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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____ to _______________
Commission file number 1-12378
NVR, Inc.
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(Exact name of registrant as specified in its charter)
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<CAPTION>
Virginia 54-1394360
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(State or other jurisdiction of incorporation or organization) (IRS employer identification number)
</TABLE>
7601 Lewinsville Road, Suite 300
McLean, Virginia 22102
(703) 761-2000
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
____________
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common stock, par value $0.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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__
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
As of February 15, 2000 the aggregate market value of the voting stock held by
non-affiliates of NVR, Inc. based on the closing price reported on the American
Stock Exchange for the Common Stock of NVR, Inc. on such date was approximately
$368.9 million. As of February 15, 2000 there were 9,521,856 total shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of NVR, Inc. to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934 on or prior to April 30, 2000 are incorporated by reference into Part III
of this report.
Page 1 of 142 pages
The Exhibit Index begins on page 18.
1
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INDEX
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PART I Page
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Item 1. Business................................................................... 3
Item 2. Properties................................................................. 6
Item 3. Legal Proceedings.......................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders........................ 6
Executive Officers of the Registrant....................................... 7
PART II
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Item 5. Market for Registrants' Common Equity and Related Shareholder Matters...... 7
Item 6. Selected Financial Data.................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 9
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.................. 14
Item 8. Financial Statements and Supplementary Data................................ 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................... 17
PART III
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Item 10. Directors and Executive Officers of the Registrant......................... 17
Item 11. Executive Compensation..................................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 17
Item 13. Certain Relationships and Related Transactions............................. 17
PART IV
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Item 14. Exhibits and Reports on Form 8-K........................................... 18
</TABLE>
2
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PART I
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Item 1. Business
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General
NVR, Inc. ("NVR") was formed in 1980 as NVHomes, Inc. NVR operates in two
business segments: 1) the construction and marketing of homes and 2) mortgage
banking. The Company conducts its homebuilding activities both directly and
through its wholly owned subsidiary, Fox Ridge Homes, Inc. The Company conducts
its mortgage banking operations primarily through another wholly owned
subsidiary, NVR Mortgage Finance, Inc. ("NVR Finance"), and First Republic
Mortgage Corporation ("First Republic"), a wholly owned subsidiary of NVR
Finance acquired during the first quarter of 1999. Unless the context otherwise
requires, references to "NVR" include its subsidiaries.
NVR is one of the largest homebuilders in the United States and in the
Washington, D.C. and Baltimore, Maryland metropolitan areas, where NVR derived
an aggregate of approximately 62% and 63% of its 1999 and 1998 homebuilding
revenues, respectively. NVR's homebuilding operations construct and sell single-
family detached homes, townhomes and condominium buildings under three
tradenames: Ryan Homes, NVHomes and Fox Ridge Homes. The Ryan Homes product is
built in sixteen metropolitan areas located in Maryland, Virginia, Pennsylvania,
New York, North Carolina, South Carolina, Ohio, New Jersey, Delaware and
Tennessee. The Fox Ridge Homes product is built only in the Nashville, Tennessee
metropolitan area. The Ryan Homes' and Fox Ridge Homes' products are moderately
priced and marketed primarily towards first-time buyers. The NVHomes product is
built largely in the Washington, D.C. metropolitan area, and is marketed
primarily to move-up buyers. In 1999, the average price of a unit settled by NVR
was approximately $208,000.
NVR obtains land for homebuilding by acquiring control over finished
building lots through option contracts with land developers that require
forfeitable deposits. This lot acquisition strategy reduces the financial
requirements and risks associated with direct land ownership. NVR generally
seeks to maintain control over an inventory of lots sufficient to provide for
the next 18 to 24 months of projected home sales, based upon projected sales
volumes in the various communities in which it operates.
In addition to building and selling homes, NVR provides a number of
mortgage-related services through its national mortgage banking operations,
which operate in 12 states. NVR's mortgage banking business generates revenues
primarily from origination fees, gains on marketing of loans, title fees, and
sales of servicing rights. Although NVR's mortgage banking operations provide
financing to a substantial portion of NVR's homebuilding customers, NVR's
homebuilding customers accounted for only 39% of the aggregate dollar amount of
loans closed in 1999. In 1999, NVR's mortgage banking business closed
approximately 21,900 loans with an aggregate principal amount of approximately
$2.9 billion. NVR's mortgage banking business sells all of the mortgage loans it
closes into the secondary markets. The total servicing portfolio balance at
December 31, 1999 was approximately $220 million in principal amounts of loans
serviced.
Segment information for NVR's homebuilding and mortgage banking businesses
is included in note 2 to NVR's consolidated financial statements.
Homebuilding
Products
NVR offers single-family detached homes, townhomes, and condominium
buildings with many different basic home designs which have a variety of
elevations and numerous other options. Homes built by NVR combine traditional or
colonial exterior designs with contemporary interior designs and amenities.
NVR's homes range from approximately 985 to 5,400 square feet, with two to five
bedrooms, and are priced from approximately $80,000 to $890,000.
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Markets
The following table summarizes settlements and contracts for sales of homes
for each of the last three years by region:
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Contracts for Sale
Settlements (Net of Cancellations)
Year Ended December 31, Year Ended December 31,
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Region 1999 1998 1997 1999 1998 1997
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<S> <C> <C> <C> <C> <C> <C>
Washington/Baltimore 5,073 4,358 3,774 5,215 5,165 4,084
Other (1) 4,243 3,264 2,333 4,463 3,835 2,602
----- ----- ----- ----- ----- -----
Total 9,316 7,622 6,107 9,678 9,000 6,686
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</TABLE>
(1) Includes Pennsylvania, New York, North Carolina, South Carolina, Ohio, New
Jersey, Tennessee, Delaware and Richmond, Virginia.
Construction
Independent subcontractors under fixed-price contracts perform construction
work on NVR's homes. The subcontractors' work is performed under the supervision
of NVR employees who monitor quality control. NVR uses many independent
subcontractors representing the building trades in its various markets and is
dependent neither on any single subcontractor nor on a small number of
subcontractors.
Sales and Marketing
NVR's preferred marketing method is for customers to visit a furnished
model home featuring many built-in options and a landscaped lot. The garages of
these homes are usually converted into temporary sales centers where alternative
facades and floor plans are displayed and designs for other models are available
for review. Sales representatives are compensated predominantly on a commission
basis.
Regulation
NVR and its subcontractors must comply with various federal, state and
local zoning, building, environmental, advertising and consumer credit statutes,
rules and regulations, as well as other regulations and requirements in
connection with its construction and sales activities. All of these regulations
have increased the cost required to market NVR's products. Counties and cities
in which NVR builds homes have at times declared moratoriums on the issuance of
building permits and imposed other restrictions in the areas in which sewage
treatment facilities and other public facilities do not reach minimum standards.
To date, restrictive zoning laws and the imposition of moratoriums have not had
a material adverse effect on NVR's construction activities. However, there is no
assurance that such restrictions will not adversely affect NVR in the future.
Competition, Market Factors and Seasonality
The housing industry is highly competitive. NVR competes with numerous
homebuilders of varying size, ranging from local to national in scope. The
Company also faces competition from the home resale market. NVR's homebuilding
operations compete primarily on the basis of price, location, design, quality,
service and reputation. NVR's homebuilding operations historically have been one
of the market leaders in each of the markets where NVR operates.
The housing industry is cyclical and is affected by consumer confidence
levels, prevailing economic conditions and interest rates. In addition, a
variety of other factors affect the housing industry and the demand for new
homes, including the availability and increases in the cost of land, labor and
materials, changes in consumer preferences, demographic trends and the
availability of mortgage finance programs.
The results of NVR's homebuilding operations generally reflect the
seasonality of the housing market in the Middle Atlantic region of the United
States. NVR historically has entered into more sales contracts in
4
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this region during the first and second quarters.
NVR is dependent upon building material suppliers for a continuous flow of
raw materials. Whenever possible, NVR utilizes standard products available from
multiple sources. Such raw materials have been generally available in adequate
supply.
Mortgage Banking
NVR provides a number of mortgage related services to its homebuilding
customers and to other customers through its mortgage banking operations. The
mortgage banking operations of NVR also include separate companies which broker
title insurance and perform title searches in connection with mortgage loan
closings for which they receive commissions and fees.
NVR's mortgage banking business sells all of the mortgage loans it closes
to investors in the secondary markets, rather than holding them for investment.
NVR's wholly owned subsidiary, NVR Finance, is an approved seller/servicer for
FNMA, GNMA, FHLMC, VA and FHA mortgage loans. NVR's mortgage banking operations
sell all originated mortgage servicing rights on a flow basis. The size of its
servicing portfolio was approximately $220 million in principal amount of loans
being serviced at the end of 1999 compared to approximately $261 million at
December 31, 1998.
Mortgage-Backed Securities
NVR's limited purpose subsidiary ("Limited-Purpose Financing Subsidiary")
was organized to facilitate the financing of long-term mortgage loans through
the sale of bonds collateralized by mortgage-backed securities, including
certificates guaranteed as to the full and timely payment of principal and
interest by FNMA, and certificates guaranteed as to payment of principal and
interest by GNMA and FHLMC. There have been no bonds issued since 1988. Only one
series of bonds issued remains outstanding. The remaining series has an early
call feature that will allow NVR to retire the bonds at NVR's option in October,
2001.
Competition and Market Factors
NVR's mortgage banking operations operate through 31 offices in 12 states.
Their main competition comes from national, regional, and local mortgage
bankers, thrifts and banks in each of these markets. NVR's mortgage banking
operations compete primarily on the basis of customer service, variety of
products offered, interest rates offered, prices of ancillary services and
relative financing availability and costs.
Regulation
NVR Finance is an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and VA
mortgage loans, and is subject to all of those agencies' rules and regulations.
These rules and regulations restrict certain activities of NVR Finance. NVR
Finance is currently eligible and expects to remain eligible to participate in
such programs; however, any significant impairment of its eligibility could have
a material adverse impact on its operations. In addition, NVR Finance is subject
to regulation at the state and federal level with respect to specific
origination, selling and servicing practices.
Employees
At December 31, 1999, NVR employed 3,459 full-time persons, of whom 1,010
were officers and management personnel, 185 were technical and construction
personnel, 950 were sales personnel, 534 were administrative personnel and 780
were engaged in various other service and labor activities. None of the
Company's employees are subject to a collective bargaining agreement and the
Company has never experienced a work stoppage. Management believes that its
employee relations are good.
5
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Item 2. Properties
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NVR's executive offices are located in McLean, Virginia, where NVR
currently leases office space for a nine and one-half year term expiring in
March 2005.
NVR's manufacturing facilities are located in Thurmont, Maryland;
Farmington, New York; Clover, South Carolina; Darlington, Pennsylvania; and
Portland, Tennessee. NVR has leased the Thurmont and Farmington manufacturing
facilities for a term expiring in 2014 with various options for extension of the
leases and for the purchase of the facilities. The Clover, Darlington and
Portland leases expire in 2002, 2005 and 2004, respectively, and also contain
various options for extensions of the leases and for the purchase of the
facilities.
NVR also leases office space in 71 locations in 14 states for field
offices, mortgage banking and title services branches under leases expiring at
various times through 2009. NVR anticipates that, upon expiration of existing
leases, it will be able to renew them or obtain comparable facilities on
acceptable terms.
Item 3. Legal Proceedings
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During April 1999, NVR was served with a lawsuit filed in the United States
District Court in Baltimore by a group of homeowners who purchased homes in a
community in Howard County, Maryland. The suit alleges violation of certain
Federal environmental laws, as well as State consumer protection and nuisance
statutes relating to the alleged failure of NVR to disclose to its purchasers
that their homes were built on a site formerly used as an unlicensed landfill.
The developer of the property and another homebuilder are also named as
defendants in the action. The plaintiffs are seeking injunctive relief and
damages of approximately $75,000,000. The Company believes that it has valid
defenses to the plaintiffs' claims and intends to vigorously defend the case. No
assurances can be given, however, regarding the risk or range of possible loss
to the Company, if any.
Except as otherwise noted, NVR is not involved in any legal proceedings
that are likely to have a material adverse effect on its financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
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During the quarter ended December 31, 1999, no matters were submitted to a
vote of security holders.
6
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Executive Officers of the Registrant
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Name Age Positions
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Dwight C. Schar 58 Chairman of the Board, President and Chief
Executive Officer of NVR
William J. Inman 52 President of NVR Mortgage Finance, Inc.
James M. Sack 49 Vice President, Secretary and General Counsel of
NVR
Paul C. Saville 44 Senior Vice President Finance and Chief Financial
Officer of NVR
Dennis M. Seremet 44 Vice President and Controller of NVR
</TABLE>
Dwight C. Schar has been chairman of the board, president and chief
executive officer of NVR since September 30, 1993.
William J. Inman has been president of NVR Mortgage Finance, Inc. since
January 1992.
James M. Sack has been vice president, secretary and general counsel of NVR
since September 30, 1993. Mr. Sack is currently principal of the law firm
Sack & Associates, P.C. in McLean, Virginia.
Paul C. Saville has been senior vice president finance, chief financial
officer and treasurer of NVR since September 30, 1993.
Dennis M. Seremet has been vice president and controller of NVR since April
1, 1995. Previously, Mr. Seremet served as vice president finance of NVR
Homes, Inc., to which he was appointed on September 30, 1993.
PART II
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Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
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NVR's shares of common stock are listed and principally traded on the
American Stock Exchange ("AMEX"). The following table sets forth for the periods
indicated the high and low closing sales prices per share for the years 1999 and
1998 as reported by the AMEX.
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HIGH LOW
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Prices per Share:
1998:
First Quarter ....... 33-3/4 22-5/16
Second Quarter ....... 41-1/4 31-3/16
Third Quarter ....... 46 32-3/8
Fourth Quarter ....... 47-11/16 24-7/8
1999:
First Quarter ....... 47 41
Second Quarter ....... 52-3/16 41-15/16
Third Quarter ....... 57-13/16 50-4/8
Fourth Quarter ....... 50-7/8 38
</TABLE>
As of the close of business on February 15, 2000, there were 904
shareholders of record.
NVR has not paid any cash dividends on its shares of common stock during
the years 1999 or 1998. NVR's bank indebtedness and the indenture governing
NVR's 8% Senior Notes due 2005 contain restrictions on the ability of NVR to pay
dividends on its common stock. See note 6 to the financial statements for a
detailed description of the Senior Note restrictions.
7
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Item 6. Selected Financial Data (dollars in thousands, except per share amounts)
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The following tables set forth selected consolidated financial information
for NVR. The selected income statement and balance sheet data have been
extracted from NVR's consolidated financial statements for each of the periods
presented. The selected financial data should be read in conjunction with, and
is qualified in its entirety by, the consolidated financial statements and
related notes included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Homebuilding data:
Revenues $1,942,660 $1,504,744 $1,154,022 $1,045,930 $ 869,119
Gross profit 331,933 230,929 158,167 139,675 118,084
Mortgage Banking data:
Mortgage banking fees 48,122 42,703 25,946 24,029 26,297
Interest income 13,556 9,861 6,415 5,351 4,744
Interest expense 7,504 6,120 3,544 2,249 2,090
Consolidated data:
Income before extraordinary
loss $ 108,881 $ 66,107 $ 28,879 $ 25,781 $ 16,400
Income before extraordinary
loss per diluted share (1) $ 9.01 $ 4.97 $ 2.18 $ 1.70 $ 1.06
December 31
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1999 1998 1997 1996 1995
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Consolidated Balance Sheet Data:
Homebuilding inventory $ 323,455 $ 288,638 $ 224,041 $ 171,693 $ 154,713
Total assets 767,281 724,359 564,621 501,165 513,598
Notes and loans payable 278,133 320,337 248,138 201,592 221,295
Equity 200,640 165,719 144,640 152,010 146,180
Cash dividends per share - - - - -
</TABLE>
(1) For the years ended December 31, 1999, 1998, 1997, 1996 and 1995, income
from continuing operations per diluted share was computed based on 12,088,388,
13,300,064, 13,244,677, 15,137,009 and 15,405,263 shares, respectively, which
represents the weighted average number of shares and share equivalents
outstanding at each relevant date. The weighted average number of shares and
share equivalents were calculated based upon the requirements of SFAS No. 128,
Earnings per Share, for all periods presented and represent the shares and share
equivalents used to calculate diluted earnings per share before extraordinary
losses.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations (dollars in thousands except per share data)
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A Cautionary Note Regarding Forward-Looking Statements
Some of the statements in this Form 10-K, as well as statements made by the
Company in periodic press releases or other public communications, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereof or comparable
terminology, or by discussion of strategies, each of which involves risks and
uncertainties. All statements other than of historical facts included herein,
including those regarding market trends, the Company's financial position,
business strategy, projected plans and objectives of management for future
operations, are forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results or performance of the Company to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. Such risk factors include, but are not limited to,
general economic and business conditions (on both a national and regional
level), interest rate changes, access to suitable financing, competition, the
availability and cost of land and other raw materials used by the Company in its
homebuilding operations, shortages of labor, weather related slow downs,
building moratoria, governmental regulation, the ability of the Company to
integrate any acquired business, certain conditions in financial markets and
other factors over which the Company has little or no control.
Results of Operations for the Years Ended December 31, 1999, 1998 and 1997
NVR, Inc. ("NVR" or the "Company") operates in two business segments:
homebuilding and mortgage banking. The results of these two segments are
discussed separately below. Corporate general and administrative expenses are
fully allocated to the homebuilding and mortgage banking segments in the
information presented below.
Effective September 30, 1998, NVR merged each of NVR Homes, Inc., NVR's
wholly owned homebuilding subsidiary, and NVR Financial Services, Inc., NVR's
wholly owned mortgage banking holding company, into the Company. The Company
now conducts its homebuilding activities both directly and through its wholly
owned subsidiary, Fox Ridge Homes, Inc ("Fox Ridge"). The Company conducts its
mortgage banking operations primarily through another wholly owned subsidiary,
NVR Mortgage Finance, Inc. ("NVR Finance"), and First Republic Mortgage
Corporation ("First Republic"), a wholly owned subsidiary of NVR Finance.
Homebuilding Segment
Homebuilding revenues for 1999 increased 29% to $1,942,660 compared to
revenues of $1,504,744 in 1998. The increase in revenues was primarily due to a
22% increase in the number of homes settled to 9,316 in 1999 from 7,622 in 1998,
and to a 6% increase in the average settlement price to $207.7 in 1999 from
$196.4 in 1998. The increase in settlements is a direct result of the
substantially higher backlog at the beginning of the 1999 period as compared to
the beginning of the same 1998 period. The increase in the average settlement
price is attributable to single family detached units representing a larger
percentage of the total units settled in the current period as compared to the
prior year period, and to price increases in certain of the Company's markets.
New orders for 1999 increased by 8% to 9,678 units compared with 9,000 units for
1998. The increase in new orders was predominantly the result of increased
sales in markets outside the Baltimore/Washington area.
Homebuilding revenues for 1998 increased 30% to $1,504,744 from $1,154,022
in 1997. The increase in revenues was primarily due to a 25% increase in the
number of homes settled to 7,622 units in 1998 from 6,107 units in 1997 and to a
5% increase in the average settlement price to $196.4 in 1998 from $187.7 in
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1997. New orders for 1998 increased 35% to 9,000 units compared with 6,686 units
in 1997. The increase in new orders was the result of continuing favorable
market conditions in most of the markets in which the Company operates as
compared to the prior year, and to a lesser extent, new orders generated by Fox
Ridge, acquired by the Company during the fourth quarter of 1997.
Gross profit margins for 1999 increased to 17.1% compared to 15.3% for
1998. The increase in gross profit margins was due to favorable market
conditions that existed in the first half of 1999, which provided the Company
the opportunity to increase selling prices in certain of its markets during that
time, and to the Company's continued emphasis on controlling construction costs.
In addition, the Company increased the sales and settlement pace per community,
which resulted in a better leverage of fixed costs. Gross profit margins
increased to 15.3% in 1998 compared to 13.7% in 1997. The increase in gross
profit margins from that experienced in 1997 was primarily attributable to the
continuing favorable market conditions, improved margins in the Company's
expansion markets and the Company's continued emphasis on controlling
construction costs.
SG&A expenses for 1999 increased $27,433 as compared to 1998, but as a
percentage of revenues decreased to 7.2% from 7.5%. Approximately $15,000 of
the increase in SG&A expenses is due to a net period to period increase for
compensation cost attributable to management incentive plans (see below). The
increase in SG&A dollars is also attributable to the aforementioned increase in
revenues. SG&A expenses for 1998 increased $26,098 to $113,329 from $87,231 in
1997, but as a percentage of revenues fell to 7.5% in 1998 from 7.6% in 1997.
The increase in SG&A dollars was due primarily to the aforementioned increase in
revenues, a net year to year increase for certain management incentive plans and
to increased costs incurred in the Company's expansion markets.
The final 394,000 shares granted under the 1994 Management Incentive Plan
(the "Plan"), a variable stock award plan adopted by the Board of Directors
pursuant to the Company's 1993 Plan of Reorganization, vested during 1999. The
non-cash, compensation cost recognized in SG&A relative to the Plan totaled
$18,670, $9,081 and $7,986 for the years end December 31, 1999, 1998 and 1997,
respectively. Also, in the current year the Company accrued approximately
$7,900 in compensation cost related to the 1998 High Performance Plan ("High
Performance Plan"), a long-term, cash based incentive plan in which certain
members of the Company's senior management participate. Benefits earned under
the High Performance Plan, if any, are based on a variable calculation of the
growth in earnings per share for a three-year measurement period ending on
December 31, 2001 over a base year earnings per share. Amounts earned, if any,
under the High Performance Plan will be paid to participants in three
installments in 2003, 2004 and 2005, based upon their continued employment.
Because of the variability of the benefit calculation, compensation cost
relative to the High Performance Plan could be materially different in future
years than that recognized in 1999.
