incorporated and is a validly existing corporation in good standing
under the laws of the State of Oregon, and is qualified to do business in and
is in good standing under the laws of the State of Oregon, and any other
state in which it may conduct its business. Schuler Homes of Washington, Inc.
has been duly incorporated and is a validly existing corporation in good
standing under the laws of the State of Washington, and is qualified to do
business in and is in good standing under the laws of the State of
Washington, and any other state in which it may conduct its business. Melody
Homes, Inc. has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of Delaware, and is qualified to
do business in and is in good standing under the laws of the States of
Delaware and Colorado, and any other state in which it may conduct its
business. Schuler Realty/Maui, Inc. has been duly incorporated and is a
validly existing corporation in good standing under the laws of the State of
Hawaii, and any other state in which it may conduct its business. Schuler
Realty/Oahu, Inc. has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Hawaii, and any
other state in which it may conduct its business. Lokelani Construction
Corporation has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of Delaware, and is qualified to
do business in and is in good standing under the laws of the States of
Delaware and Hawaii, and any other state in which it may conduct its
business. Melody Mortgage Co. has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of
Colorado, and is qualified to do business in and is in good standing under
the laws of the State of Colorado, and any other state in which it may
conduct its business. SHLR of Washington, Inc. has been duly incorporated
and is a validly existing corporation in good standing under the laws of the
State of Washington, and is qualified to do business in and is in good
standing under the laws of the State of Washington, and any other state in
which it may conduct its business. SHLR of Colorado, Inc. has been duly
EXHIBIT "E"
(Page 3 of 5)
<PAGE>
________________, 1999
Page 4
incorporated and is a validly existing corporation in good standing under the
laws of the State of Colorado, and is qualified to do business in and is in
good standing under the laws of the State of Colorado, and any other state in
which it may conduct its business. SHLR of Utah, Inc. has been duly
incorporated and is a validly existing corporation in good standing under the
laws of the State of Utah, and is qualified to do business in and is in good
standing under the laws of the State of Utah, and any other state in which it
may conduct its business. SSHI LLC has been duly formed and is a validly
existing limited liability company in good standing under the laws of the
State of Delaware, and is qualified to do business in the States of Delaware
and Utah, and any other state in which it may conduct its business. SHLR of
Nevada, Inc. has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of Nevada, and is qualified to
do business in and is in good standing under the laws of the State of Nevada,
and any other state in which it may conduct its business. SRHI LLC has been
duly formed and is a validly existing limited liability company in good
standing under the laws of the State of Delaware, and is qualified to do
business in the States of Delaware and Nevada, and any other state in which
it may conduct its business.
2. The Borrower and each Guarantor has the requisite corporate power
and authority to own, lease, license and operate its property and assets and
to conduct its business as it is currently being conducted, and to execute
and deliver, and to perform and observe the provisions of, the Loan
Documents, as applicable.
3. The execution and delivery by the Borrower and the Guarantors of
the Loan Documents and any borrowings by the Borrower pursuant thereto do not
violate any provision of the Borrower's or any Guarantor's Certificate of
Incorporation or Bylaws, or Articles of Organization or Operating Agreements,
as applicable.
4. The Loan Documents have been duly and validly authorized, executed
and delivered by the Borrower and the Guarantors, as applicable, and
constitute valid and binding agreements enforceable against the Borrower and
the Guarantor, as applicable, in accordance with their respective terms,
except as enforceability may be subject to or limited by (a) general equity
principles and limitations on the availability of equitable relief including
specific performance; (b) the effect of applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other laws relating to or
affecting the rights of creditors generally, including but not limited to
those affecting the rights of secured creditors; (c) limitations on a
borrower's ability to waive rights or benefits given by statute or otherwise.
EXHIBIT "E"
(Page 4 of 5)
<PAGE>
____________________, 1999
Page 5
This opinion is intended solely for your benefit and is not to be made
available to or relied upon by any other person, firm, or entity without our
prior written consent.
Very truly yours,
By_________________________________
EXHIBIT "E"
(Page 5 of 5)
<PAGE>
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, SHLR OF UTAH, INC., a Utah corporation, SSHI LLC, a Delaware
limited liability company, SHLR OF NEVADA, INC., a Nevada corporation and SRHI
LLC, a Delaware limited liability company (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 syndication agent for the Banks (the "Administrative Agent"), and (iv) BANK
OF AMERICA, N.A., a national banking association, as documentation 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 as of September 30, 1998 (the
"1998 Credit Agreement"), relating to a revolving credit facility (the "Credit
Facility") in the principal amount of $120,000,000.00 made available to the
Borrower by the Banks; and
WHEREAS, the 1998 Credit Agreement was amended by that certain First
Amendment to Second Amended and Restated Credit Agreement dated January 21,
1999; and
WHEREAS, the Borrower, the Banks and the Agents entered that certain Second
Amendment to Second Amended and Restated Credit Agreement dated July 2, 1999,
which increased the amount of the Credit Facility to $120,000,000.00 and
extended the Termination Date to July 1, 2002; and
WHEREAS, the 1998 Credit Agreement was further amended by that certain
Third Amendment to Second Amended and Restated Credit Agreement dated July 22,
1999; and
WHEREAS, the Borrower has requested the Banks and the Agents to further
amend the terms of the Credit Facility to increase the amount of the Credit
Facility to $170,000,000.00 and to amend other provisions pursuant to that
certain Third Amended and Restated Credit Agreement to be executed by the
Borrower, the Banks and the Agents (the "Credit Agreement"); and
WHEREAS, the Guarantors are subsidiaries of the Borrower and deem it to be
to the Guarantors' financial benefit that the Banks amend the terms of the
Credit Facility to increase the amount of the Credit Facility to $170,000,000.00
and to amend other provisions pursuant to the Credit Agreement; and
<PAGE>
WHEREAS, the Credit Facility, as amended by the Credit Agreement, will be
evidenced by an amended and restated promissory note to be executed by the
Borrower and made payable to the Banks (the "Note"), and secured and governed
by certain "Loan Documents", as defined in the Credit Agreement; and
WHEREAS, the Guarantors have received, reviewed and approved the Credit
Agreement and all of the other Loan Documents;
NOW, THEREFORE, as an essential inducement to the Banks and the Agents to
amend the Credit Facility and to continue 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 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
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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 Third 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 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
5
<PAGE>
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 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,
6
<PAGE>
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
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
7
<PAGE>
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.
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
8
<PAGE>
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, 1999.
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER HOMES OF OREGON, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
MELODY HOMES, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER REALTY/MAUI, INC.
9
<PAGE>
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER REALTY/OAHU, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
LOKELANI CONSTRUCTION CORPORATION
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
MELODY MORTGAGE CO.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF COLORADO, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF UTAH, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
10
<PAGE>
SSHI LLC
By SHLR of Washington, Inc.
Its Member
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF NEVADA, INC.
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SRHI LLC
By SHLR of Nevada, Inc.
Its Managing Member
By /s/ Douglas M. Tonokawa
----------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
11
<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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,650,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 432,000,000
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 488,596,000
<CURRENT-LIABILITIES> 0
<BONDS> 57,500,000
0
0
<COMMON> 214,000
<OTHER-SE> 95,965,000
<TOTAL-LIABILITY-AND-EQUITY> 488,596,000
<SALES> 355,851,000
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 323,459,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,521,000
<INCOME-TAX> 11,360,000
<INCOME-CONTINUING> 18,161,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,161,000
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.91
</TABLE>