Backlog units and dollars were 4,935 and $1,137,332, respectively, at
December 31, 1999 compared to backlog units of 4,573 and dollars of $958,757 at
December 31, 1998. The increase in backlog dollars and units was due to a 2%
increase in new orders for the six-month period ended December 31, 1999 compared
to the same 1998 period, and to a slower backlog turn. The dollar increase is
also due to an 8% increase in the average selling price comparing the same six-
month periods. Backlog units and dollars were 4,573 and $958,757, respectively,
at December 31, 1998 compared to backlog units of 3,195 and dollars of $623,705
at December 31, 1997. The increase in backlog dollars and units was primarily
due to a 31% increase in new orders for the six months ended December 31, 1998
as compared to the six months ended December 31, 1997.
The Company believes that earnings before interest, taxes, depreciation and
amortization ("EBITDA") provides a meaningful comparison of operating
performance of the homebuilding segment because it excludes the amortization of
certain intangible assets and non-cash compensation cost related to the Plan.
Although the Company believes the calculation is helpful in understanding the
performance of the homebuilding segment, EBITDA should not be considered a
substitute for net income or cash flow as indicators of the Company's financial
performance or its ability to generate liquidity. EBITDA as presented may not
be comparable to other similarly titled measures used by other companies.
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Calculation of Homebuilding EBITDA:
Year Ended December 31,
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1999 1998 1997
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Operating income $185,629 $111,927 $65,533
Depreciation 3,387 3,490 3,588
Amortization of excess reorganization
value/goodwill 7,254 7,547 6,635
Non-cash Plan compensation cost 18,670 9,081 7,986
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Homebuilding EBITDA $214,940 $132,045 $83,742
======== ======== =======
% of Homebuilding revenues 11.1% 8.8% 7.3%
Homebuilding EBITDA in 1999 was 62.8% higher than in 1998, and as a
percentage of revenues increased to 11.1% in 1999 from 8.8% in 1998.
Homebuilding EBITDA in 1998 was 58% higher than in 1997, and as a percentage of
revenues increased to 8.8% in 1998 from 7.3% in 1999.
Mortgage Banking Segment
Excluding the results of First Republic Mortgage Corporation, the mortgage
banking segment generated operating income of $16,045 for the year ended
December 31, 1999 compared to operating income of $17,056 and $5,855 during the
same periods in 1998 and 1997. Total loan closings were $2,911,865, $2,717,456
and $1,485,763 during the respective periods of 1999, 1998 and 1997.
Approximately $450,178 of the increased loan closing production was the result
of loans originated by First Republic, which was acquired by the Company in
March 1999 (see below for additional information regarding the acquisition).
Excluding the origination activity of First Republic, loan origination activity
for 1999 decreased 9% compared to 1998, and increased 66% when compared to 1997.
Including the results of First Republic, operating income for 1999 was $14,752.
Mortgage banking fees in 1999 were $48,122 compared to $42,703 in 1998,
representing an increase of $5,419, or 13%, from the overall 7% increase in
loan closing volume. An increase in builder related and other retail loan
origination activity offset the sharp reduction in wholesale refinance activity
experienced by the Company during the second half of 1999. This shift in
product mix had a favorable impact on mortgage banking fees. However, due to
increased price competition, the Company realized lower margins on the sale of
loans. The increased revenues were offset by higher general and administrative
expenses primarily due to ongoing incremental overhead of First Republic and, to
a lesser extent, costs incurred for the implementation of the Company's new loan
origination system. In response to declining market conditions, the Company
commenced a plan to close four of its mortgage origination branches and to exit
the wholesale origination business. As a result of the plan, the Company
accrued approximately $650 in office closure expenses during the fourth quarter
of 1999.
Mortgage banking fees in 1998 were $42,703 compared to $25,946 in 1997.
The increase is primarily due to the increased mortgage loan closings and higher
title services revenues. Partially offsetting this increase in mortgage banking
fees were volume-related increases in SG&A expenses.
Seasonality
The results of NVR's homebuilding operations generally reflect the
seasonality of the housing market in the Middle Atlantic region of the United
States. NVR historically has entered into more sales contracts in this region
during the first and second quarters. Because NVR's mortgage banking operations
generate part of their business from NVR's homebuilding operations and from
other homebuilders affected by seasonality, to the extent that homebuilding is
affected by seasonality, mortgage banking operations may also be affected. The
existence of mortgage banking and title services offices outside of the Middle
Atlantic region and the existence of third-party business tend to reduce the
effects of seasonality on the results of NVR's operations.
Effective Tax Rate
The merger of NVR Homes, Inc and NVR Financial Services, Inc. into the
Company on September 30, 1998 allowed the Company to utilize a separate return
limitation year net operating loss ("SRLY NOL") generated by the Company's
previously owned savings and loan institution, NVR Savings Bank. As a result,
the Company realized a $3,300 tax benefit during 1998. The use of the SRLY NOL,
coupled with higher
11
<PAGE>
taxable income relative to fixed permanent differences, reduced the Company's
1998 effective tax rate to 40.1% from 46.4% in 1997. The 1999 effective tax rate
of 41.2% remained low as compared to the 1997 effective tax rate of 46.4% due to
higher taxable income relative to NVR's permanent differences, primarily the
amortization of reorganization value in excess of amounts allocable to
identifiable assets and non-deductible compensation.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to
be recognized as either assets or liabilities on the balance sheet and be
measured at fair value. Depending on the hedge designation, changes in such
fair value will be recognized in either other comprehensive income or current
earnings on the income statement. During June 1999, the FASB issued SFAS No.
137, which amended SFAS No. 133. SFAS No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. At the
present time, the Company cannot determine the impact that SFAS No. 133, as
amended, will have on its financial statements upon adoption on January 1, 2001,
as such impact will be determined based on loans held in inventory and forward
mortgage delivery contracts outstanding at the date of adoption.
Year 2000 Issue
The Year 2000 Issue is the risk that computer programs using two-digit date
fields will fail to properly recognize the year 2000, with the result being
business interruptions due to computer system failures by the NVR's software or
hardware or that of government entities, service providers and vendors.
With the assistance of a consulting firm, NVR completed its assessment of
exposure to Year 2000 Issues and successfully remediated areas of exposure in
both its homebuilding and mortgage banking segments prior to December 31, 1999.
Total expenditures for Year 2000 Issue costs equaled approximately $5,500. To
the date of this report, NVR has not encountered any business interruptions or
adverse financial consequences related to the Year 2000 Issue. However, there
can be no assurances that the Company will not encounter material business
interruptions or adverse financial consequences subsequent to the date of this
report.
Liquidity and Capital Resources
NVR's homebuilding segment generally provides for its working capital cash
requirements using cash generated from operations and a short-term credit
facility. In September 1998, NVR, as borrower, succeeded to the obligations of
NVR Homes, Inc. under the unsecured working capital revolving credit facility as
amended and restated (the "Facility"). The Facility expires on May 31, 2002,
and bears interest at the election of the Company at i) the base rate of
interest announced by the Facility agent, or ii) 1.35% above the Eurodollar
rate. The Facility provides for borrowings of up to $100,000 of which $60,000
is currently committed. Up to approximately $24,000 of the Facility is currently
available for issuance in the form of letters of credit of which $12,542 was
outstanding at December 31, 1999. There were no direct borrowings outstanding
under the Facility as of December 31, 1999.
NVR's mortgage banking segment provides for its mortgage origination and
other operating activities using cash generated from operations as well as
various short-term credit facilities. NVR Finance has available a $225,000
mortgage warehouse facility, of which $200,000 is committed, to fund its
mortgage origination activities, under which $107,588 was outstanding at
December 31, 1999. The interest rate under the Mortgage Warehouse Revolving
Credit agreement is either: (i) the London Interbank Offering Rate ("Libor")
plus either 1.25% or 1.75% depending on the type of collateral, or (ii) 1.25% or
1.75% to the extent that NVR Finance provides compensating balances and
depending on the type of collateral. The weighted average interest rate for
amounts outstanding under the Mortgage Warehouse Revolving Credit line was 5.8%
during 1999. NVR Finance from time to time enters into various gestation and
repurchase agreements. NVR Finance currently has available an aggregate of
$175,000 of borrowing capacity in such uncommitted facilities. Amounts
outstanding thereunder accrue interest at various rates tied to the Libor rate
and are
12
<PAGE>
collateralized by gestation mortgage-backed securities and whole loans. The
weighted average interest rate for amounts outstanding under these uncommitted
facilities was 5.5% during 1999. There was an aggregate of $17,363 outstanding
under such gestation and repurchase agreements at December 31, 1999.
On January 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to $400,000 of the
Company's debt securities. The shelf registration statement was declared
effective on February 27, 1998 and provides that securities may be offered from
time to time in one or more series, and in the form of senior or subordinated
debt. As of December 31, 1999, an aggregate principal balance of $225,000 was
available for issuance under the shelf registration statement.
On April 14, 1998, the Company completed an offering under the shelf
registration statement for $145,000 of senior notes due 2005 (the "New Notes"),
resulting in aggregate net proceeds to the Company of approximately $142,800
after fees and expenses. The New Notes mature on June 1, 2005 and bear interest
at 8%, payable semi-annually on June 1 and December 1 of each year, commencing
June 1, 1998. The New Notes are senior unsecured obligations of the Company,
ranking equally in right of payment with the Company's other existing and future
unsecured indebtedness. An additional $30,000 in principal is available for
issuance under the New Note offering. The net proceeds of the New Notes were
used to extinguish other indebtedness of the Company, as described below.
Through a tender offer commenced on April 21, 1998 and completed on May 18,
1998, various open market purchases throughout 1998 and a contractual call
exercised on December 1, 1998, the Company repurchased all of the $120,000 in
aggregate principal outstanding under the Company's 11% Senior Notes due 2003
("Senior Notes"). The Senior Notes were retired upon purchase. The amount of
funds expended to complete the Senior Note repurchase totaled $129,345,
excluding accrued interest, and resulted in the recognition of an extraordinary
loss of $7,126, net of a $4,461 tax benefit, ($0.54 per diluted share) in the
accompanying 1998 consolidated income statements.
During December 1998, the Company exercised its option to purchase two
office buildings currently utilized by NVR for certain administrative functions
of both its homebuilding and mortgage banking segments, thereby extinguishing
the Company's obligations under the capital lease pertaining to these buildings.
The Company expended funds of $12,295, excluding accrued interest, to extinguish
the capital lease obligation and recognized an additional extraordinary loss of
$2,275, net of a $1,424 tax benefit, ($0.17 per diluted share) in the
accompanying 1998 consolidated income statements. During 1999, the Company sold
both buildings to an unrelated third party and leased back one of the buildings
under an operating lease for a five-year term expiring in 2004. There was no
resultant material gain or loss on the sale transaction.
NVR Finance's mortgage warehouse facility limits the ability of NVR
Finance to transfer funds to NVR in the form of dividends, loans or advances.
NVR Finance had net assets of $11,500 as of December 31, 1999, that were so
restricted.
As shown in NVR's consolidated statement of cash flows for the year ended
December 31, 1999, NVR's operating activities provided cash of $215,353 for this
period. The cash was provided primarily by homebuilding operations and by the
excess of loan sale proceeds over cash expended to close mortgage loans with
customers.
Net cash provided by investing activities was $26,095 for the year ended
December 31, 1999. The primary source of cash was the proceeds from the sale of
mortgage servicing rights. Cash of $3,697 (net of cash acquired) was also used
to acquire First Republic in March of 1999 (see below).
Net cash used for financing activities was $220,826 for the year ended
December 31, 1999. Cash was primarily used for NVR's purchase of approximately
2.0 million shares of its common stock for an aggregate purchase price of
$101,765 during the year ended December 31, 1999. The Company may, from time to
time, repurchase additional shares of its common stock, pursuant to repurchase
authorizations by the Board of Directors and subject to the restrictions
contained within the Company's debt agreements. NVR also had net repayments
under the mortgage banking credit lines of $116,136.
13
<PAGE>
The Company believes that internally generated cash and borrowings
available under credit facilities will be sufficient to satisfy near and longer
term cash requirements for working capital and debt service in both its
homebuilding and mortgage banking operations.
Business Acquisition
On March 4, 1999, NVR Mortgage Acquisition, Inc. ("NVRMA"), a wholly owned
subsidiary of NVR Finance, NVR's wholly owned mortgage banking subsidiary,
purchased all of the outstanding capital stock of First Republic Mortgage
Corporation for approximately $5,300 in cash. First Republic, based in
Rockville, Maryland, is a leading mortgage lender in the Baltimore and
Washington Metropolitan area. NVRMA accounted for this acquisition using the
purchase method, and the operations of the acquired business have been included
in NVR's consolidated financial statements for 1999 beginning on the date of the
acquisition. Goodwill of approximately $3,300 that was generated pursuant to
the purchase transaction is being amortized using the straight-line method over
5 years.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
- -------- ----------------------------------------------------------
Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. Though the Company faces and manages other types of
risk, such as credit and liquidity risks, the Company's market risk arises from
interest rate risk inherent in its financial instruments. Interest rate risk is
the possibility that changes in interest rates will cause unfavorable changes in
net income or in the value of interest rate-sensitive assets, liabilities and
commitments. In addition, lower interest rates tend to increase demand for
mortgage loans for home purchasers, as well as for the demand for refinancing of
existing mortgages. Higher interest rates make it more difficult for potential
borrowers to purchase residential properties and to qualify for mortgage loans
and reduce demand for refinance loans. The Company has no market rate sensitive
instruments held for speculative or trading purposes.
The Company's mortgage banking segment is exposed to interest rate risk as
it relates to its lending activities. The mortgage banking segment originates
mortgage loans, which are generally sold through optional and mandatory forward
delivery contracts into the secondary markets. All of the mortgage banking
segment's loan portfolio is held for sale.
Profitability of the mortgage banking segment may be directly affected by
the levels of and fluctuations in interest rates, which affect the mortgage
banking segment's ability to earn a spread between interest received on its
mortgage loans held for sale and the costs of borrowings under the Company's
variable-rate warehouse line of credit and uncommitted repurchase and gestation
facilities. The profitability of the mortgage banking segment is likely to be
adversely affected during any period of unexpected or rapid changes in interest
rates. For example, a substantial or sustained increase in interest rates could
adversely affect the ability of the Company to originate mortgage loans and
would reduce the value of mortgage loans held for sale. A substantial decline
in interest rates could also impair the value of any capitalized mortgage
servicing rights. The Company's current risk management strategy involves
selling all originated mortgage servicing rights on a flow basis. The Company
has $3,384 of capitalized mortgage servicing rights as of December 31, 1999,
with a fair value at December 31, 1999 of $3,828.
In an environment of stable interest rates, the Company's gains on the sale
of mortgage loans would generally be limited to those gains resulting from the
yield differential between mortgage loan interest rates and rates required by
secondary market purchasers. A loss from the sale of loans may occur if
interest rates increase between the time that the Company establishes the
interest rate on a loan and the time that the loan is sold. Fluctuating
interest rates also may affect the net interest income earned by the Company,
resulting from the difference between the yield to the Company on loans held for
sale and the interest paid by the Company for funds borrowed to finance the
origination of mortgage loans. Because of the uncertainty of future loan
origination volume and the future level of interest rates, there can be no
assurance that the Company will realize gains on the sale of financial assets in
the future.
14
<PAGE>
In the normal course of business, the Company also enters into contractual
commitments involving financial instruments with off-balance sheet risk. These
financial instruments include commitments to extend mortgage loans to customers
and forward contracts to sell mortgage-backed securities to broker/dealers.
These instruments involve, to varying degrees, elements of market rate risk in
excess of the amounts recognized in the balance sheet. NVR enters into
contractual commitments to extend credit to buyers of single-family homes with
fixed expiration dates. The commitments become effective when the borrowers
"lock-in" a specified interest rate within time frames established by NVR. All
mortgagors are evaluated for credit worthiness prior to the extension of the
commitment. Market risk arises if interest rates move adversely between the
time of the "lock-in" of rates by the borrower and the sale date to a
broker/dealer. This market risk is managed by entering into forward contracts
as discussed below.
There were mortgage loan commitments aggregating approximately $120,716
outstanding at December 31, 1999, with a fair value at December 31, 1999 of
$120,914. Since certain of the commitments are expected to expire without a
loan closing, the total contractual amounts do not necessarily represent future
cash requirements. Collateral for loans granted is obtained by a first mortgage
security interest in real estate whose appraised values exceed the contractual
amount of the commitment.
The Company enters into optional and mandatory forward delivery contracts
to sell mortgage-backed securities and whole loans at specific prices and dates
to broker/dealers and secondary market investors. The Company has established
policies governing which broker/dealers can be used to conduct these activities.
Market risk with respect to forward contracts arises from changes in the value
of contractual positions due to fluctuations in interest rates. The Company
limits its exposure to market risk by monitoring differences between the total
of commitments to customers and loans held for sale and forward contracts with
investors and broker/dealers. In the event that the Company has forward
delivery contract commitments in excess of available mortgage-backed securities,
the Company completes the transaction by either paying or receiving a fee
to/from the broker/dealer equal to the increase/decrease in the market value of
the forward contract. NVR has no market risk associated with optional delivery
contracts because NVR has the right but not the obligation to deliver mortgage
backed securities and whole loans to investors and broker/dealers under these
contracts. There were open forward delivery contracts to sell loans to third
party investors aggregating approximately $198,131 at December 31, 1999, with a
fair value at December 31, 1999 of $198,181.
The Company's homebuilding segment generates operating liquidity and
acquisitions of capital assets through fixed-rate and variable-rate debt. The
homebuilding segment's primary variable-rate debt is a Working Capital Credit
facility that currently provides for unsecured borrowings up to $100,000 (of
which $60,000 is committed), subject to certain borrowing base limitations. The
working capital credit facility expires May 31, 2002 and outstanding amounts
bear interest at the election of the Company, at (i) the base rate of interest
announced by the Working Capital Credit facility agent or (ii) 1.35% above the
Eurodollar Rate. The weighted average interest rates for the amounts
outstanding under the Facility was 6.5% for the year ended 1999. There were no
amounts outstanding under the Working Capital Credit facility at December 31,
1999.
The following table represents contractual balances of the Company's on
balance sheet financial instruments in dollars at the expected maturity dates,
as well as the fair values of those on balance sheet financial instruments, at
December 31, 1999. The expected maturity categories take into consideration
historical and anticipated prepayment speeds, as well as actual amortization of
principal and does not take into consideration the reinvestment of cash or the
refinancing of existing indebtedness. Because the Company sells all of the
mortgage loans it originates into the secondary markets, the Company has made
the assumption that the portfolio of mortgage loans held for sale will mature in
the first year. Consequently, outstanding warehouse borrowings and repurchase
facilities are also assumed to mature in the first year.
15
<PAGE>
Maturities (000's)
------------------
<TABLE>
<CAPTION>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage banking segment
- ------------------------
Interest rate sensitive assets:
Mortgage loans held for sale 136,311 - - - - - 136,311 137,209
Average interest rate 8.8% - - - - - 8.8%
Interest rate sensitive liabilities:
Variable rate warehouse line of credit 107,588 - - - - - 107,588 107,588
Average interest rate (a) 5.8% - - - - - 5.8%
Variable rate repurchase agreements 17,363 - - - - - 17,363 17,363
Average interest rate 5.5% - - - - - 5.5%
Fixed rate capital lease obligations 448 201 106 93 - - 848 848
Average interest rate 9.4% 7.9% 6.4% 6.4% - - 8.4%
Homebuilding segment
- --------------------
Interest rate sensitive assets:
Interest-bearing deposits 45,000 - - - - - 45,000 45,000
Average interest rate 4.0% - - - - - 4.0%
Interest rate sensitive liabilities:
Variable rate working capital line of credit - - - - - - - -
Average interest rate - - - - - - -
Variable rate notes payable 2,070 - - - - - 2,070 2,070
Average interest rate 6.9% - - - - - 6.9%
Fixed rate obligations (b) 271 333 313 331 372 148,644 150,264 141,927
Average interest rate 8.1% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%
</TABLE>
(a) Average interest rate is net of credits received for compensating cash
balances.
(b) The $148,644 maturing after 2004 includes $145,000 of the Company's 8%
Senior Notes due June 2005.
16
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The financial statements required by this Item are included in the
financial statements and schedules included herein under Item 14 and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
Item 10 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2000. Reference is also made regarding the executive officers of the
registrant to "Executive Officers of the Registrant" following Item 4 of Part I
of this report.
Item 11. Executive Compensation.
- -------- -----------------------
Item 11 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
Item 12 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2000.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Item 13 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2000.
17
<PAGE>
PART IV
-------
Item 14. Exhibits and Reports on Form 8-K.
- -------- ---------------------------------
Financial Statements
NVR, Inc. - Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Description of Exhibits
Exhibit
Number Description
------ -----------
2.1 Debtors' Second Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code (as modified to July 21, 1993).
Incorporated by reference to Exhibit 2.1 in NVR, Inc.'s 1993
Registration Statement on Form S-1 (No. 33-63190) (the "1993
Registration Statement").
3.1 Restated Articles of Incorporation of NVR, Inc. Incorporated by
reference to Exhibit 3.7 in NVR, Inc.'s 1993 Registration
Statement.
3.2 Bylaws of NVR, Inc. Incorporated by reference to Exhibit 3.8 in
NVR, Inc.'s 1993 Registration Statement.
4.1 Form of Trust Indenture between NVR, Inc., as issuer and the Bank
of New York as trustee. Incorporated by reference to Exhibit 4.3
in NVR, Inc.'s Current Report on Form 8-K filed April 23, 1998.
4.2 Form of Note (included in Indenture filed as Exhibit 4.1).
4.4 Form of Supplemental Trust Indenture between NVR, Inc., as
issuer, NVR Homes, Inc., as guarantor, and The Bank of New York,
as trustee. Incorporated by reference to Exhibit 4.3 in NVR,
Inc.'s Current Report on Form 8-K filed April 23, 1998.
**10.1 Employment Agreement between NVR, Inc. and Dwight C. Schar dated
January 1, 1996.
**10.3 Executive Employment Agreement between NVR, Inc. and Paul C.
Saville dated January 1, 1995.
**10.5 Employment Agreement between NVR, Inc. and William J. Inman dated
November 13, 1995.
*10.6 Loan Agreement dated as of September 7, 1999 among NVR Mortgage
Finance, Inc. and US Bank National Association., as Agent, and
the other lenders party thereto.
10.7 NVR, Inc. Equity Purchase Plan. Incorporated by reference to
Exhibit 10.10 in NVR, Inc.'s 1993 Registration Statement.
10.8 NVR, Inc. Directors Long-Term Incentive Plan. Incorporated by
reference to Exhibit 10.11 in NVR, Inc.'s 1993 Registration
Statement.
10.9 NVR, Inc. Management Equity Incentive Plan. Incorporated by
reference to Exhibit 10.2 in NVR, Inc.'s 1993 Registration
Statement.
18
<PAGE>
**10.19 Employee Stock Ownership Plan of NVR, Inc.
**10.22 NVR, Inc. 1994 Management Equity Incentive Plan.
10.23 NVR, Inc. 1998 Management Long-Term Stock Option Plan.
Incorporated by reference to Exhibit 4 of NVR, Inc.'s Form S-8
Registration Statement filed June 4, 1999.
10.24 NVR, Inc. 1998 Directors' Long-Term Stock Option Plan.
Incorporated by reference to Exhibit 4 of NVR, Inc.'s Form S-8
Registration Statement filed June 4, 1999.
10.26 NVR, Inc. Management Long-Term Stock Option Plan. Incorporated by
reference to Exhibit 99.3 of NVR, Inc.'s Form S-8 Registration
Statement filed May 31, 1996.
10.27 NVR, Inc. Directors' Long-Term Stock Option Plan. Incorporated by
reference to Exhibit 99.3 of NVR, Inc.'s Form S-8 Registration
Statement filed May 31, 1996.
**10.29 Third Amended and Restated Credit Agreement dated as of September
30, 1998 among NVR, Inc. as borrower and Certain Banks and
BankBoston, as Agent for itself and Certain Banks.
**10.30 NVR, Inc. High Performance Compensation Plan dated as of January
1, 1996.
*10.31 NVR, Inc. High Performance Compensation Plan No. 2 dated as of
January 1, 1999.
**10.32 Whole Loan Purchase and Sale Agreement between NVR Mortgage
Finance, Inc., as seller, and Prudential Securities Realty
Funding Corporation, as Purchaser, dated as of August 11, 1997.
**10.33 Mortgage Loan Purchase and Sale Agreement dated as of January 15,
1997 between Prudential Securities Realty Funding Corporation and
NVR Mortgage Finance, Inc.
**10.34 Mortgage Loan Purchase and Sale Agreement between Greenwich
Capital Financial Products, Inc. and NVR Mortgage Finance, Inc.,
dated as of July 22, 1998
*11 Computation of Earnings per Share
*21 NVR, Inc. Subsidiaries.
*23 Consent of KPMG LLP (independent auditors).
*27 Financial Data Schedule
* Filed herewith.
** Contained in a previously filed Annual Report on Form 10-K.
_________________
Reports on Form 8-K
No reports on Form 8-K were filed by NVR during the last quarter covered by this
report.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NVR, Inc.
By: /s/ Dwight C. Schar
---------------------------
Dwight C. Schar
Chairman of the Board of Directors,
President and Chief Executive Officer
Dated: March 8, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board
of Directors, President and
/s/ Dwight C. Schar Chief Executive Officer
- ----------------------------
Dwight C. Schar (Principal Executive Officer) March 8, 2000
/s/ C. Scott Bartlett, Jr. Director
- ----------------------------
C. Scott Bartlett, Jr. March 8, 2000
/s/ Manuel H Johnson Director
- ----------------------------
Manuel H. Johnson March 8, 2000
/s/ William A. Moran Director
- ----------------------------
William A. Moran March 8, 2000
/s/ Richard H. Norair, Sr. Director
- ----------------------------
Richard H. Norair, Sr. March 8, 2000
/s/ David A. Preiser Director
- ----------------------------
David A. Preiser March 8, 2000
/s/ George E. Slye Director
- ----------------------------
George E. Slye March 8, 2000
/s/ John M. Toups Director
- ----------------------------
John M. Toups March 8, 2000
Senior Vice President,
Chief Financial Officer and
/s/ Paul C. Saville Treasurer March 8, 2000
- ----------------------------
Paul C. Saville
20
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
NVR, Inc.:
We have audited the accompanying consolidated balance sheets of NVR, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NVR, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
McLean, Virginia
February 2, 2000
21
<PAGE>
NVR, Inc.
Consolidated Balance Sheets
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Homebuilding:
Cash and cash equivalents $ 77,968 $ 59,118
Receivables 2,171 1,515
Inventory:
Lots and housing units, covered under
sales agreements with customers 276,193 236,447
Unsold lots and housing units 37,573 45,478
Manufacturing materials and other 9,689 6,713
-------- --------
323,455 288,638
Property, plant and equipment, net 13,114 16,663
Reorganization value in excess of amounts
allocable to identifiable assets, net 53,901 60,062
Goodwill, net 8,566 9,659
Contract land deposits 62,784 40,699
Other assets 49,776 41,301
-------- --------
591,735 517,655
-------- --------
Mortgage Banking:
Cash and cash equivalents 11,158 9,386
Mortgage loans held for sale, net 136,311 178,695
Mortgage servicing rights, net 3,384 3,680
Property and equipment, net 4,239 934
Reorganization value in excess of amounts
allocable to identifiable assets, net 9,523 10,611
Goodwill, net 2,739 -
Other assets 8,192 3,398
-------- --------
175,546 206,704
-------- --------
Total assets $767,281 $724,359
======== ========
</TABLE>
(Continued)
See notes to consolidated financial statements.
22
<PAGE>
NVR, Inc.
Consolidated Balance Sheets (Continued)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable $ 98,322 $ 88,272
Accrued expenses and other liabilities 125,172 103,683
Customer deposits 50,348 34,639
Notes payable 2,128 4,054
Other term debt 5,206 5,434
Senior notes 145,000 145,000
--------- ---------
426,176 381,082
--------- ---------
Mortgage Banking:
Accounts payable and other liabilities 14,666 11,709
Notes payable 125,799 165,849
--------- ---------
140,465 177,558
--------- ---------
Total liabilities 566,641 558,640
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,614,855 and
20,190,971 shares issued
for 1999 and 1998, respectively 204 202
Additional paid-in-capital 196,654 174,173
Retained earnings 241,564 132,683
Less treasury stock at cost - 11,443,247
and 9,805,132 shares at December 31,
1999 and 1998, respectively (237,782) (141,339)
--------- ---------
Total shareholders' equity 200,640 165,719
--------- ---------
Total liabilities and shareholders'
equity $ 767,281 $ 724,359
========= =========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
NVR, Inc.
Consolidated Statements of Income
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Homebuilding:
Revenues $ 1,942,660 $ 1,504,744 $1,154,022
Other income 1,712 1,874 1,232
Cost of sales (1,610,727) (1,273,815) (995,855)
Selling, general and administrative (140,762) (113,329) (87,231)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (7,254) (7,547) (6,635)
----------- ----------- ----------
Operating income 185,629 111,927 65,533
Interest expense (13,533) (17,528) (16,410)
----------- ----------- ----------
Homebuilding income 172,096 94,399 49,123
Mortgage Banking:
Mortgage banking fees 48,122 42,703 25,946
Interest income 13,556 9,861 6,415
Other income 598 634 674
General and administrative (40,020) (30,022) (23,636)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (1,636) (1,088) (1,088)
Interest expense (7,504) (6,120) (3,544)
----------- ----------- ----------
Operating income 13,116 15,968 4,767
Total segment income 185,212 110,367 53,890
Income tax expense (76,331) (44,260) (25,011)
----------- ----------- ----------
Income before extraordinary loss 108,881 66,107 28,879
Extraordinary loss-extinguishment of debt
(net of tax benefit of $5,885) - (9,401) -
----------- ----------- ----------
Net income $ 108,881 $ 56,706 $ 28,879
=========== =========== ==========
Basic earnings per share:
Income before extraordinary loss $ 10.69 $ 5.94 $ 2.44
Extraordinary loss - (0.84) -
----------- ----------- ----------
Basic earnings per share $ 10.69 $ 5.10 $ 2.44
=========== =========== ==========
Diluted earnings per share:
Income before extraordinary loss $ 9.01 $ 4.97 $ 2.18
Extraordinary loss - (0.71) -
----------- ----------- ----------
Diluted earnings per share $ 9.01 $ 4.26 $ 2.18
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
NVR, Inc.
Consolidated Statements of Shareholders' Equity
(dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $199 $157,842 $ 47,098 $ (53,129)
Net income - - 28,879 -
Purchase of common stock
for treasury - - - (45,545)
Performance share activity - 5,580 - 2,406
Tax benefit from stock options
exercised - 464 - -
Option activity 1 845 - -
------ -------- -------- ---------
Balance, December 31, 1997 200 164,731 75,977 (96,268)
Net income - - 56,706 -
Purchase of common stock
for treasury - - - (50,199)
Performance share activity - 3,953 - 5,128
Tax benefit from stock options
exercised - 3,744 - -
Option activity 2 1,745 - -
------ -------- -------- ---------
Balance, December 31, 1998 202 174,173 132,683 (141,339)
Net income - - 108,881 -
Purchase of common stock
for treasury - - - (101,765)
Performance share activity - 13,412 - 5,322
Tax benefit from stock options
exercised - 7,542 - -
Option activity 2 1,527 - -
------ -------- -------- ---------
Balance, December 31, 1999 $204 $196,654 $241,564 $(237,782)
====== ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
NVR, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 108,881 $ 56,706 $ 28,879
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Extraordinary loss - extinguishment of debt - 15,286 -
Depreciation and amortization 14,727 13,408 13,338
Gain on sales of loans (33,807) (31,071) (16,731)
Deferred tax provision (11,911) (10,927) (629)
Mortgage loans closed (2,911,865) (2,717,456) (1,485,763)
Proceeds from sales of mortgage loans 3,027,057 2,655,949 1,450,618
Gain on sales of mortgage servicing rights (2,962) (1,368) (1,069)
Net change in assets and liabilities, net of acquisitions:
Increase in inventories (34,817) (64,597) (31,354)
(Increase) decrease in receivables (2,517) 2,601 693
Increase in accounts payable and
accrued expenses 57,450 68,815 20,556
Other, net 5,117 1,003 6,437
----------- ----------- -----------
Net cash provided (used) by operating activities 215,353 (11,651) (15,025)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities - 9,569 15,126
Business acquisition, net of cash acquired (3,697) - (12,533)
Purchase of property, plant and equipment (9,070) (3,964) (3,053)
Principal payments on mortgage-backed securities 1,765 5,076 4,190
Proceeds from sales of mortgage servicing rights 31,647 27,637 14,199
Other, net 5,450 1,266 1,236
----------- ----------- -----------
Net cash provided by investing activities 26,095 39,584 19,165
----------- ----------- -----------
Cash flows from financing activities:
Redemption of mortgage-backed bonds (2,300) (13,341) (18,019)
Extinguishment of 11% senior notes - (129,344) -
Deferred financing fees - (2,311) -
Issuance of 8% Senior Notes - 145,000 -
Purchases of treasury stock (101,765) (50,199) (45,545)
Net borrowings (repayments) under notes payable
and credit lines (118,290) 43,294 29,523
Other, net 1,529 1,747 846
----------- ----------- -----------
Net cash used by financing activities (220,826) (5,154) (33,195)
----------- ----------- -----------
Net increase (decrease) in cash 20,622 22,779 (29,055)
Cash, beginning of year 68,504 45,725 74,780
----------- ----------- -----------
Cash, end of year $ 89,126 $ 68,504 $ 45,725
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the year $ 21,115 $ 24,670 $ 21,255
=========== =========== ===========
Income taxes paid during the year, net of refunds $ 78,493 $ 43,097 $ 23,018
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of NVR, Inc. ("NVR" or "The Company"), its wholly owned
subsidiaries and certain partially owned entities. All significant
intercompany transactions have been eliminated in consolidation.
Merger
Effective September 30, 1998, NVR merged each of NVR Homes, Inc.,
NVR's wholly owned homebuilding subsidiary, and NVR Financial Services,
Inc., NVR's wholly owned mortgage banking holding company, into the
Company. The Company now conducts its homebuilding activities both directly
and through its wholly owned subsidiary, Fox Ridge Homes, Inc. ("Fox
Ridge"). The Company conducts its mortgage banking operations primarily
through another wholly owned subsidiary, NVR Mortgage Finance, Inc. ("NVR
Finance") and First Republic Mortgage Corporation, wholly owned by NVR
Finance.
Use of Estimates in the Preparation of Financial Statements
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.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
Homebuilding Inventory
Inventory is stated at the lower of cost or market value. Cost of
lots and completed and uncompleted housing units represent the accumulated
actual cost thereof. Field construction supervisors' salaries and related
direct overhead expenses are included in inventory costs. Interest costs
are not capitalized into inventory. Upon settlement, the cost of the units
is expensed on a specific identification basis. Cost of manufacturing
materials is determined on a first-in, first-out basis.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable
assets is being amortized on a straight-line basis over 15 years.
Accumulated amortization as of December 31, 1999 and 1998 was $49,278 and
$42,030, respectively. Determination of any impairment losses related to
this intangible asset is based on consideration of projected undiscounted
cash flows. Tax benefits realized in subsequent periods related to
unrecognized deferred tax assets as of September 30, 1993 are recorded as a
reduction of reorganization value in excess of amounts allocable to
identifiable assets. For the year ended December 31, 1998, $2,852 of such
benefits was realized.
27
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Goodwill
The excess of amounts paid for business acquisitions over the net fair
value of the assets acquired and the liabilities assumed is amortized using
the straight line method ranging from five to ten years. Accumulated
amortization was $2,918 and $1,276 at December 31, 1999 and 1998,
respectively. Determination of any impairment losses related to this
intangible asset is based on consideration of projected undiscounted cash
flows.
Mortgage Loans Held for Sale
Mortgage loans held for sale, forward trade commitments and
origination commitments are valued at the lower of cost or market on a net
aggregate basis.
Mortgage-Backed Securities and Mortgage-Backed Bonds
The Company's consolidated balance sheets for all periods presented
reflect its ownership interests in mortgage-backed securities net of the
related mortgage-backed bonds as a component of other assets of the
mortgage banking segment, and the consolidated statements of income for all
periods presented reflect earnings from such interests net of the related
interest expense as a component of other income of the mortgage banking
segment. All of such interests are at, or are nearing, the end of their
economic useful lives, and as such, NVR does not anticipate that such
assets will generate significant amounts of income or cash flow in the
future. See note 11 for additional information.
Earnings per Share
The following weighted average shares and share equivalents are used
to calculate basic and diluted EPS for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Weighted average number of
shares outstanding used to
calculate Basic EPS 10,189,878 11,131,114 11,838,743
Dilutive securities:
Stock Options 1,898,510 2,168,950 1,405,934
---------- ---------- ----------
Weighted average number of
shares and share equivalents
outstanding used to calculate
Diluted EPS 12,088,388 13,300,064 13,244,677
========== ========== ==========
</TABLE>
Revenues-Homebuilding Operations
NVR builds light-frame, low-rise residences which generally are
produced on a pre-sold basis for the ultimate customer. Revenues are
recognized at the time units are completed and title passes to the
customer. Additionally, to a significantly lesser degree, NVR sells house
packages to builder-dealers and other homebuilders and recognizes revenue
at the time the product is delivered to the builder-dealer or homebuilder.
28
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Mortgage Banking Fees
Mortgage banking fees include income earned by NVR's mortgage banking
subsidiaries for originating and processing mortgage loans, servicing
mortgage loans held in the servicing portfolio, title fees, gains and
losses on the sale of mortgage loans and mortgage servicing and other
activities incidental to mortgage banking. Loan origination fees and
direct loan origination costs are deferred and the net deferred fees, or
costs, are recognized either upon the sale of the loan or as an adjustment
of the yield over the life of the loan.
Mortgage Servicing Rights
Mortgage servicing rights are recorded by allocating the total cost of
acquiring mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair
values.
NVR measures the impairment of the mortgage servicing rights based on
their current fair value. Current fair value is determined through the
discounted present value of estimated future net servicing cashflows using
a risk-based discount rate and assumptions based upon market estimates for
future servicing revenues and expenses (including prepayment expectations,
servicing costs, default rates, and interest earnings on escrows). For the
purposes of evaluating and measuring impairment of the mortgage servicing
rights, they are stratified using the predominant risk characteristic of
the underlying mortgage loans. NVR has determined that the predominant
risk characteristic of the underlying mortgage loans is interest rate.
Impairment, and subsequent changes in measurement of impairment, of any
individual stratum is recognized through a valuation allowance for that
stratum. The mortgage servicing rights are amortized to general and
administrative expense in proportion to, and over the period of, the
estimated net servicing income.
Depreciation
Depreciation is based on the estimated useful lives of the assets
using the straight-line method. Amortization of capital lease assets is
included in depreciation expense.
Income Taxes
NVR files a consolidated federal income tax return. Deferred income
taxes reflect the impact of "temporary differences" between the amount of
assets and liabilities for financial reporting purposes and such amounts as
measured by enacted tax rules and regulations.
Financial Instruments
Except as otherwise noted here and note 4 to the financial statements,
NVR believes that insignificant differences exist between the carrying
value and the fair value of its financial instruments. The estimated fair
value of NVR's 8% Senior Notes due 2005 as of December 31, 1999 and 1998
was $136,663 and $145,508, respectively. The estimated fair values are
based on quoted market prices. The carrying value was $145,000 at December
31, 1999 and 1998.
Stock-Based Compensation
As permitted under SFAS No. 123, NVR has elected to continue to follow
the guidance of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, in accounting for its stock-based employee
compensation arrangements. The pro forma financial information required by
SFAS No. 123 is included in note 9.
29
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
2. Segment Information, Nature of Operations, and Certain Concentrations
NVR operates in two business segments: homebuilding and mortgage banking.
The homebuilding segment is one of the largest homebuilders in the United States
and in the Washington, D.C. and Baltimore, Maryland metropolitan areas, where
NVR derived approximately 62% of its 1999 homebuilding revenues. NVR's
homebuilding segment primarily constructs and sells single-family detached
homes, townhomes and condominium buildings under three tradenames: Ryan Homes,
NVHomes and Fox Ridge Homes. The Ryan Homes product is built in sixteen
metropolitan areas located in Maryland, Virginia, Pennsylvania, New York, North
Carolina, South Carolina, Ohio, New Jersey, Delaware and Tennessee. The Fox
Ridge Homes product is built solely in the Nashville, Tennessee metropolitan
area. The Ryan Homes' and Fox Ridge Homes' products are moderately priced and
marketed primarily towards first-time buyers. The NVHomes product is built
largely in the Washington, D.C. metropolitan area, and is marketed primarily to
move-up buyers.
The mortgage banking segment, which operates under NVR Finance, currently
includes a national mortgage banking operation and a limited-purpose financing
subsidiary (the "Limited-Purpose Financing Subsidiary") which was formed to
facilitate the financing of long-term mortgage loans through the sale of non-
recourse bonds collateralized by mortgage-backed securities. NVR's mortgage
banking business generates revenues primarily from origination fees, gains on
marketing of loans, title fees, and sales of servicing rights. A substantial
portion of the Company's mortgage operations is conducted in the Washington, D.C
and Baltimore, MD metropolitan areas. Although NVR's mortgage banking
operations provide financing to a substantial portion of NVR's homebuilding
customers, NVR's homebuilding customers accounted for only 39% of the aggregate
dollar amount of loans closed in 1999.
Corporate general and administrative expenses are fully allocated to the
homebuilding and mortgage banking segments in the information presented below.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
- --------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
<S> <C> <C> <C>
Revenues $1,942,660 $ 48,122 $1,990,782 (a)
Interest income 141 13,556 13,697 (a)
Interest expense 13,533 7,504 21,037 (a)
Depreciation and amortization 3,775 2,062 5,837 (b)
Segment profit 179,350 14,752 194,102 (b)
Segment assets 529,268 163,284 692,552 (b)
Expenditures for segment assets 6,465 2,605 9,070 (a)
</TABLE>
(a) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(b) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
<TABLE>
<CAPTION>
Homebuilding Mortgage Banking Totals
------------- ----------------- ---------
<S> <C> <C> <C>
Segment depreciation and
amortization $ 3,775 $ 2,062 $ 5,837
Add: amortization of excess
reorganization value and goodwill 7,254 1,636 8,890
-------- ------- --------
Consolidated depreciation and
amortization $ 11,029 $ 3,698 $ 14,727
======== ======= ========
Segment profit $179,350 $14,752 $194,102
Less: amortization of excess
reorganization value and goodwill (7,254) (1,636) (8,890)
-------- ------- --------
Consolidated income before income
taxes $172,096 $13,116 $185,212
======== ======= ========
</TABLE>
30
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
<S> <C> <C> <C>
Segment assets $ 529,268 $163,284 $ 692,552
Add: Excess reorganization value
and goodwill 62,467 12,262 74,729
---------- -------- ----------
Total consolidated assets $ 591,735 $175,546 $ 767,281
========== ======== ==========
For the Year Ended December 31, 1998
- --------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
Revenues $1,504,744 $ 42,703 $1,547,447 (c)
Interest income 1,256 9,861 11,117 (c)
Interest expense 17,528 6,120 23,648 (c)
Depreciation and amortization 4,166 607 4,773 (d)
Segment profit 101,946 17,056 119,002 (d)
Segment assets 447,934 196,093 644,027 (d)
Expenditures for segment assets 3,007 957 3,964 (c)
</TABLE>
(c) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(d) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
<TABLE>
<CAPTION>
Homebuilding Mortgage Banking Totals
---------------------- ----------------- -----------
<S> <C> <C> <C>
Segment depreciation and
amortization $ 4,166 $ 607 $ 4,773
Add: amortization of excess
reorganization value and goodwill 7,547 1,088 8,635
---------- -------- ----------
Consolidated depreciation and
amortization $ 11,713 $ 1,695 $ 13,408
========== ======== ==========
Segment profit $ 101,946 $ 17,056 $ 119,002
Less: amortization of excess
reorganization value and goodwill (7,547) (1,088) (8,635)
---------- -------- ----------
Consolidated income before income
taxes and extraordinary loss $ 94,399 $ 15,968 $ 110,367
========== ======== ==========
Segment assets $ 447,934 $196,093 $ 644,027
Add: Excess reorganization value
and goodwill 69,721 10,611 80,332
---------- -------- ----------
Total consolidated assets $ 517,655 $206,704 $ 724,359
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
- --------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
<S> <C> <C> <C>
Revenues $1,154,022 $ 25,946 $1,179,968 (e)
Interest income 252 6,415 6,667 (e)
Interest expense 16,410 3,544 19,954 (e)
Depreciation and amortization 4,384 1,231 5,615 (f)
Segment profit 55,758 5,855 61,613 (f)
Segment assets 345,780 127,022 472,802 (f)
Expenditures for segment assets 2,708 345 3,053 (e)
</TABLE>
(e) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
31
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
(f) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
<TABLE>
<CAPTION>
Homebuilding Mortgage Banking Totals
------------- ----------------- ---------
<S> <C> <C> <C>
Segment depreciation and
amortization $ 4,384 $ 1,231 $ 5,615
Add: amortization of excess
reorganization value and goodwill 6,635 1,088 7,723
-------- -------- --------
Consolidated depreciation and
amortization $ 11,019 $ 2,319 $ 13,338
======== ======== ========
Segment profit $ 55,758 $ 5,855 $ 61,613
Less: amortization of excess
reorganization value and goodwill (6,635) (1,088) (7,723)
-------- -------- --------
Consolidated income before income
taxes $ 49,123 $ 4,767 $ 53,890
======== ======== ========
Segment assets $345,780 $127,022 $472,802
Add: Excess reorganization value
and goodwill 80,119 11,700 91,819
-------- -------- --------
Total consolidated assets $425,899 $138,722 $564,621
======== ======== ========
</TABLE>
3. Related Party Transactions
During 1999, 1998, and 1997, NVR purchased, at market prices, developed
lots from a company that is controlled by a member of the board of directors.
Those purchases totaled approximately $18,700, $13,000 and $8,100 during 1999,
1998 and 1997, respectively. NVR expects to purchase the majority of the
remaining lots under contract as of December 31, 1999 over the next 18 to 24
months for an aggregate purchase price of approximately $36,000.
During the years ended December 31, 1999, 1998 and 1997, one of the
executive officers of NVR was a partner in a law firm, which billed NVR
approximately $471, $441 and $375, respectively, in fees and expenses for legal
services.
4. Loan Servicing Portfolio, Mortgage Loan Commitments and Off-Balance Sheet
Risk
At December 31, 1999 and 1998, NVR was servicing approximately 2,700 and
3,170 mortgage loans for various investors with aggregate balances of
approximately $220,000 and $261,000, respectively.
At December 31, 1999, NVR had capitalized mortgage servicing rights of
$3,384 which related to approximately $218 million of the aggregate $220 million
in loans serviced. The mortgage servicing rights associated with the remaining
$2 million in loans serviced are not subject to capitalization because the loans
were originated and sold prior to NVR's adoption of SFAS No. 122 on January 1,
1995. At December 31, 1998, NVR had capitalized purchased mortgage servicing
rights of $3,680.
NVR assesses the fair value of the capitalized mortgage servicing rights by
stratifying the underlying loans by interest rate. The fair value of the
mortgage servicing rights is then determined through the present value of
estimated future net servicing cashflows using a risk based discount rate, and
assumptions based upon market estimates for future servicing revenues and
expenses (including prepayment expectations, servicing costs, default rates, and
interest earnings on escrows). The fair value of the capitalized mortgage
servicing rights was $3,328 and $3,878 at December 31, 1999 and 1998,
respectively. The fair value of the mortgage servicing rights not subject to
capitalization was $200 and $300 at December 31, 1999 and 1998, respectively.
Based on management's estimate of the fair value of the designated strata, the
Company has a $175 valuation
32
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
reserve at December 31, 1999.
NVR amortizes the capitalized mortgage servicing rights in proportion to,
and over the period of, the estimated net servicing income. The amortization
for the periods ending December 31, 1999, 1998 and 1997 was $306, $484 and $506,
respectively.
In the normal course of business, NVR enters into contractual commitments
involving financial instruments with off-balance sheet risk. These financial
instruments include commitments to extend mortgage loans to customers and
forward contracts to sell mortgage-backed securities to broker/dealers. These
instruments involve, to varying degrees, elements of credit and market rate risk
in excess of the amounts recognized in the balance sheet.
NVR's exposure to credit loss, in the event of non-performance by the
customers, is represented by the contractual amount of the commitment for the
mortgage loans. NVR Finance uses the same credit policies in making commitments
as it does for on-balance sheet mortgage loans.
There were mortgage loan commitments aggregating approximately $120,716 and
$235,812 outstanding at December 31, 1999 and 1998, respectively. The fair
values of mortgage loan commitments were approximately $120,914 and $236,272 at
December 31, 1999 and 1998, respectively. There were open forward delivery
contracts aggregating approximately $198,131 and $287,317 at December 31, 1999
and 1998, respectively. The fair values of open forward delivery contracts were
approximately $198,181 and $287,528 at December 31, 1999 and 1998, respectively.
NVR enters into contractual commitments to extend credit to buyers of
single-family homes with fixed expiration dates. The commitments become
effective when the borrowers "lock-in" a specified interest rate within time
frames established by NVR. All mortgagors are evaluated for credit worthiness
prior to the extension of the commitment. Market risk arises if interest rates
move adversely between the time of the "lock-in" of rates by the borrower and
the sale date to a broker/dealer. This market risk is managed by entering into
forward contracts as discussed below.
Since certain of the commitments are expected to expire without a loan
closing, the total contractual amounts do not necessarily represent future cash
requirements. Collateral for loans granted is obtained by a first mortgage
security interest in real estate whose appraised values exceed the contractual
amount of the commitment.
NVR enters into optional and mandatory forward delivery contracts to sell
mortgage-backed securities at specific prices and dates to broker/dealers. NVR
has established policies governing which broker/dealers can be used to conduct
these activities. Credit risk associated with forward contracts is limited to
the replacement cost of those forward contracts in a gain position, and at
December 31, 1999 and 1998 there were no such positions. There were no
counterparty default losses on forward contracts in 1999, 1998 or 1997. Market
risk with respect to forward contracts arises from changes in the value of
contractual positions due to fluctuations in interest rates. NVR limits its
exposure to market risk by monitoring differences between the total of
commitments to customers and loans held for sale and forward contracts with
broker/dealers. In the event NVR has forward delivery contract commitments in
excess of available mortgage-backed securities, NVR completes the transaction by
either paying or receiving a fee to/from the broker/dealer equal to the
increase/decrease in the market value of the forward contract. NVR has no
market risk associated with optional delivery contracts because NVR has the
right but not the obligation to deliver mortgage backed securities to
broker/dealers under these contracts.
33
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
5. Property, Plant and Equipment, net
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Homebuilding:
Office facilities and other $ 5,992 $ 17,996
Model home furniture and fixtures 8,583 6,377
Manufacturing facilities 10,330 8,170
Property under capital leases 4,234 4,234
-------- --------
29,139 36,777
Less accumulated depreciation and amortization (16,025) (20,114)
-------- --------
$ 13,114 $ 16,663
======== ========
Mortgage Banking:
Office facilities and other $ 8,640 $ 3,854
Less accumulated depreciation and amortization (4,401) (2,920)
-------- --------
$ 4,239 $ 934
======== ========
</TABLE>
Included in Homebuilding property, plant and equipment are amounts for land
totaling $260 and $1,732 at December 31, 1999 and 1998.
Certain property, plant and equipment listed above are collateral for
various debt of NVR and certain of its subsidiaries as more fully described in
note 6.
6. Debt
December 31,
------------------
1999 1998
-------- --------
Homebuilding:
Notes payable:
Working capital revolving credit (a) $ - $ -
Other (b) 2,128 4,054
-------- --------
$ 2,128 $ 4,054
======== ========
Other term debt:
Capital lease and financing obligations
due in monthly installments
through 2014 (c) $ 5,206 $ 5,434
======== ========
Senior notes (d) $145,000 $145,000
======== ========
Mortgage Banking:
Mortgage warehouse revolving credit (e) $107,588 $145,496
Mortgage repurchase facility (f) 17,363 19,868
Capital lease and financing
obligations due in monthly
installments through 2004 (c) 848 485
-------- --------
$125,799 $165,849
======== ========
(a) In September 1998, the Company, as borrower, succeeded to the obligations
of NVR Homes, Inc. under the unsecured working capital revolving credit facility
as amended and restated (the "Facility"). This Facility currently provides for
unsecured borrowings up to $100,000 (of which $60,000 is committed), subject to
certain borrowing base limitations, and is generally available to fund working
capital needs of NVR's homebuilding segment. Up to approximately $24,000 of the
Facility is currently available for issuance in the form of letters of credit of
which $12,542 and $11,719 were issued at December 31, 1999 and 1998,
respectively. The Facility expires May 31, 2002 and outstanding amounts bear
interest at the election of the Company, at (i) the base rate of interest
announced by the Facility agent or (ii) 1.35% above the Eurodollar
34
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Rate. The weighted average interest rates for the amounts outstanding under the
Facility were 6.5% and 7.2% for 1999 and 1998, respectively.
The Facility contains numerous operating and financial covenants, including
required levels of net worth, fixed charge coverage ratios, and several other
covenants related to the construction operations of NVR. In addition, the
Facility contains restrictions on the ability of NVR to, among other things,
incur debt and make investments. Also, the Facility prohibits NVR from paying
dividends to shareholders.
(b) Other notes payable as of December 31, 1999 is principally comprised of a
$1,530 note payable issued in connection with the acquisition of Fox Ridge in
1997. The weighted average interest rate was 6.9% and 7.5% during 1999 and 1998,
respectively.
(c) The capital lease and financing obligations have either fixed or variable
interest rates ranging from 3.0% to 13.0% and are collateralized by land,
buildings and equipment with a net book value of approximately $6,700 and $4,700
at December 31, 1999 and 1998, respectively.
During December 1998, the Company exercised its option to purchase two
office buildings previously utilized by NVR for certain administrative functions
of both its homebuilding and mortgage banking segments, thereby extinguishing
the Company's obligations under the capital lease pertaining to these buildings.
The Company expended funds of $12,295, excluding accrued interest, to extinguish
the capital lease obligation, which resulted in an extraordinary loss of $2,275,
net of a $1,424 tax benefit, ($0.17 per diluted share), in the accompanying
consolidated income statements. During 1999, the Company sold both buildings to
an unrelated third party and leased back one of the buildings for a five-year
term expiring in 2004. There was no resultant material gain or loss on the sale
transaction.
The following schedule provides future minimum lease payments under all
financing and capital leases together with the present value as of December 31,
1999:
Years ending December 31:
---------------------------------------
2000 $ 1,355
2001 1,074
2002 968
2003 949
2004 853
Thereafter 6,496
-------
11,695
Amount representing interest 5,641
-------
$ 6,054
=======
(d) On January 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to $400,000 of the
Company's debt securities. The shelf registration statement was declared
effective on February 27, 1998 and provides that securities may be offered from
time to time in one or more series, and in the form of senior or subordinated
debt.
On April 14, 1998, the Company completed an offering under the shelf
registration statement for $145,000 of senior notes due 2005 (the "New Senior
Notes"), resulting in aggregate net proceeds to the Company of approximately
$142,800 after fees and expenses. The New Senior Notes mature on June 1, 2005
and bear interest at 8%, payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 1998. The New Senior Notes are senior unsecured
obligations of the Company, ranking equally in right of payment with the
Company's other existing and future unsecured indebtedness. The New Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after June 1, 2003 at redemption prices ranging from 104% of par in 2003 to
par beginning in 2005. An additional $30,000 in principal is available for
issuance under the New Senior Note offering.
35
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The indenture governing the New Senior Notes has, among other items,
limitations on asset sales by NVR and requires that NVR, on a consolidated
basis, maintain a net worth of at least $80,000. In addition, the indenture
limits dividends, certain investments and NVR's ability to incur additional debt
if NVR is in default under the indenture or if NVR does not meet certain fixed
charge coverage ratios.
Through a tender offer commenced on April 21, 1998 and completed May 18,
1998, various open market purchases throughout 1998 and a contractual call
exercised on December 1, 1998, the Company repurchased all of the $120,000 in
aggregate principal outstanding under the Company's 11% Senior Notes due 2003
("Senior Notes"). The Senior Notes were retired upon purchase. The amount of
funds expended to complete the Senior Note Repurchase totaled $129,345,
excluding accrued interest, and resulted in the recognition of an extraordinary
loss of $7,126, net of a $4,461 tax benefit, ($0.54 per diluted share), in the
accompanying consolidated income statements.
(e) The mortgage warehouse facility ("Mortgage Warehouse Revolving Credit") of
NVR Finance has a borrowing limit at December 31, 1999 of $225,000 of which
$200,000 is committed. The interest rate under the Mortgage Warehouse Revolving
Credit agreement is either: (i) the London Interbank Offering Rate ("Libor")
plus either 1.25% or 1.75% depending on the type of collateral, or (ii) 1.25% or
1.75% to the extent that NVR Finance provides compensating balances and
depending on the type of collateral. The weighted average interest rates for
amounts outstanding under the Mortgage Warehouse Revolving Credit line were 5.8%
and 5.2% during 1999 and 1998, respectively. Primarily mortgage loans and
gestation mortgage-backed securities collateralize the Mortgage Warehouse
Revolving Credit agreement. The Mortgage Warehouse Revolving Credit Agreement is
an annually renewable facility and currently expires in July 2000.
The Mortgage Warehouse Revolving Credit agreement includes, among other
items, restrictions on NVR Finance incurring additional borrowings and making
intercompany dividends and tax payments. In addition, NVR Finance is required
to maintain a minimum net worth.
(f) NVR Finance from time to time enters into various gestation and repurchase
agreements. NVR Finance currently has available an aggregate of $175,000 of
borrowing capacity in such uncommitted facilities. Amounts outstanding
thereunder accrue interest at various rates tied to the Libor rate and are
collateralized by gestation mortgage-backed securities and whole loans. The
uncommitted facilities generally require NVR Finance to, among other items,
maintain a minimum net worth and limit its level of liabilities in relation to
its net worth. The weighted average interest rates for amounts outstanding under
these uncommitted facilities were 5.5% and 6.5% during 1999 and 1998,
respectively.
* * * * *
Maturities with respect to the other notes payable, other term debt, and
the New Senior Notes as of December 31, 1999 are as follows:
Years ending December 31:
--------------------------------------
2000 $ 2,789
2001 534
2002 419
2003 424
2004 372
Thereafter 148,644
The $148,644 maturing after 2004 includes $145,000 in New Senior Notes
which mature in June 2005.
NVR Finance's mortgage warehouse facility limits the ability of NVR Finance
to transfer funds to
36
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
NVR in the form of dividends, loans or advances. NVR Finance had net assets of
$11,500 as of December 31, 1999 that were so restricted.
At December 31, 1999, the homebuilding and mortgage banking segments had
restricted cash of $907 and $9,780, respectively, which includes certain
customer deposits, mortgagor tax, insurance, completion escrows and other
amounts collected at closing which relates to mortgage loans held for sale and
to home sales.
7. Common Stock
There were 9,171,608 and 10,385,839 common shares outstanding at December
31, 1999 and 1998, respectively. As of December 31, 1999, NVR had reacquired a
total of 12,536,969 shares of NVR common shares at an aggregate cost of $252,346
since December 31, 1993. Approximately 1,100,000 common shares have been
reissued from the treasury in satisfaction of employee benefit liabilities. The
average cost basis for the aggregate number of shares reissued from the treasury
was $13.32 per share. In addition, approximately 492,000 stock options were
exercised during 1999 with NVR realizing $1,529 in equity proceeds.
8. Income Taxes
The provision for income taxes consists of the following:
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
------------------ ------------------ ------------------
Current:
Federal $72,664 $ 47,632 $22,539
State 15,578 7,555 3,101
Deferred:
Federal (8,374) (10,031) (1,030)
State (3,537) (896) 401
------- -------- -------
$76,331 $ 44,260 $25,011
======= ======== =======
In addition to amounts applicable to income before taxes, the following
income tax benefits were recorded in shareholders' equity:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income tax benefits arising from
compensation expense for tax
purposes in excess of amounts
recognized for financial
statement purposes $7,542 $3,744 $464
====== ====== ====
</TABLE>
Deferred income taxes on NVR's consolidated balance sheets are comprised of
the following:
December 31,
----------------
1999 1998
------- -------
Total deferred tax assets $43,267 $33,365
Less: deferred tax liabilities 5,349 8,035
------- -------
$37,918 $25,330
======= =======
Deferred tax assets arise principally as a result of various accruals
required for financial reporting purposes and deferred compensation, which are
not currently deductible for tax return purposes. Deferred tax liabilities
arose at September 30,1993 upon the Company's implementation of "fresh start"
accounting.
37
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Management believes the Company will have sufficient available carry-backs
and future taxable income to make it more likely than not that the net deferred
tax asset will be realized. Taxable income was $195,790 and $110,357 for the
years ended December 31, 1999 and 1998.
A reconciliation of income tax expense in the accompanying statements of
income to the amount computed by applying the statutory Federal income tax rate
to income before income taxes, discontinued operations and extraordinary gains
is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Income taxes computed at the
Federal statutory rate $64,824 $38,628 $18,862
State income taxes, net of Federal
income tax benefit 7,827 4,328 2,276
Non-deductible amortization 2,729 2,639 2,639
Utilization of net operating loss
carryforward - (3,300) -
Other, net 951 1,965 1,234
------- ------- -------
$76,331 $44,260 $25,011
======= ======= =======
</TABLE>
The merger of NVR Homes, Inc. and NVR Financial Services, Inc. into the
Company on September 30, 1998 allowed the Company to utilize a separate return
limitation year net operating loss ("SRLY NOL") generated by the Company's
previously owned savings and loan institution, NVR Savings Bank. As a result,
the Company recognized a $3,300 tax benefit during 1998. The SRLY NOL has been
fully utilized and there remains no unused carryforward.
38
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
9. Profit Sharing and Incentive Plans
Profit Sharing Plans--NVR has a trustee-administered, profit sharing
retirement plan (the "Profit Sharing Plan") and an Employee Stock Ownership Plan
("ESOP") covering substantially all employees. The Profit Sharing Plan and the
ESOP provide for annual contributions in amounts as determined by the NVR Board
of Directors (the "Board"). The combined plan expense for the years ended
December 31, 1999, 1998 and 1997 was $7,712, $6,436 and $3,081, respectively.
During 1999 and 1998, the ESOP purchased in the open market 105,440 and 111,902
shares respectively of NVR common stock using cash contributions provided by
NVR. As of December 31, 1999, all shares held by the ESOP have been committed
to be released to participant accounts.
Management Incentive Plans--Management long-term incentive plans provide
several types of equity incentives to NVR's executives and managers. The equity
incentives take the form of stock options and performance share awards as
described below. Stock options issued under the management long-term incentive
plans are issued with an exercise price equal to the market value of the
underlying shares on the date of grant.
Under the Management Incentive Plan adopted by the Board in 1993,
participants received options to purchase a total of 1,117,949 NVR shares (the
"1993 NVR Share Options"). The 1993 NVR Share Options issued under the
Management Incentive Plan were fully vested as of December 31, 1996, and
generally expire 10 years after the dates upon which they were granted.
Under the 1994 Management Incentive Plan (the "1994 Incentive Plan"),
executive officers and other key employees of the Company were eligible to
receive stock options (the "1994 NVR Share Options") and performance shares (the
"1994 Performance Shares"). There were 48,195 1994 NVR Share Options and
1,124,929 1994 Performance Shares authorized for grant under the 1994 Incentive
Plan. The 1994 NVR Share Options generally expire 10 years after the dates upon
which they were granted, and generally vest in one-third increments on each of
December 31, 1997, 1998 and 1999, with vesting based upon continued employment.
All 1,124,929 1994 Performance Shares have been granted to employees under the
1994 Incentive Plan, and all 1994 Performance Shares have vested. For the years
ended December 31, 1999, 1998 and 1997, compensation expense recognized for the
1994 Performance Shares totaled $18,670, $9,081 and $7,986, respectively.
During 1996, the Company's Shareholders approved the Board of Directors'
adoption of the Management Long-Term Stock Option Plan (the "1996 Option Plan").
There are 2,000,000 non-qualified stock options ("Options") authorized under the
Management Long Term Stock Option Plan. The Options generally expire 10 years
after the dates upon which they were granted, and vest in one-third increments
on each of December 31, 2000, 2001 and 2002, with vesting based upon continued
employment.
During 1999, the Company's Shareholders approved the Board of Directors'
adoption of the 1998 Management Long-Term Stock Option Plan (the "1998
Management Long Term Stock Option Plan"). There are 1,000,000 non-qualified
stock options ("Options") authorized under the 1998 Management Long Term Stock
Option Plan. The Options generally expire 10 years after the dates upon which
they were granted, and vest in one-third increments on each of December 31,
2003, 2004 and 2005, with vesting based upon continued employment.
39
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1993 NVR Share Options Options Prices Options Prices Options Prices
- ---------------------- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at the
beginning of the year 825,971 $ 7.60 953,952 $ 7.60 1,076,424 $ 7.60
Granted - - - - - -
Canceled - - - - (5,000) 7.62
Exercised (471,200) 7.62 (127,981) 7.62 (117,472) 7.64
--------- -------- ---------- -------- --------- --------
Outstanding at end of year 354,771 $ 7.60 825,971 $ 7.60 953,952 $ 7.60
========= ======== ========== ======== ========= ========
Exercisable at end of year 354,771 $ 7.60 825,971 $ 7.60 953,952 $ 7.60
========= ======== ========== ======== ========= ========
1994 NVR Share Options
- ----------------------
Options outstanding at the
beginning of the year 43,363 $ 19.54 35,000 $14.00 - $ -
Granted - - 13,195 32.20 35,000 14.00
Canceled - - - - - -
Exercised (8,331) 14.00 (4,832) 14.00 - -
--------- -------- ---------- -------- --------- --------
Outstanding at end of year 35,032 $ 20.86 43,363 $19.54 35,000 $14.00
========= ======== ========== ======== ========= ========
Exercisable at end of year 29,569 $ 19.02 22,898 $17.50 11,667 $14.00
========= ======== ========== ======== ========= ========
1996 Option Plan
- ----------------
Options outstanding at the
beginning of the year 1,753,405 $ 11.42 1,770,000 $11.30 1,554,000 $10.58
Granted 200,500 42.65 13,405 25.00 216,000 16.51
Canceled (62,000) 12.48 (30,000) 10.63 - -
Exercised - - - - - -
--------- -------- ---------- -------- --------- --------
Outstanding at end of year 1,891,905 $ 14.70 1,753,405 $11.42 1,770,000 $11.30
========= ======== ========== ======== ========= ========
Exercisable at end of year - $ - - $ - - $ -
========= ======== ========== ======== ========= ========
1998 Option Plan
- ----------------
Options outstanding at the
beginning of the year - $ - - $ - - $ -
Granted 927,000 47.63 - - - -
Canceled - - - - - -
Exercised - - - - - -
--------- -------- ---------- -------- --------- --------
Outstanding at end of year 927,000 $ 47.63 - $ - - $ -
========= ======== ========== ======== ========= ========
Exercisable at end of year - $ - - $ - - $ -
========= ======== ========== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Range of Exercise Prices Number Price Life in Years
- ------------------------ ------ ------- -------------
<S> <C> <C> <C>
1993 NVR Share Options
- ----------------------
Outstanding at December 31, 1999:
$5.06 - $6.41 16,750 $ 5.30 5.1
$7.62 - $9.11 338,021 $ 7.71 3.9
Exercisable at December 31, 1999:
$5.06 - $6.41 16,750 $ 5.30 -
$7.62 - $9.11 338,021 $ 7.71 -
1994 NVR Share Options
- ----------------------
Outstanding at December 31, 1999:
$14.00 - $14.00 21,837 $ 14.00 7.2
$25.00 - $34.50 13,195 $ 32.20 8.5
Exercisable at December 31, 1999:
$14.00 - $14.00 21,837 $ 14.00 -
$25.00 - $34.50 7,732 $ 33.19 -
</TABLE>
40
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Range of Exercise Prices Number Price Life in Years
- ------------------------ ------ ------ -------------
<S> <C> <C> <C>
*1996 Option Plan
- -----------------
Outstanding at December 31, 1999:
$8.78 - $13.25 1,530,000 $ 10.59 6.4
$14.00 - $21.00 150,000 $ 18.32 7.7
$22.63 - $25.00 13,405 $ 23.59 7.9
$38.00 - $48.50 198,500 $ 43.03 9.3
*1998 Option Plan
- -----------------
Outstanding at December 31, 1999:
$47.63 - $47.88 927,000 $ 47.63 9.4
</TABLE>
*None of the options outstanding under the 1996 and 1998 Option Plans is
exercisable at December 31, 1999.
The weighted average fair values of grants made in 1999, 1998 and 1997
for management incentive plans were $29.41, $18.65 and $10.13, respectively.
The fair values of the options granted were estimated on the grant date using
the Black-Scholes option-pricing model based on the following weighted average
assumptions:
1999 1998 1997
--------- --------- ---------
Estimated option life 10 years 10 years 10 years
Risk free interest rate 5.94% 5.52% 6.79%
Expected volatility 40.19% 45.14% 35.16%
Expected dividend yield 0.0% 0.0% 0.0%
Director Incentive Plans--The NVR Directors' Long Term Incentive Plan ("1993
Directors' Plan") provides for each eligible director to be granted options to
purchase 22,750 shares of common stock with a maximum number of shares issuable
under the plan of 364,000. There were 182,000 Directors' Options granted to
eligible directors on September 30, 1993 at a grant price of $16.60 per share,
which exceeded the fair value of the underlying shares on the date of grant.
The options became exercisable six months after the date of grant and expire in
September 2003. Pursuant to the 1993 Directors' Plan, each outside director
also received a one-time cash payment of $200 during 1997 for the achievement of
certain goals under a five-year measurement period beginning September 30, 1993.
There were 192,000 NVR share options authorized and granted in 1996 to the
Company's outside directors under the Directors' Long Term Stock Option Plan
(the "1996 Directors' Plan"). There are no additional options available for
grant under this plan. The option exercise price for the options granted was
$10.25 per share, which was equal to the fair market value of the Company's
Shares on the date of grant. The Options were granted for a 10-year period
beginning from the date of grant, and vest in one-third increments on each of
December 31, 1999, 2000, and 2001. There were 24,000 previously unvested 1996
Directors' Options exercised during 1998, pursuant to a separation of service
due to death clause within the 1996 Directors' Plan.
There were 150,000 NVR share options authorized for grant in 1999 to the
Company's outside directors under the 1998 Directors' Long Term Stock Option
Plan (the "1998 Directors' Plan"). A total of 87,500 options were granted at an
exercise price of $49.06, which was equal to the fair market value of the
Company's Shares on the date of grant. The Options were granted for a 10 year
period beginning from the date of grant, and vest in twenty-five percent (25%)
increments on each of December 31, 2002, 2003, 2004 and 2005.
41
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- ---------------------
Exercise Exercise Exercise
1993 Directors' Plan Options Price Options Price Options Price
- -------------------- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at the
beginning of the year 113,750 $16.60 182,000 $16.60 182,000 $16.60
Granted - - - - - -
Canceled - - - - - -
Exercised (12,750) 16.60 (68,250) 16.60 - -
------- ------ ------- ------ ------- ------
Outstanding at end of year 101,000 $16.60 113,750 $16.60 182,000 $16.60
======= ====== ======= ====== ======= ======
Exercisable at end of year 101,000 $16.60 113,750 $16.60 182,000 $16.60
======= ====== ======= ====== ======= ======
1996 Directors' Plan
- --------------------
Options outstanding at the
beginning of the year 168,000 $10.25 192,000 $10.25 192,000 $10.25
Granted - - - - - -
Canceled - - - - - -
Exercised - - (24,000) 10.25 - -
------- ------ ------- ------ ------- ------
Outstanding at end of year 168,000 $10.25 168,000 $10.25 192,000 $10.25
======= ====== ======= ====== ======= ======
Exercisable at end of year 56,000 $10.25 - $ - - $ -
======= ====== ======= ====== ======= ======
1998 Directors' Plan
- --------------------
Options outstanding at the
beginning of the year - $ - - $ - - $ -
Granted 87,500 49.06 - - - -
Canceled - - - - - -
Exercised - - - - - -
------- ------ ------- ------ ------- ------
Outstanding at end of year 87,500 $49.06 - $ - - $ -
======= ====== ======= ====== ======= ======
Exercisable at end of year - $ - - $ - - $ -
======= ====== ======= ====== ======= ======
</TABLE>
The weighted average grant-date fair value of the options granted during
1999 under director incentive plans was $30.48 per share. The fair value was
calculated using the Black-Scholes option pricing model, under the following
assumptions: i) the estimated option life was equal to ten years, ii) the risk
free interest rate was 5.77%, iii) the expected volatility equaled 40.19%, and
iv) the estimated dividend yield was 0%.
SFAS No. 123 requires companies who continue to apply Opinion 25 to account
for their stock-based employee compensation arrangements to provide pro forma
net income and earnings per share as if the fair value based method had been
used to account for compensation cost. Accordingly, pro forma net income and
earnings per share would have been $104,122 ($8.61 per diluted share), $55,352
($4.16 per diluted share), and $27,637 ($2.09 per diluted share) for the years
ended December 31, 1999, 1998 and 1997, respectively, if the Company had
accounted for its stock based employee compensation arrangements using the fair
value method. The 1999, 1998 and 1997 effects of applying SFAS No. 123 for
providing pro forma disclosures are not likely to be representative of the
effects on reported net income and earnings per share for future years because
the number of option grants and the fair value assigned to future grants could
differ.
10. Commitments and Contingent Liabilities
NVR is committed under several non-cancelable operating leases involving
office space, manufacturing facilities and equipment. Future minimum lease
payments under these operating leases as of December 31, 1999 are as follows:
42
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Years ended December 31,
--------------------------------------
2000 $ 9,497
2001 5,661
2002 3,471
2003 2,653
2004 1,592
Thereafter 3,688
-------
$26,562
=======
Total rent expense incurred under operating leases was approximately
$10,800, $7,787, and $6,625 for the years ended December 31, 1999, 1998 and
1997, respectively.
During the ordinary course of operating the mortgage banking and
homebuilding businesses, NVR is required to enter into bond or letter of credit
arrangements with local municipalities, government agencies, or land developers
to collateralize its obligations under various contracts. NVR had approximately
$21,722 of contingent obligations under such agreements as of December 31, 1999.
NVR believes it will fulfill its obligations under the related contracts and
does not anticipate any losses under these bonds or letters of credit.
NVR and its subsidiaries are also involved in litigation arising from the
normal course of business. In the opinion of management, and based on advice of
legal counsel, this litigation will not have any material adverse effect on the
financial position or results of operations of NVR.
11. Mortgage-Backed Securities, net of Mortgage-Backed Bonds, and Related
Assets and Liabilities
Mortgage-backed securities ("MBS") serve as collateral for the related
mortgage-backed bonds ("Bonds") sold to third parties. The MBS cannot be sold
except upon specified call dates of the Bonds. The calling of the Bonds at
those dates is solely at the option of the Company. Principal and interest
payments on the MBS are used to make the quarterly payments on the Bonds. In
addition, prepayments of the underlying MBS are passed through as repayments of
the Bonds so that the Bonds may be fully paid prior to their stated maturities.
The Bonds are not guaranteed by NVR or any of its subsidiaries, other than the
issuing Limited-Purpose Financing Subsidiary.
A trustee for the benefit of the bondholders holds the MBS and the reserve
amounts, which constitute the collateral for the Bonds of a series. The
specific collateral pledged to secure a particular series is not available as
collateral for any other series. In addition, the Company may, under certain
circumstances, redeem certain series of Bonds. In such certain circumstances,
the Bonds are redeemed at par and any market appreciation or depreciation
accrues to the Company.
During 1998, NVR sold, at a premium, MBS totaling $9,080, the proceeds
of which were used to redeem in full the related outstanding Bonds, which
totaled $8,855. The sales of the MBS resulted in a pre-tax gain of $608, which
was substantially offset by a pre-tax loss on the related Bonds of $315. During
1997, NVR sold, at a premium, MBS totaling $15,126, the proceeds of which were
used to redeem in full the related outstanding Bonds which totaled $14,074. The
sales of the MBS resulted in a pre-tax gain of $590, which was partially offset
by a pre-tax loss on the related Bonds of $552. There were no Bond calls during
1999.
43
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The following comprise the assets and liabilities of the Limited Purpose
Financing Subsidiary:
December 31,
--------------
1999 1998
------ ------
Assets:
Mortgage-backed securities, net $5,110 $7,438
Funds held by trustee 83 74
Other assets 257 584
------ ------
Total assets 5,450 8,096
------ ------
Liabilities:
Accrued expenses and other liabilities 211 405
Mortgage-backed bonds, net unamortized discounts 5,229 7,681
------ ------
Total liabilities 5,440 8,086
------ ------
Mortgage-backed securities, net of mortgage-
backed bonds, and related assets and liabilities $ 10 $ 10
====== ======
The weighted average portfolio yield on the MBS was 8.9% and 9.0% at
December 31, 1999 and 1998, respectively. The Bonds mature on October 1, 2016
and bear interest at 9.0%. However, NVR has the contractual right to call the
Bonds in 2001.
12. Acquisition
On March 4, 1999, NVR Mortgage Acquisition, Inc. ("NVRMA"), a wholly owned
subsidiary of NVR Finance, NVR's wholly owned mortgage banking subsidiary,
purchased all of the outstanding capital stock of First Republic Mortgage
Corporation ("First Republic") for approximately $5,300 in cash and the
assumption of approximately $78,000 of liabilities and debt. First Republic,
based in Rockville, Maryland, is a leading mortgage lender in the Baltimore and
Washington Metropolitan area. NVRMA accounted for this acquisition using the
purchase method, and the operations of the acquired business have been included
in NVR's 1999 consolidated financial statements beginning on the date of the
acquisition. Goodwill of approximately $3,300 that was generated pursuant to
the purchase transaction is being amortized using the straight-line method over
5 years.
The following unaudited pro forma summary of combined operations was
prepared to illustrate the estimated effects of the 1999 acquisition of First
Republic as if such acquisition had occurred on the first day of the respective
periods presented.
Year Ended December 31,
-----------------------
1999 1998
---- ----
Mortgage banking fees $ 52,587 $68,230
Net income 108,241 55,654
Diluted earnings per share before
extraordinary loss 8.95 4.89
NVR Fox Ridge, Inc., a wholly owned subsidiary of NVR, was formed during
1997 to purchase substantially all of the assets and assume certain liabilities
of Fox Ridge Homes, Inc. ("FRH"), a leading homebuilder in Nashville, Tennessee.
NVR Fox Ridge, Inc. was renamed Fox Ridge Homes, Inc. ("Fox Ridge") in November
1997. To consummate the purchase on October 31, 1997, Fox Ridge assumed
approximately $15,160 of FRH's liabilities, paid FRH $14,250 in cash at
settlement on October 31, 1997, and
44
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
issued a note payable for the remaining $4,750 purchase price. The note bears
interest at 200 basis points above the federal funds target rate. The first two
annual installments were paid on October 31, 1999 and 1998, respectively,
including accrued interest. The remaining installment will be paid on October
31, 2000.
Fox Ridge accounted for this acquisition using the purchase method, and the
operations of the acquired business have been included in NVR's consolidated
statements of income since its acquisition. Goodwill that was generated
pursuant to the purchase transaction is being amortized using the straight-line
method over 10 years.
The following unaudited pro forma summary of combined operations was
prepared to illustrate the estimated effects of the 1997 acquisition of Fox
Ridge as if such acquisition had occurred on the first day of the 1997 period.
Year Ended December 31,
1997
----
Homebuilding revenues $1,192,684
Net income 29,343
Diluted earnings per share 2.22
13. Quarterly Results [unaudited]
The following table sets forth unaudited selected financial data and
operating information on a quarterly basis for the years ended December 31, 1999
and 1998.
Year Ended December 31, 1999
--------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues-homebuilding
operations $429,687 $492,058 $523,552 $497,363
Gross profit - homebuilding
operations $ 73,143 $ 83,891 $ 90,172 $ 84,727
Mortgage banking fees $ 13,522 $ 12,465 $ 13,162 $ 8,973
Net income $ 26,007 $ 28,263 $ 30,341 $ 24,270
Diluted earnings per share $ 2.02 $ 2.26 $ 2.52 $ 2.18
Contracts for sale, net
of cancellations (units) 2,541 2,855 1,866 2,416
Settlements (units) 2,098 2,424 2,516 2,278
Backlog, end of period (units) 5,016 5,447 4,797 4,935
Loans closed $779,406 $869,774 $675,593 $587,092
45
<PAGE>
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues-homebuilding
operations $291,547 $385,738 $441,034 $386,425
Gross profit - homebuilding
operations $ 43,591 $ 59,892 $ 68,084 $ 59,362
Mortgage banking fees $ 7,687 $ 10,684 $ 11,724 $ 12,608
Income before extraordinary loss $ 10,860 $ 15,495 $ 24,759 $ 14,993
Diluted earnings per share before
extraordinary loss $ 0.81 $ 1.15 $ 1.87 $ 1.16
Contracts for sale, net
of cancellations (units) 2,262 2,533 1,821 2,384
Settlements (units) 1,543 1,995 2,169 1,915
Backlog, end of period (units) 3,914 4,452 4,104 4,573
Loans closed $578,334 $658,789 $697,567 $782,766
</TABLE>
46
<PAGE>
EXHIBIT 10.6
LOAN AGREEMENT
among
NVR MORTGAGE FINANCE, INC.
a Virginia corporation,
U.S. BANK NATIONAL ASSOCIATION,
as Agent,
and
The Lenders Party Hereto
September 7, 1999
-----------
Initially $225,000,000
($200,000,000 Committed and $25,000,000 Uncommitted)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS AND REFERENCES 1
1.1 Definitions 1
1.2 Time References 26
1.3 Other References 26
SECTION 2. AMOUNT AND TERMS OF CREDITS 26
2.1 Commitment 26
2.2 Notes 31
2.3 Notice and Manner of Obtaining Borrowings 31
2.4 Fees 35
2.5 Mandatory Repayments 35
2.6 Business Days 35
2.7 Payment Procedure 35
2.8 Payments Not in Full 37
2.9 Sharing of Payments, Etc 37
2.10 Requirements of Law 37
2.11 Interest 41
2.12 42
SECTION 3. COLLATERAL 43
3.1 Collateral 43
3.2 Delivery of Collateral 43
3.3 Power of Attorney 43
3.4 Disposition of Collateral 44
3.5 Concerning the Collateral Account and the Good Funds Wire
Clearing Account 45
3.6 Borrower Appointed Agent 45
SECTION 4. CONDITIONS PRECEDENT 45
4.1 Initial Borrowing 45
4.2 All Borrowings 46
SECTION 5. BORROWER REPRESENTATIONS AND WARRANTIES 47
5.1 Organization and Good Standing 47
5.2 Authorization and Power 47
5.3 No Conflicts or Consents 47
5.4 Enforceable Obligations 48
5.5 Priority of Liens 48
5.6 No Liens 48
5.7 Financial Condition 48
5.8 Full Disclosure 49
5.9 No Default 49
5.10 No Litigation 49
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.11 Taxes 49
5.12 Principal Office, etc 49
5.13 Compliance with ERISA 49
5.14 Ownership 51
5.15 Subsidiaries 51
5.16 Indebtedness 51
5.17 Permits, Patents, Trademarks, etc. 51
5.18 Status Under Certain Federal Statutes 51
5.19 Securities Acts and Securities Credit Transaction Regulations 52
5.20 Pollution Control 52
5.21 No Approvals Required 52
5.22 Material Agreements with Affiliates 52
5.23 Taxpayer Identification 52
5.24 Not an Insider 52
5.25 Survival of Representations 52
5.26 Year 2000 Compliance 53
SECTION 6. AFFIRMATIVE COVENANTS 53
6.1 Financial Statements and Reports 53
6.2 Taxes and Other Liens 54
6.3 Maintenance 55
6.4 Further Assurances 55
6.5 Reimbursement of Expenses 55
6.6 Insurance 56
6.7 Accounts and Records; Servicing Records 56
6.8 Appraisals 56
6.9 Right of Inspection 57
6.10 Notice of Certain Events 57
6.11 Performance of Certain Obligations 57
6.12 Use of Proceeds; Margin Stock 57
6.13 Notice of Default 58
6.14 Compliance with Loan Documents 58
6.15 Compliance with Material Agreements 58
6.16 Operations and Properties 58
6.17 ERISA and Plans 58
6.18 Environmental Matters 59
6.19 Take-Out Commitments; Coverage 59
6.20 Failure to Close a Wet Mortgage Loan 60
6.21 Year 2000 Compliance 60
SECTION 7. NEGATIVE COVENANTS 60
7.1 No Merger 60
7.2 Limitation on Indebtedness 60
7.3 Fiscal Year, Method of Accounting 61
7.4 Business 61
7.5 Liquidations, Consolidations and Dispositions of Substantial
Assets 61
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.6 Loans, Advances and Investments 61
7.7 Use of Proceeds 62
7.8 Actions with Respect to Collateral 62
7.9 Adjusted Tangible Net Worth 62
7.10 Liabilities to Adjusted Tangible Net Worth Ratios 62
7.11 Restrictions on Dividends, Returns of Capital and Servicing
Proceeds Distributions 63
7.12 Transactions with Affiliates 63
7.13 Liens 63
7.14 Compliance with ERISA 63
7.15 Change of Principal Office 64
7.16 Tax Payments 64
7.17 Tax Allocation Agreement 64
7.18 Permitted Subordinated Indebtedness 64
SECTION 8. EVENTS OF DEFAULT 64
8.1 Nature of Event 64
8.2 Default Remedies 67
SECTION 9. AGENT 67
9.1 Authorization and Action 67
9.2 Agent's Reliance, Etc 68
9.3 Agent and Affiliates 68
9.4 Lender Credit Decision 68
9.5 Indemnification 69
9.6 Successor Agent 69
9.7 Right of Inspection 70
9.8 Reports 70
SECTION 10. INDEMNIFICATION OF LENDERS 70
10.1 Indemnification 70
10.2 Limitation of Liability 71
SECTION 11. MISCELLANEOUS 71
11.1 Notices 71
11.2 Amendments, Etc 72
11.3 Invalidity 74
11.4 Survival of Agreements 74
11.5 Renewal, Extension or Rearrangement 74
11.6 Waivers 74
11.7 Cumulative Rights 74
11.8 Construction 74
11.9 Interest 75
11.10 Right of Offset 76
11.11 Assignments, Additional Lenders, etc 76
11.12 Lender Covenants, Representations and Warranties 77
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
11.13 Consent to Jurisdiction 77
11.14 Exhibits 78
11.15 Titles of Articles and Sections 78
11.16 Counterparts 78
11.17 Rights of Individual Lenders to Take Action 78
11.18 Entire Agreement 78
11.19 Agreement Regarding Effective Date 79
</TABLE>
iv
<PAGE>
SCHEDULES AND EXHIBITS
----------------------
Schedule 1.1(a) Addresses of Lenders and Amount of Commitments
Schedule 1.1(b) Investors
Schedule 1.1(c) Determination of Weighted Average Take-Out Price
Schedule 1.1(d) Lot Loan Program Description
Schedule 4.1 Other Conditions of Lenders
Schedule 5.10 Litigation
Schedule 5.22 Material Agreements with Affiliates
Exhibit A-1 Form of Committed Warehouse Promissory Note
Exhibit A-2 Form of Uncommitted Warehouse Promissory Note
Exhibit A-3 Form of Swing Promissory Note
Exhibit B Form of Confirmation of Borrowing, Paydown or Conversion
--------------- ---------------------
Exhibit C Form of Borrowing Notice
Exhibit D [Reserved]
Exhibit E-1 Form of Pool Shipping Instruction
Exhibit E-2 Form of Pool Transmittal Letter
Exhibit F [Reserved]
Exhibit G Form of Borrowing Base Report
Exhibit H Form of Take-Out Report
Exhibit I Form of NVR Mortgage Finance, Inc. Officer's Certificate
Exhibit J Form of Lender Addition Agreement
------
Exhibit K Form of Security Agreement
Exhibit L Form of Tax Allocation Agreement
Exhibit M Form of Subordinated Demand Revolving Credit Note
Exhibit N Form of Payoff Schedule
v
<PAGE>
LOAN AGREEMENT
--------------
THIS AGREEMENT ("this Agreement") is made and entered into as of September 7,
1999, between NVR MORTGAGE FINANCE, INC., a Virginia corporation (the
"Borrower"), the several Persons listed on the signature pages to this Agreement
as Lenders, whether as original signatories or pursuant to Section 11.11(c)
hereto (collectively, the "Lenders" and each individually a "Lender"), and U.S.
BANK NATIONAL ASSOCIATION, a national banking association ("Agent"), as agent
for Lenders hereunder.
A. Borrower, Chase Bank of Texas, National Association as agent and certain
Lenders (including U.S. Bank National Association) are parties to that certain
Loan Agreement dated as of July 10, 1998 (as modified and amended, the "Existing
Loan Agreement").
B. Borrower, Agent, and Lenders wish to replace the Existing Loan Agreement in
its entirety.
Accordingly, for adequate and sufficient consideration, Borrower, Lenders, and
Agent entirely replace the Existing Loan Agreement as follows:
SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, the following
- --------- --------------------------
provisions apply to each Loan Document and annexes, exhibits, and schedules to
them and certificates, reports, and other writings delivered under them.
1.1 Definitions.
-----------
Additional Lender means any Person party to this Agreement as a Lender
which was not a Lender on the Agreement Date.
Adjusted Cash Flow of Borrower for the twelve-month period ending on
the date of determination means the amount equal to (a) the Cash Flow of
Borrower for such period plus (b) the amount of any non-cash additions
included in the Net Income of Borrower for such period which were
subtracted from such Net Income in determining the Cash Flow of Borrower
for such Period plus (c) 1% of the amount, if any, by which the aggregate
outstanding principal balance of the Mortgage Loans included in the
Servicing Portfolio of Borrower as of the last day of such period exceeds
the aggregate outstanding principal balance of the Mortgage Loans included
in the Servicing Portfolio of Borrower as of the last day of the twelve-
month period ending on the date one year prior to such date of
determination.
Adjusted Tangible Net Worth of Borrower means, as of any date of
determination, the sum of (a) the Tangible Net Worth of Borrower determined
as of such date in accordance with GAAP and (b) the outstanding principal
amount of Permitted Subordinated Indebtedness on such date.
Advance means a Warehouse Advance, an L/C Advance, or a Swing Advance.
<PAGE>
Affiliate of any Person means any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with,
such Person. For purposes of this definition, the term "control" (and the
terms "controlled by" and "under common control with"), as used with
respect to any Person, means the possession or ownership, directly or
indirectly, of the power either to (i) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise,
or (ii) vote 10% or more of the securities having ordinary power for the
election of directors of such Person.
Agency means FNMA, FHLMC or GNMA.
Agency Commitment means a binding and enforceable agreement on the
part of (a) FNMA or FHLMC to issue Mortgage-Backed Securities in exchange
for Mortgage Loans or (b) GNMA to guarantee Mortgage-Backed Securities to
be issued by Borrower. Agency Commitment includes the FNMA Guide, the
FHLMC Guide or the GNMA Guide, as applicable, pursuant to which such Agency
Commitment was issued.
Agency Custodian means U.S. Bank Trust National Association in its
capacity as document custodian on behalf of an Agency.
Agency Servicing Agreements means Servicing Agreements between
Borrower and FNMA, FHLMC, or GNMA pursuant to which Borrower undertakes to
service Mortgage Loans or pools of Mortgage Loans owned, insured or
guaranteed by FNMA, FHLMC or GNMA.
Agency Servicing Rights means all of Borrower's right, title and
interest in and under the Agency Servicing Agreements, including, without
limitation, the rights of Borrower to income and reimbursement thereunder.
Agent means, at any time, U.S. Bank National Association, or its
successor appointed under Section 9, acting as agent for Lenders under the
Loan Documents. References to Agent in respect of Swing Advances mean that
institution in its individual capacity. Agent is the representative of
Lenders within the meaning of (S)9.105(a)(13) of the UCC for purposes of
the Loan Documents and the UCC.
Agent Fee Letter means that certain letter from Agent to Borrower
dated as of the date of this Agreement, as agreed to by Borrower and
amended, modified, or supplemented from time to time.
Agreement Date means the date set forth as such on the counterpart
signature page of Agent for this Loan Agreement.
2
<PAGE>
Agreement to Pledge has the meaning specified in the Security
Agreement.
Appraisal means a written statement as to the market value of the
property in which a Lien is granted pursuant to a mortgage to secure a
mortgage loan.
Appraisal Laws and Regulations means laws set forth in Title XI of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the
Federal Deposit Insurance Corporation Improvement Act of 1991 and
regulations promulgated by the OCC or any other Governmental Authority in
connection therewith regarding Appraisals with respect to loans made by
Persons regulated by the OCC.
Bailee Letter has the meaning specified in the Security Agreement.
Balance Funded Rate Agreement has the meaning specified in Section
2.11(f).
Balance Funded Rate Segment means that portion of a Tranche which
bears interest at the applicable rate set forth in Section 2.11(b).
Borrower has the meaning specified in the preamble of this Agreement.
Borrowing means a borrowing consisting of (a) Advances (other than a
Swing Advance) by Lenders in connection with a Borrowing Request, (b) a
Swing Advance by Agent in connection with a Borrowing Request, or (c) an
L/C Advance.
Borrowing Base as of any time of determination means the sum of:
(a) the aggregate Collateral Value of all Eligible Gestation Mortgage
Loans;
(b) the aggregate Collateral Value of all Eligible Mortgage Loans; and
(c) the aggregate Collateral Value of all Eligible Mortgage-Backed
Securities;
provided, that for purposes of determining the Borrowing Base, the maximum
Collateral Value at any time attributable to
(i) Mortgage Loans the Mortgage Note and/or other Principal
Mortgage Document for which has been delivered to Borrower for
correction under a Trust Receipt pursuant to the Security Agreement
shall be $5,000,000,
(ii) Second Lien Loans shall be 5% of the then Total
Commitment,
(iii) Construction Loans and Lot Loans, in the aggregate, shall
be 5% of the then Total Commitment,
3
<PAGE>
(iv) Jumbo Loans (without regard to Face Amount) shall be 20%
of the then Total Commitment,
(v) Super Jumbo Loans (without regard to Face Amount) shall be
25% of the then Total Commitment available for Jumbo Loans pursuant to
clause (iv) above,
(vi) Wet Mortgage Loans shall be (A) during the period
commencing on the third to last Business Day of any calender month and
continuing through and including the fourth Business Day of the
following calendar month, 50% of the then Total Commitment, and (B) at
any other time, 30% of the then Total Commitment, and
(viii) Investment Mortgage Loans shall be 5% of the then
Total Commitment, $1,000,000 of which may be used to finance REO.
Borrowing Base Report means a report substantially in the form of
Exhibit G.
Borrowing Date means the date on which the Advance or Advances in
respect of a Borrowing are to be made, as identified by Borrower in the
relevant Borrowing Request and by Agent in the relevant Borrowing Notice.
Borrowing Notice means a notice, substantially in the form of Exhibit C or such
other form as to which Agent and Lenders may agree.
Borrowing Request means a telephonic request by Borrower to Agent for a
Borrowing pursuant to Section 2, promptly confirmed by delivery by Borrower to
Agent of a duly completed and executed Confirmation. Each Borrowing Request
shall include the information called for with respect to a Borrowing by the form
of Confirmation.
Business Day means any day other than Saturdays, Sundays and other
days on which commercial banks are authorized or required by law to close
in the State of Minnesota.
Cash Equivalents means Eligible Deposits, Eligible Commercial Paper,
and U.S. Government Securities.
Cash Flow of Borrower for the twelve-month period ending on the date
of determination means the amount equal to the Net Income of Borrower for
such period plus all non-cash charges against income (such as deferred
taxes, depreciation and amortization of goodwill and acquisition of
servicing rights) and minus all non-cash additions to income included in
the Net Income of Borrower for such period.
Category refers to the category of Collateral Value which is deemed to
support a Tranche for interest rate pricing purposes under this Agreement.
The Categories of Tranches available with respect to the Notes under this
Agreement are Construction/Lot
4
<PAGE>
Loan Tranches, Gestation Loan Tranches and Regular Tranches.
-----------------------------------------------------------
Code means the Internal Revenue Code of 1986, as amended from time to
time.
Collateral has meaning specified in the Security Agreement.
Collateral Account means account number 104756234357 of Borrower with Agent,
which shall be under the sole dominion and control of Agent and to which
Borrower shall have no access.
Collateral Value means:
(a) with respect to a pool of Eligible Gestation Mortgage Loans, an
amount equal to 99% of the Take-Out Price for such pool of Eligible
Gestation Mortgage Loans; provided, that to the extent that the aggregate
Collateral Value for all pools of Eligible Gestation Mortgage Loans is
greater than 33% of the then Total Commitment, such pools of Eligible
Gestation Mortgage Loans in excess of 33% of the then Total Commitment
shall be attributed Collateral Value as if they consisted of Eligible
Mortgage Loans rather than Eligible Gestation Mortgage Loans;
(b) with respect to an Eligible Mortgage Loan ( other than Investment
Mortgage Loans, REO, Lot Loans, and Construction Loans), an amount equal to
98% of the least of (i) the Cost of such Eligible Mortgage Loan, (ii) the
Weighted Average Take-Out Price of such Eligible Mortgage Loan, (iii) the
Face Amount of such Eligible Mortgage Loan, and (iv) if Agent or the
Required Lenders shall so require, the Market Value of such Eligible
Mortgage Loan;
(c) with respect to an Investment Mortgage Loan, an amount equal to
80% of the unpaid principal balance of such Investment Mortgage Loan,
unless such Mortgage Loan has become REO, in which case, an amount equal to
75% of the lesser of the unpaid principal balance of such Investment
Mortgage Loan or the Appraisal of such REO;
(d) with respect to a Construction Loan, an amount equal to 90% of
the Face Amount of such Construction Loan, to the extent that such amount
does not exceed (i) 80% of the contract price of the subject property or
(ii) 90% of hard cost;
(e) with respect to a Lot Loan, 100% of the sales price of the
related lot less the down payment attributed to such sales price; and
(f) with respect to an Eligible Mortgage-Backed Security, an amount
equal to 99% of the Take-Out Price for such Eligible Mortgage-Backed
Security.
Any item of Collateral which ceases to be or is not an Eligible Gestation
Mortgage Loan, Eligible Mortgage Loan or an Eligible Mortgage-Backed
Security shall have a Collateral Value of zero.
5
<PAGE>
Commitment as to a Lender means the obligation of such Lender to make
Advances to Borrower pursuant to Section 2.1.
Commitment Amount as to a Lender means the amount set forth on
Schedule 1.1(a) as such Lender's Commitment Amount.
Commitment Percentage means the proportion to which any Lender's
Commitment Amount bears to the Total Commitment.
Committed Warehouse Promissory Notes means the promissory notes
delivered by Borrower to Lenders pursuant to Section 2.2 each in the form
attached hereto as Exhibit A-1 and all renewals, extensions, modifications
and rearrangements thereof.
Confirmation means a Confirmation of Borrowing, Paydown or Conversion
in the form attached hereto as Exhibit B.
Conforming Loan means a loan, including conventional, FHA Loans and
VA Loans, which complies with all applicable requirements for purchase
under the FNMA or FHLMC standard form of conventional mortgage purchase
contract then in effect.
Construction Loan means a Mortgage Loan that is otherwise an Eligible
Mortgage Loan but (i) which may be partially funded if fewer than four
Advances have been made with respect to the promissory note for the subject
property and (ii) for which Borrower has delivered Construction Loan
Documents.
Construction Loan Documents means, in addition to Principal Mortgage
Documents and Other Mortgage Documents, (i) a copy of an Appraisal on the
subject property, (ii) a copy of the contract for sale on the subject
property, and (iii) a copy of the builder's draw request/non-start of
construction affidavit.
Construction/Lot Loan Tranche means, with respect to any Note at any
time, that portion of the then outstanding principal balance of such Note
which is deemed to be supported by the Collateral Value of Construction
Loans and Lot Loans included in the Collateral held by Agent at that time,
as specified from time to time by Borrower in the Borrowing Requests and
Conversion Requests received by Agent from Borrower, provided, that (a) the
aggregate principal amount of all Construction/Lot Loan Tranches
outstanding under the Notes of all Lenders at any time shall not exceed the
aggregate Collateral Value of Construction Loans and Lot Loans included in
the Collateral held by Agent at such time, and (b) the aggregate principal
amount of all Construction/Lot Loan Tranches outstanding under any Lender's
Notes at any time shall not exceed the product of the aggregate Collateral
Value of Construction Loans and Lot Loans included in the Collateral held
by Agent at such time multiplied by a fraction the numerator of which is
the aggregate principal balance outstanding under such Lender's Notes at
such time and the denominator of which is the aggregate principal balance
outstanding under all Lenders' Notes at such time.
6
<PAGE>
Conversion Request means a telephonic request by Borrower to Agent for
a conversion of Tranches and/or Borrowings pursuant to Section 2.12,
promptly confirmed by delivery by Borrower to Agent of a duly completed and
executed Confirmation. Each Borrowing Request shall include the
information called for with respect to a conversion by the form of
Confirmation.
Cost with respect to any Mortgage Loan means, as applicable, the
actual out-of-pocket cost to Borrower of such Mortgage Loan, if purchased,
or, if such Mortgage Loan was originated by Borrower, the original
principal amount of such Mortgage Loan minus any discount points paid to
Borrower in respect of such Mortgage Loan.
Custodial Fee Letter means that certain letter from Agent to Borrower
dated as of the date of this Agreement, as agreed to by Borrower and
amended, modified, or supplemented from time to time.
Debtor Laws means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization, fraudulent conveyance or similar laws from time to time in
effect affecting the rights of creditors generally.
Default means any condition or event which, with the giving of notice
or lapse of time or both and unless cured or waived, would constitute an
Event of Default.
Delinquent with respect to any Mortgage Loan means that any payment in
respect of such Mortgage Loan is more than 30 days past due.
Deposit Holding Lenders means Lenders which both (a) hold deposits in
accounts in the name of Borrower and (b) have entered into a Balance
Funded Rate Agreement with Borrower.
Dividends means: (a) Cash distributions or any other distributions
on, or in respect of, any class of equity security of Borrower, except for
(i) distributions made solely in shares of securities of the same class and
(ii) Permitted Returns of Capital and Permitted Servicing Proceeds
Distributions; and (b) any and all funds, cash or other payments made in
respect of the redemption, repurchase or acquisition of (i) such securities
or (ii) any option, warrant, or other right to purchase any of such
securities.
Dollars means lawful money of the United States of America.
Eligible Commercial Paper means commercial paper and other short-term
money market instruments which are rated at least A-1 or the equivalent
thereof by Standard & Poors and P-1 or the equivalent thereof by Moody's.
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Eligible Deposits means time deposits and certificates of deposit of
any Lender or of any domestic commercial bank or savings bank having
capital and surplus in excess of $200,000,000, in all such cases which has
a short-term certificate of deposit rating of at least A-1 or the
equivalent thereof by Standard & Poors and a short-term bank deposit rating
of least P-1 or the equivalent thereof by Moody's, or (ii) a rating of C or
better from Thompson Bank Watch, Inc. or 75 or better from I.D.C. Financial
Publishing, as applicable.
Eligible Gestation Mortgage Loan means a Mortgage Loan: (a) in which
Agent has a perfected first-priority security interest for the benefit of
Lenders to secure the Obligations; (b) which (i) has been allocated to an
Agency Commitment; (ii) is part of a pool which the Agency Custodian has
certified (or initially certified) to the Agency obligated under such
Agency Commitment; and (iii) together with the other Mortgage Loans which
have been allocated to such Agency Commitment, satisfies all requirements
for delivery under such Agency Commitment; (c) with respect to which the
Mortgage-Backed Security to be issued or guaranteed pursuant to such Agency
Commitment will, upon the issuance thereof, constitute an Eligible
Mortgage-Backed Security; and (d) to which Borrower has allocated
Gestation Loan status in accordance with Section 3.4(b)
Eligible Mortgage-Backed Security means a Mortgage-Backed Security:
(a) in which Agent has a perfected first-priority security interest for the
benefit of Lenders to secure the Obligations; (b) which (i) evidences an
undivided interest in a pool of Mortgage Loans which constituted Eligible
Gestation Mortgage Loans or Eligible Mortgage Loans immediately prior to
the issuance of such Mortgage-Backed Security; (ii) has been allocated to
a Take-Out Commitment; (iii) satisfies all requirements for delivery under
such Take-Out Commitment and (iv) has not been owned by Borrower for more
than five (5) Business Days; and (c) with respect to which the Investor
under the Take-Out Commitment to which such Mortgage-Backed Security has
been allocated is not in default or in breach of its obligations under
such Take-Out Commitment.
Eligible Mortgage Loan means a Mortgage Loan (other than an Eligible
Gestation Mortgage Loan):
(a) in which Agent has been granted and continues to hold a perfected
first-priority security interest for the benefit of Lenders;
(b) which has been fully funded except in the case of Construction
Loans;
(c) which is "covered" (within the meaning given to such term in
Section 6.19) by a Take-Out Commitment, except in the case of Investment
Mortgage Loans, Lot Loans, and Construction Loans;
(d) which, in the case of an Eligible Mortgage Loan other than a
Construction Loan, an Investment Loan or a Lot Loan, has not been included
as an Eligible Mortgage
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Loan in the Collateral held by Agent for more than 120 days;
(e) which, in the case of a Construction Loan, has not been
included in the Collateral held by Agent (i) for more than 270 days as a
Construction Loan or (ii) more than 360 days as an Eligible Mortgage Loan;
(f) which, in the case of an Investment Loan, has not been included
as an Eligible Mortgage Loan in the Collateral held by Agent for more than
364 days;
(g) which, in the case of a Lot Loan, has not been included as an
Eligible Mortgage Loan in the Collateral held by Agent for more than 270
days;
(h) which has not previously been sold to an Investor and
repurchased by Borrower ;
(i) which, except in the case of an Investment Mortgage Loan, is
not Delinquent or, to Borrower's knowledge, otherwise in default;
(j) which, in the case of a Lot Loan, has not been without a
construction contract on the lot at any time for more than 5 days;
(k) with respect to which no more than 180 days have elapsed since
the original funding of such Mortgage Loan to the Mortgagor;
(l) with respect to which there is an Appraisal which complies
with all applicable Appraisal Laws and Regulations ;
(m) with respect to which Agent has received the Principal
Mortgage Documents and, if applicable, the Construction Loan Documents or
Lot Loan Documents, as the case may be;
(n) with respect to which, if any Mortgage Note has been delivered
to an Investor under a Bailee Letter pursuant to the Security Agreement, no
more than 45 days have elapsed since the delivery of such Mortgage
Document without the Agent having received from such Investor either (i)
the Warehouse Purchase Price specified in such Bailee Letter or (ii) such
Mortgage Note and any related Mortgage Documents delivered to such Investor
therewith;
(o) with respect to which, if Agent shall have delivered a Mortgage
Note and/or any other Mortgage Document to Borrower for correction under a
Trust Receipt pursuant to the Security Agreement, no more than 21 days have
elapsed since the delivery of such Mortgage Note and/or other Mortgage
Document without such Mortgage Note and/or other Mortgage Document having
been returned to Agent; and
(p) with respect to a Wet Mortgage Loan, no more than 7 Business
Days have elapsed since the date on which such Wet Mortgage Loan was
funded.
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ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default has the meaning specified in Section 8.1.
Existing Loan Agreement has the meaning specified in the preamble.
Face Amount means: (a) in the case of a Mortgage Loan, the stated
principal amount of the Mortgage Note which evidences such Mortgage Loan,
without giving effect to any payments thereon; and (b) in the case of a
Mortgage-Backed Security, the par value of such Mortgage-Backed Security.
FHA means the Federal Housing Administration, or any successor
thereto.
FHA Loan means a loan, payment of which is partially or completely
insured by the FHA or with respect to which there is a current, binding and
enforceable commitment for such insurance issued by the FHA.
FHLMC means the Federal Home Loan Mortgage Corporation, or any
successor thereto.
FHLMC Guide means the FHLMC Sellers' & Servicers' Guide as amended,
modified, or supplemented from time to time.
FHLMC Securities means participation certificates representing
undivided interests in mortgage loans purchased by FHLMC pursuant to the
Emergency Home Finance Act of 1970, as amended.
FNMA means the Federal National Mortgage Association, or any successor
thereto.
FNMA Guide means the FNMA Selling Guide and the FNMA Servicing Guide
as amended, modified or supplemented from time to time.
FNMA Securities means modified pass-through mortgage-backed
certificates guaranteed by FNMA pursuant to the National Housing Act, as
amended
GAAP means generally accepted accounting principles in effect in the
United States on the Agreement Date.
Gestation Loan Tranche means, with respect to any Note at any time,
that portion of the then outstanding principal balance of such Note which
is deemed to be
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supported by the Collateral Value of Eligible Gestation Mortgage Loans
included in the Collateral held by Agent at that time, as specified from
time to time by Borrower in the Borrowing Requests and Conversion Requests
received by Agent from Borrower, provided, that (a) the aggregate principal
amount of all Gestation Loan Tranches outstanding under the Notes of all
Lenders at any time shall not exceed the aggregate Collateral Value of
Eligible Gestation Mortgage Loans included in the Collateral held by Agent
at such time, and (b) the aggregate principal amount of all Gestation Loan
Tranches outstanding under any Lender's Notes at any time shall not exceed
the product of the aggregate Collateral Value of Eligible Gestation
Mortgage Loans included in the Collateral held by Agent at such time
multiplied by a fraction the numerator of which is the aggregate principal
balance outstanding under such Lender's Notes at such time and the
denominator of which is the aggregate principal balance outstanding under
all Lenders' Notes at such time.
GNMA means the Government National Mortgage Association, or any
successor thereto.
GNMA Guide means the GNMA I and GNMA II Mortgage-Backed Securities
Guides, GNMA Handbooks 5500.1 and 5500.2, as amended, modified or
supplemented from time to time.
GNMA Securities means modified pass through mortgage backed
certificates guaranteed by GNMA pursuant to Section 306(g) of the National
Housing Act, as amended.
Good Funds Wire Clearing Account means account number 104756234332
of Borrower with Agent, which shall be in the sole dominion and control of
the Agent and to which Borrower shall have no access.
Governmental Authority means any nation or government, any agency,
department, state or other political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
Guaranty Obligation of any Person means any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or
in effect guarantees, any Indebtedness, lease, dividend or other
obligation, including any Mortgage Loan (the "Primary Obligation") of any
other Person (the "Primary Obligor") in any manner, whether directly or
indirectly, contingently or absolutely, in whole or in part, including,
without limitation, agreements:
(a) to purchase (or repurchase) such Primary Obligation or any
property constituting direct or indirect security therefore;
(b) to advance or supply funds (x) for the purchase or payment of any
such Primary Obligation, or (y) to maintain working capital or other
balance sheet conditions
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of the Primary Obligor or otherwise to maintain the net worth or solvency
of the Primary Obligor;
(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 owner of any such
Primary Obligation against loss in respect thereof;
provided, that Guaranty Obligation shall not include (x) endorsements in
the ordinary course of business of negotiable instruments or documents for
deposit or collection, (y) obligations under the FNMA Guide, the FHLMC
Guide, the GNMA Guide and the related Servicing Agreements to make payments
due to the holders of Mortgage-Backed Securities from the Primary Obligors
on the Mortgage Loans to which such Mortgage-Backed Securities relate prior
to the receipt of such payments from such Primary Obligors, or (z) Ordinary
Recourse Obligations. The amount of any Guaranty Obligation shall be
deemed to be the maximum amount for which the guarantor may be liable
pursuant to the agreement that governs such Guaranty Obligation, unless
such maximum amount is not stated or determinable, in which case the amount
of such obligation shall be the maximum reasonably anticipated liability
thereon, as determined by such guarantor in good faith.
Guidance Line means, for any Lender, the amount stated beside its name
and so designated on Schedule 1.1(a) as it may be amended under this
Agreement), as that amount may be canceled or terminated under this
Agreement.
Indebtedness of any Person means, without duplication, (i)
indebtedness of such Person for borrowed money; (ii) obligations of such
Person (a) evidenced by a note, bond, debenture, or similar instrument, (b)
to pay the deferred purchase price of property or services (other than
trade payables incurred and timely paid in the ordinary course of
business), (c) created or arising under any conditional sale or other title
retention agreement with respect to Property acquired by such Person, (d)
as lessee under any lease which has been or, in accordance with GAAP,
should be classified as a capital lease, (e) upon which interest is paid or
accrued, or (f) in respect of letters of credit, acceptances, or similar
obligations issued or created for the account of such Person, (iii)
Guaranty Obligations of such Person, (iv) liabilities secured by any Lien
on any property owned by such Person, whether or not such Person has
assumed or otherwise become liable for the payment thereof, (v) liabilities
of such Person or any related Person in respect of unfunded vested benefits
under a Plan as determined in accordance with ERISA and (vi) obligations of
such Person in respect of interest rate protection agreements entered into
in connection with any of the items described in clauses (i), (ii), (iii),
(iv) or (v) of this definition; provided, that (x) Indebtedness does not
include any Ordinary Recourse Obligations, (y) the amount of Indebtedness
attributable to any Guaranty Obligation shall be determined as set forth in
the definition of Guaranty Obligation and (z) the amount of Indebtedness
attributed to liabilities secured by any Lien on any property owned by any
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Person which liabilities are non-recourse to such Person shall be the
lesser of (i) the market value of such property, as determined by such
Person in good faith, and (ii) the outstanding amount of the liabilities so
secured.
Investment has the meaning specified in Section 7.6.
Investment Line of Credit Indebtedness means Indebtedness of Borrower
which satisfies each of the following criteria:
(i) the payee with respect thereto is a Lender;
(ii) the proceeds thereof are used solely to purchase Cash
Equivalents with a current maturity of 31 days or less;
(iii) the repayment of such Indebtedness is secured by a Lien on
the Cash Equivalents purchased with the proceeds thereof and by no
other Lien on the Property of Borrower;
(iv) the aggregate principal amount of such Indebtedness at any
one time outstanding to all Lenders does not exceed the amount equal
to the Total Commitment at such time; and
(v) that is on terms and pricing agreed upon at the time of
utilizing this Indebtedness.
Investment Mortgage Loan means a Mortgage Loan that is otherwise an
Eligible Mortgage Loan but for which there is no applicable Take-Out
Commitment.
Investor means each Person listed on Schedule 1.1(b), as the same may
be amended or supplemented from time to time pursuant to Section 11.2(b).
Jumbo Loan means a Mortgage Loan, the original principal amount of
which is greater than the Maximum Conforming Amount but no greater than
$1,000,000, which complies with all applicable requirements for purchase
under either (a) the FNMA or FHLMC standard form of conventional mortgage
purchase contract then in effect, except that the amount of such loan is
greater than the maximum loan amount under such requirements, or (b) a
Take-Out Commitment.
L/C means a standby letter of credit (a) relating to seller contracts
or other needs of Borrower acceptable to Agent, (b) having a maturity prior
to the Scheduled Termination Date, (c) issued by Agent for Borrower's
account under Section 2.1(e) and an L/C Agreement, and (d) subject to the
L/C Advance Limit.
L/C Advance means the issuance of an L/C pursuant to Section 2.1(e)
and any advance by a Lender under its Commitment Amount to refinance L/C
Obligations pursuant to Section 2.1(f).
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L/C Advance Limit means $5,000,000.
L/C Agreement means, at any time, a letter of credit application and
agreement, in substantially the standard form customarily used by Agent at
that time, executed and delivered by Borrower for the issuance of an L/C
for Borrower's account.
L/C Exposure means, at any time and without duplication, the sum of
(a) the total undrawn and uncancelled face amount of all L/Cs plus (b) the
L/C Obligation.
L/C Obligation means, at any time, Borrower's total unpaid
reimbursement obligations to Agent for drafts or drawings paid under any
L/C.
Lender and Lenders shall have the meanings specified in the preamble
of this Agreement.
Lender Addition Agreement means a Lender Addition Agreement in the
form attached hereto as Exhibit J, together with such changes as Agent and
Lenders executing a particular Lender Addition Agreement may require.
Lender Addition Agreement with respect to a particular Additional Lender
means the Lender Addition Agreement by which such Additional Lender became
a Lender.
LIBOR means, on any date of determination, the average offered rate
for one month deposits in Dollars, which rate appears on the Reuters
Screen LIBO page as of 11:00 a.m., London time (or such other time as of
which such rate appears) on such date of determination, or the rate for
such deposits determined by Agent at such time based on such other
published service of general application as shall be selected by Agent for
such purpose; provided, that in lieu of determining the rate in the
foregoing manner, if not so determinable on such date, at the option of
Agent, Agent may determine the rate based on rates at which one month
Dollar deposits are offered to Agent in the interbank Eurodollar market at
such time in an amount approximately equal to the aggregate principal
amount of the LIBOR Rate Segments to which such rate is to apply. "Reuters
Screen LIBO page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rate Screen (or such other page as may replace the
LIBO page on such service for the purpose of displaying London interbank
offered rates of major banks for Dollar deposits). For purposes of
determining any interest rate hereunder or under any other Loan Document
which is based on LIBOR, such interest rate shall change as and when LIBOR
shall change.
LIBOR Segment means any that portion of any Tranche which bears interest at the
applicable rate set forth in Section 2.11(c).
Lien means any mortgage, pledge hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory, consensual or
otherwise), or other security arrangement of any kind (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same
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economic effect as any of the foregoing, and any financing statement filed
under the uniform commercial code or comparable law of any jurisdiction in
respect of any of the foregoing).
Loan Document means any and Loan Documents means the collective
reference to each of this Agreement, the Notes, the Security Instruments
and any and all other agreements or instruments now or hereafter executed
and delivered by or on behalf of Borrower in connection with, or as
security for the payment or performance of any or all of the Obligations,
as any of such documents may be renewed, amended or supplemented from time
to time.
Loan to Value Ratio means, with respect to any Mortgage Loan as of any
date, a fraction, expressed as a percentage, the numerator of which is the
outstanding principal balance of such Mortgage Loan at the date of
determination and the related denominator of which is the value of the
related mortgaged property as set forth in the Appraisal. For purposes of
calculating the Loan to Value Ratio for a Mortgage Loan secured by a second
Mortgage, the outstanding principal balance of the related first Mortgage
as well as the second Mortgage shall be included in the numerator.
Lot Loan means a Mortgage Loan that is otherwise an Eligible Mortgage
Loan but (i) which may not exceed a Face Amount of $150,000, (ii) for
which Borrower also has delivered Lot Loan Documents, (iii) that otherwise
complies with the program set forth on Schedule 1.1(e), and (iv) that
covers property located in Pennsylvania, upon which a home is being
constructed by the Parent or its subsidiaries.
Lot Loan Documents means, in addition to the applicable Principal
Mortgage Documents and Other Mortgage Documents, (i) a deed of conveyance,
(ii) a coal clause for deed, (iii) a receipt evidencing down payment
amount, (iv) a lot sales agreement, (v) a Construction Agreement, and (vi)
any other documents reasonably requested by Agent or any of the Lenders.
Market Value means, at any time for Mortgage Loans, a market value
based upon the then most recent posted net yield for 30-day mandatory
future delivery furnished by FNMA and published and distributed by Telerate
Mortgage Services or Knight-Ridder or (if that posted net yield is not
available from these services) obtained by the Agent from FNMA.
Material Adverse Effect means any material adverse effect on (i) the
validity or enforceability of this Agreement, any Note or any other Loan
Document, (ii) the business, operations, total Property or financial
condition of Borrower, (iii) the collateral, taken as a whole, under any
Security Instrument, (iv) the enforceability or priority of the Lien in
favor of Agent for the benefit of Lenders on the collateral, taken as a
whole, under any Security Instrument, or (v) the ability of Borrower timely
to perform the Obligations.
Maximum Conforming Amount for a particular Mortgage Loan means the
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maximum principal amount for any Mortgage Loan which is eligible for
purchase by whichever of FNMA or FHLMC has the higher maximum principal
amount for Mortgage Loans secured by Mortgages on property located in the
state or region where the property covered by the Mortgage related to the
Mortgage Loan in question is located.
Maximum Rate has the meaning specified in Section 11.9.
Moody's means Moody's Investors Service, Inc.
Mortgage means a mortgage or deed of trust, on a standard form
approved by VA, FHA, FNMA or FHLMC , which grants, as security for a
Mortgage Loan, a perfected first-priority lien (or, in the case of Second
Lien Loans, second-priority lien) on residential real property consisting
of land and a one-to-four family dwelling thereon which is completed and
ready for occupancy.
Mortgage-Backed Securities means FNMA Securities, FHLMC Securities and
GNMA Securities.
Mortgage Collateral means, at any time, Mortgage Loans and Mortgage-
Backed Securities then subject to a Lien in favor of Agent for the benefit
of Lenders.
Mortgage Documents means, for any Mortgage Loan, the Principal
Mortgage Documents, the Other Mortgage Documents, and, if applicable, the
Construction Loan Documents and/or Lot Loan Documents relevant thereto.
Mortgage Loan means an FHA Loan, VA Loan, Conforming Loan, Investment
Mortgage Loan, Second Lien Loan, Construction Loan, Lot Loan, Jumbo Loan or
Super Jumbo Loan (i) which is secured by a Mortgage and has a maximum term
to maturity of thirty years and (ii) is not a commercial loan or, except as
otherwise permitted by this Agreement, a construction loan.
Mortgage Note means a promissory note, on a standard form approved by
VA, FHA, FNMA or FHLMC or other form approved in writing by the Required
Lenders, which evidences a Mortgage Loan.
Multiemployer Plan means a "multiemployer plan," as defined in Section
4001(a)(3) or Section 3(37) of ERISA or Section 414 of the Code, which is
maintained for the benefit of employees of Borrower or any Related Person.
Net Income of Borrower for any period means the net income (after
taxes) which would appear on an income statement of Borrower for such
period prepared in accordance with GAAP.
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Notes means the Committed Warehouse Promissory Notes, the Uncommitted
Warehouse Promissory Notes, and the Swing Promissory Note.
Obligations means all of the present and future indebtedness,
obligations, and liabilities of Borrower to Agent and Lenders, and all
renewals, rearrangements and extensions thereof, or any part thereof,
arising pursuant to this Agreement or any other Loan Document, and all
interest accrued thereon, and reasonable attorneys' fees and other
reasonable costs incurred in the drafting, negotiation, enforcement or
collection thereof, regardless of whether such indebtedness, obligations,
and liabilities are direct, indirect, fixed, contingent, joint, several or
joint and several.
OCC means the Office of the Comptroller of the Currency of the United
States of America and any Governmental Authority succeeding to the
functions of such office.
Ordinary Recourse Obligation means an obligation of Borrower to
purchase a Mortgage Loan serviced by Borrower pursuant to a Servicing
Agreement in the event that:
(a) a material representation or warranty given by Borrower at
the time of the sale of such Mortgage Loans proves to have been false
or incorrect in any material respect when given;
(b) Borrower fails timely to perform its servicing obligations
with respect thereto;
(c) such Mortgage Loan is being serviced on behalf of FNMA or
FHLMC and the obligor on such Mortgage Loan fails timely to make any
payment due in connection therewith in the four-month period
commencing on the date of funding of such Mortgage Loan;
(d) such Mortgage Loan is an adjustable rate Mortgage Loan which
is being serviced on behalf of FNMA and the obligor on such Mortgage
Loan is exercising its right to convert the interest rate on such
Mortgage Loan to a fixed rate; or
(e) such Mortgage Loan is being serviced on behalf of GNMA and
the obligor on such Mortgage Loan fails timely to make any payment due
in connection therewith in the four-month period commencing on the
date of issuance of the GNMA Security backed by such Mortgage Loan.
Other Mortgage Documents has the meaning specified in the Security
Agreement.
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Parent means NVR, Inc., a Virginia corporation.
Parent Note means that certain subordinated demand revolving credit
note issued by Borrower to the order of the Parent a true and correct copy
of which is attached as Exhibit M.
PBGC means the Pension Benefit Guaranty Corporation or any successor
thereto.
Permitted Dividends means Dividends the declaration and payment of
which is permitted under Section 7.11.
Permitted Intercompany Payables means amounts due to Affiliates of
Borrower in respect of Permitted Intercompany Transactions and the
Permitted Subordinated Indebtedness.
Permitted Intercompany Transactions means transactions with Affiliates
of Borrower (a) which comply in all respects with Section 7.12 without
regard to the proviso to such Section, and are identified on Schedule 5.22,
and (b) with respect to which the aggregate consideration paid by Borrower
in any month does not exceed the amount for each type of transaction set
forth on Schedule 5.22.
Permitted Investment means an Investment permitted pursuant to Section
7.6.
Permitted Liens means:
(a) Liens on the Collateral which secure payment of the
Obligations (including Liens granted on the Collateral pursuant to the
Security Agreement in connection with the Existing Loan Agreement);
(b) Liens on the Collateral permitted under Section 7.8(d) and
Liens on Take-Out Commitments no longer included in the Collateral
permitted under Section 7.8(c);
(c) rights of FNMA, FHLMC and GNMA in each case in the Agency
Servicing Rights in connection with the Agency Servicing Agreements
under which Borrower services Mortgage Loans on behalf of such Person,
arising under the FNMA Guide, the FHLMC Guide or the GNMA Guide, as
applicable, and rights of any Person counterpart to a Servicing
Agreement other than an Agency Servicing Agreement in the Servicing
Rights arising thereunder;
(d) tax and other Liens permitted under Section 6.2;
(e) Liens in respect of office equipment (including without
limitation computers) leased or purchased by Borrower for an aggregate
amount no greater than $3,000,000;
(f) Liens in respect of claims regarding labor, materials,
services and
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supplies provided in connection with REO;
(g) Liens on REO of the type permitted as exceptions under Part
IV, Section 105.05 of the FNMA Guide (Selling) and Section 1704 of the
FHLMC Guide;
(h) Liens to secure obligations of Borrower in respect of workers
compensation and other labor laws;
(i) Liens in respect of appeal or performance bond reimbursement
obligations of Borrower undertaken in the ordinary course of business;
(j) Repurchase Agreement Liens; and
(k) Liens on Property not included in the Collateral which secure
Investment Line of Credit Indebtedness incurred to finance the
acquisition of such Property.
provided, that Liens described in clauses (f), (h) and (i) of this
definition shall not constitute Permitted Liens to the extent that the
failure of Borrower timely to perform the underlying obligations,
individually or in the aggregate, would constitute a Material Adverse
Effect.
Permitted Returns of Capital means Returns of Capital which are
permitted under Section 7.11.
Permitted Subordinated Indebtedness means Indebtedness under the
Parent Note.
Permitted Subsidiaries means Subsidiaries which are engaged in some
aspect of the mortgage banking business, including, without limitation,
title companies and with respect to which the aggregate capital contributed
by Borrower to all such Subsidiaries does not exceed $1,000,000.
Permitted Tax Payments means payments to or on behalf of the Parent or
any Affiliate in respect of taxes, which payments are permitted under
Section 7.16.
Person means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization,
Governmental Authority, or other form of entity.
Plan means an "employee pension benefit plan" (as defined in Section
3(2) of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by Borrower or any of its Related
Persons, or an employee pension benefit plan as to which Borrower or any of
its Related Persons would be treated as a contributory sponsor under Title
IV of ERISA if it were to be terminated.
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Pledged Mortgage Loan has the meaning specified in the Security
Agreement.
Principal Mortgage Documents has the meaning specified in the Security
Agreement.
Property means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Reference Rate means the rate of interest from time to time publicly
announced by Agent as its "reference rate." Agent may lend to its
customers at rates that are at, above or below the Reference Rate. For
purposes of determining any interest rate hereunder or under any other
Loan Document which is based on the Reference Rate, such interest rate
shall change as and when the Reference Rate shall change.
Reference Rate Segment means that portion of a Tranche which bears
interest at the Reference Rate.
Regular Tranche means, with respect to any Note at any time, that
portion of the then outstanding principal balance of such Note which is
deemed to be supported by the Collateral Value of Collateral which is other
than Construction Loans, Lot Loans or Eligible Gestation Mortgage Loans, as
specified from time to time by Borrower in the Borrowing Requests and
Conversion Requests received by Agent from Borrower, provided, that (a) the
aggregate principal amount of all Regular Tranches outstanding under the
Notes of all Lenders at any time shall not exceed the remainder (the
"Remainder Collateral Value") of (i) the aggregate Collateral Value of all
Collateral held by Agent at that time minus (ii) the aggregate Collateral
Value of all Construction Loans, Lot Loans and Eligible Gestation Mortgage
Loans included in the Collateral held by the Agent at such time, and (b)
the aggregate principal amount of all Regular Tranches outstanding under
any Lender's Notes at any time shall not exceed the product of the
Remainder Collateral Value at such time multiplied by a fraction the
numerator of which is the aggregate principal balance outstanding under
such Lender's Notes at such time and the denominator of which is the
aggregate principal balance outstanding under all Lenders' Notes at such
time.
Regulation D means Regulation D of the Board of Governors of the
Federal Reserve System.
Related Person means any Person that is (a) a member of the same
controlled group of corporations (within the meaning of Section 414(b) of
the Code) as Borrower, (b) under common control (within the meaning of
Section 414(c) of the Code or Section 4001 of ERISA) with Borrower, (c) a
member of any affiliated service group (within the meaning of Section
414(m) of the Code) which includes Borrower, or (d) otherwise treated as
part of the controlled group which includes Borrower (within the
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meaning of Section 414(o) of the Code).
Remainder Collateral Value has the meaning given such term in the
definition of the term "Regular Tranche" set forth in this Section 1.1.
REO means real estate owned by Borrower as the result of foreclosure
or other process in lieu of foreclosure on a Mortgage which secured a
Mortgage Loan.
Repurchase Agreement means an agreement with an Investor pursuant to
which Borrower sells and agrees to repurchase interests in Mortgage Loans.
Repurchase Agreement Liens means Liens granted pursuant to a
Repurchase Agreement on Mortgage Loans (and the proceeds thereof) sold by
Borrower thereunder and on no other property of Borrower.
Required Lenders means at any time Lenders whose Commitment Amounts
represent at least 66 and 2/3% of the then Total Commitment; provided, that
for purposes of determining Required Lenders when some but not all
Commitments have terminated, any Lender with outstanding Advances whose
Commitment has terminated shall be deemed to have a Commitment Amount equal
to its outstanding Advances.
Requirement of Law as to any Person means the articles of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, statute, code, ordinance, order, rule,
regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other determination, direction or requirement
(including, without limitation, any of the foregoing which relate to energy
regulations and occupational, safety and health standards or controls and
environmental, hazardous materials use or disposal and pollution standards
or controls) of any Governmental Authority, in each case applicable to or
binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
Returns of Capital means any and all payments made by Borrower to the
Parent which represent a return of cash capital contributions made by the
Parent to Borrower at any time on or after the Agreement Date.
Scheduled Termination Date means September 4, 2000.
Second Lien Loan means a Mortgage Loan that is otherwise an Eligible
Mortgage Loan but is secured by a second-priority security interest in the
property (but a first priority security interest in the Mortgage Loan) and
whose Loan to Value Ratio does not exceed 100%.
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Securities Credit Transaction Regulations means Regulations T, U and X
issued by the Board of Governors of the Federal Reserve System as in effect
from time to time.
Security Agreement means that certain Pledge and Security Agreement
dated as of the date of this Agreement, as amended, between Borrower and
Agent in substantially the form of Exhibit K attached, as the same may
from time to time be amended, modified or supplemented.
Security Instruments means (i) the Security Agreement and (ii) such
other executed documents as are or may be necessary to grant to Agent a
perfected first, prior and continuing security interest in and to the
collateral described in the definition of "Collateral" set forth in the
Security Agreement, and any and all other agreements or instruments now or
hereafter executed and delivered by or on behalf of Borrower in connection
with, or as security for the payment or performance of, all or any of the
Obligations, including Borrower's obligations under the Notes and this
Agreement, as such documents may be amended, modified or supplemented from
time to time.
Servicing Agreements means all agreements between Borrower and Persons
other than Borrower pursuant to which Borrower undertakes to service
Mortgage Loans or pools of Mortgage Loans owned, insured or guaranteed by
such Persons; "Servicing Agreements" does not include any subservicing
agreements.
Servicing Portfolio of Borrower means at any time all Mortgage Loans
with respect to which Borrower acts as servicer pursuant to Servicing
Agreements.
Servicing Records means all contracts and other documents, books,
records and other information (including without limitation, computer
programs, tapes, discs, punch cards, data processing software and related
property and rights) maintained with respect to the Servicing Agreements
and the Servicing Portfolio.
Servicing Rights means all of Borrower's right, title and interest in
and under the Servicing Agreements, including, without limitation, the
rights of Borrower to income and reimbursement thereunder.
Segment means a Balance Funded Rate Segment, a LIBOR Segment or a Reference Rate
Segment.
Standard & Poors means Standard & Poor's Ratings Services.
Subsidiary of any Person (the "first Person") means any Person which
is properly treated as a subsidiary of the first Person under GAAP.
Super Jumbo Loan means a Mortgage Loan, the original principal amount
of which is greater than $1,000,000 but no greater than $1,500,000 (or such
greater amount as Agent, in its sole discretion, may permit on a case-by-
case basis, but no greater than $1,750,000), which complies with all
applicable requirements for purchase under either (a) the FNMA or FHLMC
standard form of conventional mortgage purchase contract
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then in effect, except that the amount of such loan is greater than the
maximum loan amount under such requirements, or (b) a Take-Out Commitment.
Swing Advance means an advance by Agent to Borrower pursuant to
Section 2.1(c).
Swing Advance Limit means $50,000,000.
Swing Promissory Note means the promissory note delivered by Borrower
to Agent pursuant to the second sentence of Section 2.2 in the form
attached hereto as Exhibit A-3 and all renewals, extensions, modifications
and rearrangements thereof.
Take-Out Commitment means a current, valid, binding and enforceable
written commitment by an Investor to purchase from Borrower Mortgage Loans
or Mortgage-Backed Securities of specific characteristics within a specific
period at a specific price or yield.
Take-Out Price means:
(a) With respect to a pool of Eligible Gestation Mortgage Loans,
the Take-Out Price of the Mortgage-Backed Security to be issued or
guaranteed pursuant to the Agency Commitment to which such pool has
been Allocated; and
(b) with respect to an Eligible Mortgage-Backed Security, the
price for such Eligible Mortgage-Backed Security under the Take-Out
Commitment to which such Eligible Mortgage-Backed Security has been
Allocated.
Take-Out Report means the report substantially in the form of Exhibit
H hereto (or such other forms as to which Borrower and Agent may agree),
delivered by Borrower pursuant to Section 6.1(f).
Tangible Net Worth of Borrower means, as of any date of determination,
the sum of the amounts set forth on the balance sheet of Borrower as the
sum of the common stock, preferred stock, additional paid-in capital and
retained earnings of Borrower (excluding treasury stock), less the book
value of all intangible assets of Borrower, including all such items as
goodwill, trademarks, trade names, service marks, copyrights, patents,
licenses, unamortized debt discount and expenses and the excess of the
purchase price of the assets of any business acquired by the Borrower over
the book value of such assets.
Tax Allocation Agreement means that certain Amended and Restated Tax
Allocation Agreement dated as of March 7, 1996, among the Parent, Borrower
and certain Affiliates of Borrower, a true and correct copy of which is
attached as Exhibit L.
Termination Date means the Scheduled Termination Date or the earlier
date of termination in whole of the Commitments pursuant to Section 8.2.
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Total Commitment at any time means the sum of the Commitment Amounts
in effect at such time.
Total Liabilities of Borrower means, as of any date of determination,
all amounts which would be included as liabilities on a balance sheet of
Borrower as of such date prepared in accordance with GAAP.
Tranche means a Construction/Lot Loan Tranche, a Gestation Loan
Tranche or a Regular Tranche.
Trust Receipt has the meaning specified in the Security Agreement.
Type refers to the type of interest rate option applicable to a
Segment of a Tranche. The Types of Segments available under Agreement are
Balance Funded Rate Segments, LIBOR Segments and Reference Rate Segments.
UCC means the Uniform Commercial Code as adopted in the State of
Minnesota, as amended from time to time.
Uncommitted Warehouse Promissory Notes means the promissory notes
delivered by Borrower to Lenders pursuant to Section 2.2 each in the form
attached hereto as Exhibit A-2 and all renewals, extensions, modifications
and rearrangements thereof.
U.S. Government Securities means securities of the United States
government or any agency thereof which are backed by the full faith and
credit of the United States and have a current maturity of ninety days or
less.
VA means the Department of Veterans Affairs, or any successor thereto.
VA Loan means a Mortgage Loan the payment of which is partially or
completely guaranteed by the VA under the Servicemen's Readjustment Act of
1944, as amended, or Chapter 37 of Title 38 of the United States Code or
with respect to which there is a current binding and enforceable commitment
for such a guaranty issued by the VA.
Warehouse Advance means an advance by a Lender to Borrower pursuant to
Section 2.1(b) or 2.1(d).
Weighted Average Take-Out Price means, with respect to a Mortgage
Loan, the weighted average Take-Out Commitment price, expressed as a
percentage, determined as set forth on Schedule 1.1(c).
Welfare Plan means an employee welfare benefit plan (as defined in
Section 3(1)
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of ERISA) or a group health plan (as defined in Section 4980B(g)(2) of the
Code) which is or has been established or maintained, or to which
contributions are or have been made, by Borrower or any of its Related
Persons.
Wet Mortgage Loan means a Mortgage Loan (other than a Construction
Loan, a Lot Loan or REO) the Principal Mortgage Documents for which have
not been delivered to the Agent.
1.2 Time References. Time references (e.g., 9:30 a.m.) are to time in
---------------
Minneapolis, Minnesota. In calculating a period from one date to another, the
word "from" means "from and including" and the word "to" or "until" means "to
but excluding."
1.3 Other References. Where appropriate, the singular includes the plural
----------------
and vice versa, and words of any gender include each other gender. Heading and
caption references may not be construed in interpreting provisions. Monetary
references are to currency of the United States of America. Section, paragraph,
annex, schedule, exhibit, and similar references are to the particular Loan
Document in which they are used. References to "telecopy," "facsimile," "fax,"
or similar terms are to facsimile or telecopy transmissions. References to any
Person include that Person's heirs, personal representatives, successors,
trustees, receivers, and permitted assigns. References to any Requirement of Law
include every amendment or supplement to it, rule and regulation adopted under
it, and successor or replacement for it. References to any Loan Document or
other document include every renewal and extension of it, amendment and
supplement to it, and replacement or substitution for it. The words "hereof,"
"herein," "hereunder" and similar terms when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
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SECTION 2. AMOUNT AND TERMS OF CREDITS
---------------------------
2.1 Commitment.
----------
(a) Advances in General. Subject to the terms and conditions
-------------------
contained in this Agreement, each Lender severally agrees to make Warehouse
Advances (including Warehouse Advances to refinance Swing Advances) to or
for the account of Borrower on a revolving credit basis from time to time
on any Business Day from the Agreement Date through the earlier to occur of
the Termination Date and the Business Day preceding the Scheduled
Termination Date in an amount not to exceed at any one time outstanding the
Commitment Amount of such Lender. Subject to the terms and conditions
contained in this Agreement, Agent may elect to fund Swing Advances and L/C
Advances on a revolving credit basis from time to time on any Business Day
from the Agreement Date through the earlier to occur of the Termination
Date and the Business Day preceding the Scheduled Termination Date in an
amount not to exceed at any one time outstanding the Swing Advance Limit or
the L/C Advance Limit respectively. Subject to the terms and conditions
contained in this Agreement, any Lender may elect to fund under the
Guidance Line on a revolving credit basis from time to time on any Business
Day, so long as no Default or Event of Default exists, from the Agreement
Date through the earlier to occur of the Termination Date and the Business
Day preceding the Scheduled Termination Date in an amount not to exceed at
any one time outstanding the Guidance Line. Subject to the other terms and
conditions of this Agreement, Warehouse Advances made under each Lenders
Notes shall be allocated to Construction/Lot Loan Tranches, Gestation
Tranches and/or Regular Tranches under such Notes, which Tranches shall, at
the election of Borrower, bear interest as Balance Funded Rate Segments,
LIBOR Segments, Reference Rate Segments, or any combination thereof.
(b) Warehouse Advances. Each Borrowing under this Section 2.1(b)
------------------
shall be in an aggregate amount of not less than $100,000 and shall consist
of Warehouse Advances made on the Borrowing Date by Lenders ratably
according to their respective Commitment Amounts, provided, that:
(i) the aggregate amount of Warehouse Advances at any time
outstanding shall not exceed the amount equal to the sum of (A) the
Total Commitment plus (B) the total Guidance Line minus (x) the
aggregate amount of Swing Advances plus (y) the amount of the L/C
Exposure.
(ii) the sum of the aggregate amount of Warehouse Advances
(committed and Guidance Line) outstanding and the aggregate amount of
Swing Advances and L/C Advances outstanding shall not at any time
exceed the Borrowing Base; and
(iii) the aggregate amount of Guidance Line Advances at any time
outstanding shall not exceed the lesser of either (a) the total
Guidance Line or (b) the sum of the Borrowing Base minus the Total
Commitment.
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Within the limits of each Lender's Commitment together with each Lender's
Guidance Line, and subject to the other terms and conditions hereof,
Borrower may borrow, repay (whether pursuant to Section 2.5 of this
Agreement or otherwise), and reborrow under this Section 2.1(b).
(c) Swing Advances. Each Borrowing under this Section 2.1(c) shall be
--------------
funded solely by Agent and shall consist of a Swing Advance by Agent on the
Borrowing Date, provided, that notwithstanding anything to the contrary in
this Agreement or any other Loan Document, Agent shall have no obligation,
whether to Borrower, any Lender or any other Person, to fund any Swing
Advance, the funding of any Swing Advance being entirely in the discretion
of Agent subject only to the limitations that Agent shall not fund any
Swing Advance if:
(i) The aggregate amount of Swing Advances outstanding after
giving effect to such Swing Advance would exceed the lesser of:
(A) The Swing Advance Limit; and
(B) the amount equal to the Total Commitment plus the
Guidance Line minus the aggregate amount of Warehouse Advances
and L/C Advances then outstanding;
(ii) the sum of the aggregate amount of Warehouse Advances
outstanding plus the aggregate amount of Swing Advances and L/C
Advances outstanding after giving effect to such Swing Advance would
exceed the Borrowing Base;
(iii) Agent has not received a Borrowing Request;
(iv) Agent has received written notice from Borrower or any
Lender that a Default or Event of Default exists and such Default or
Event of Default has not been waived or cured in accordance with this
Agreement; or
(v) the employee of Agent authorizing such Swing Advance has
actual knowledge that a Default or Event of Default exists or would
result from the funding thereof.
Notwithstanding the provisions of Section 4.2(a) regarding the timing of
delivery of Borrowing Requests, Borrower may request a Swing Advance at any
time on any Business Day by delivering a Borrowing Request at such time;
provided, that Agent shall have no obligation to receive or consider any
Borrowing Request which is delivered after 3:00 p.m. on the Borrowing Date
stated therein. In the event that Agent receives a Borrowing Request which
seeks a Swing Advance prior to 11:00 a.m. on the Borrowing Date stated
therein and Agent elects not to make the requested Swing Advance, such
Borrowing Request shall be deemed to constitute a request for Warehouse
Advances on
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such Borrowing Date in an aggregate amount equal to the Swing Advance
requested and Agent shall notify each Lender of such Borrowing Request no
later than 1:00 p.m.on such Borrowing Date.
(d) Mandatory Refinancing or Purchase of Participations in Swing
------------------------------------------------------------
Advances. Subject only to compliance by Agent with the provisions of
--------
clauses (i) through (v) of Section 2.1(c) and the further proviso that no
Lender shall be required to make Warehouse Advances to refinance Swing
Advances if the sum of such Warehouse Advances and the outstanding
Warehouse Advances of such Lender would exceed such Lender's Commitment
Amount, and notwithstanding the termination of such Lender's Commitment
pursuant to Section 8.2, the existence or imminence of any Default or Event
of Default or any other fact or circumstance, upon the request of Agent
(which request shall be given no less frequently than once in each calendar
week) each Lender absolutely, irrevocably and unconditionally agrees to
make Warehouse Advances ratably according to its share of the Total
Commitment in an amount (assuming funding by each Lender of its ratable
share) sufficient to repay any Swing Advances then outstanding. Borrower
and each Lender hereby irrevocably authorize (i) Agent to request Warehouse
Advances on behalf of Borrower for the purpose of refinancing Swing
Advances as contemplated by this Section 2.1(d) and (ii) Agent to disburse
the proceeds of any Warehouse Advances so requested and funded to Agent for
payment of the Swing Advances then outstanding. Notwithstanding the
foregoing provisions of this Section 2.1(d), if Agent shall request that
each Lender purchase participations in the outstanding Swing Advances in
lieu of making Warehouse Advances to refinance such Swing Advances, each
Lender absolutely, irrevocably and unconditionally agrees to purchase from
Agent such participations in the Swing Advances owing as shall be necessary
to cause such purchasing Lender to share in the Swing Advances ratably
(according to its share of the Total Commitment) with each of Lenders.
Borrower agrees that any Lender so purchasing a participation from Agent
pursuant to this Section 2.1(d) may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off)
with respect to such participation as fully as if such Lender were the
direct creditor of Borrower in the amount of such participation.
(e) L/C Advances. Each L/C Advance under this Section 2.1(e) shall be
------------
made solely by Agent (in its individual capacity) on the Borrowing Date,
provided, that notwithstanding anything to the contrary in this Agreement
or any other Loan Document, Agent shall have no obligation to make any L/C
Advance if:
(i) The aggregate amount of L/C Exposure after giving effect to
such L/C Advance would exceed the lesser of:
(A) The L/C Advance Limit; and
(B) the amount equal to the Total Commitment minus the
aggregate amount of Warehouse Advances and Swing Advances then
outstanding;
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(ii) the sum of the aggregate amount of Warehouse Advances
outstanding plus the aggregate amount of Swing Advances and L/C
Advances outstanding after giving effect to such L/C Advance would
exceed the Borrowing Base;
(iii) Agent has not received a Borrowing Request;
(iv) Agent has received written notice from Borrower or any
Lender that a Default or Event of Default exists and such Default or
Event of Default has not been waived or cured in accordance with this
Agreement; or
(v) the employee of Agent authorizing such L/C Advance has
actual knowledge that a Default or Event of Default exists or would
result from the funding thereof.
(f) Refinancing of L/C. Obligations. Provided that there is no
-------------------------------
Default, each L/C Obligation may be refinanced (and not otherwise paid on
demand pursuant to Section 2.3(d)) as a Borrowing, such Borrowing to be
advanced by each Lender pro rata in accordance with its Commitment
Percentage, upon the Borrower's request for such refinance and delivery to
the Agent of an appropriate Borrowing Request for such Borrowing, provided
that (i) the sum of such Borrowings under this Section 2.1(f), together
with all other L/C Exposure, shall not at any time exceed the L/C Advance
Limit, (ii) at the time of such Borrowing Request, the Borrower shall have
satisfied the conditions set forth in clauses (i) through (v) of Section
2.1(e), and (iii) after giving effect to such Borrowing, the total of all
Advances of any Lender would not exceed such Lender's Commitment Amount.
All advances made by the Lenders under this Section 2.1(f) or pursuant to
Section 2.3(c)(ii) shall constitute Advances under this Agreement, shall be
evidenced by the Notes, and shall be payable to the Lenders pursuant to
Section 2.7.
(g) Increases. Borrower may from time to time request any one or more
---------
Lenders to increase their respective Guidance Line or Commitment so that
the total Guidance Line may be increased to no more than $50,000,000, or so
that the total Commitment may be increased to no more than $250,000,000.
That increase must be effected by an amendment executed by Borrower, Agent,
and the increasing Lender. Borrower shall execute and deliver to each such
Lender a Committed or an Uncommitted Warehouse Note in the stated amount of
its new Commitment or Guidance Line increase. No Lender is obligated to
increase its Commitment under any circumstances, and no Lender's Commitment
may be increased except by its execution of an amendment as stated above.
Each new Lender providing such additional Commitment or Guidance Line
increase shall be a "Lender" hereunder, entitled to the rights and
benefits, and subject to the duties, of a Lender under the Credit
Documents. All amounts advanced hereunder pursuant to any such additional
Commitment shall be secured by the Collateral on a pari passu basis with
all other amounts advanced hereunder. In the event the total Commitments
are increased, Borrower shall execute a new Committed Warehouse Note in
favor of the Lender extending such additional Commitment in a stated amount
of its
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new Commitment and shall notify each Lender in writing of such additional
Commitment. In such case, each Lender's Commitment Percentage shall be
recalculated to reflect the new proportionate share of the revised total
Commitments and the Lender responsible for the additional Commitment shall,
immediately upon receiving notice from Agent, pay to each Lender an amount
equal to its pro rata share of the Borrowings outstanding as of such date.
All such payments shall reduce the outstanding principal balance of the
Committed Warehouse Note of each Lender receiving such payments and shall
represent Borrowings to Borrower under the purchasing Lender's Committed
Warehouse Note. The purchasing Lender shall be entitled to share ratably in
interest accruing on the balances purchased, at the rates provided herein
for such balances, from and after the date of purchase. All new Borrowings
occurring after an increase of the total Commitments shall be funded in
accordance with each Lender's revised Commitment Percentage.
2.2 Notes. The Warehouse Advances made by each Lender pursuant to Section 2.1(b)
-----
and 2.1(d) and the L/C Advances made by Agent pursuant to Section 2.1(e) shall
be evidenced by a Committed Warehouse Promissory Note payable to such Lender in
the principal amount of the Commitment Amount of such Lender and an Uncommitted
Warehouse Promissory Note payable to such Lender in the principal amount of the
Guidance Line of such Lender. Such Swing Advances as may be made by Agent in its
sole discretion (subject only to the limitations on such discretion set forth in
clauses (i) through (v) of Section 2.1(c)) shall be evidenced by the Swing
Promissory Note payable to Agent in the principal amount of the Swing Advance
Limit. Each Note shall be payable and bear interest as set forth in Sections
2.5, 2.11, and 11.9.
2.3 Notice and Manner of Obtaining Borrowings.
-----------------------------------------
(a) Borrowings Generally.
--------------------
(i) Borrower shall request each Borrowing by making a Borrowing
Request upon Agent in accordance with the provisions of Section 4.2.
If such Borrowing Request is not for a Swing Advance (or if such
Borrowing Request is for a Swing Advance but Agent has elected not to
fund the requested Swing Advance), then not later than 1:00 p.m.
following receipt by it of such Borrowing Request, Agent shall notify
each Lender of the Warehouse Advance to be made by such Lender in
connection with such Borrowing Request by telecopying a Borrowing
Notice to such Lender. Not later than 3:00 p.m. on the Borrowing
Date specified in the Borrowing Notice, and subject to the terms and
conditions of this Agreement, each Lender shall make available to
Agent at the office of Agent set forth in Section 11.1, in immediately
available funds, such Lender's Warehouse Advance by wire transfer of
federal funds or deposit of other immediately available funds to the
Collateral Account.
(ii) Notwithstanding the foregoing, unless Agent shall have
received notice from a Lender prior to 3:00 p.m. on the Borrowing
Date that such Lender will not make available to Agent such Lender's
Advance, Agent may assume that such Lender has made the full amount of
its Advance available to Agent in
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accordance with this Section 2.3(a) and Agent may, in reliance upon
such assumption, make available to Borrower at such time such amount
in same day funds. If and to the extent that such Lender shall have
not so made the requested Advance available to Agent and Agent, in
reliance upon such assumption, has made available to Borrower the
amount of such Advance, such Lender and Borrower severally agree to
repay Agent forthwith on demand such amount together with interest
thereon (provided, that Agent shall only be entitled to repayment of
the amount so funded by it plus interest on such amount), for each day
from the date such amount is made available to Borrower until the date
such amount is repaid to Agent, at (i) for so much of such amount as
is repaid by Borrower, the interest rate at the time applicable
hereunder if such amount had been an additional Advance by U.S. Bank
National Association in its capacity as a Lender hereunder and (ii)
for so much of such amount as is repaid by such Lender, Average
Adjusted LIBOR. To the extent that such Lender repays Agent the amount
of the requested Advance, such amount so repaid shall constitute such
Lender's Advance as part of such Borrowing as of the applicable
Borrowing Date for purposes of this Agreement and all interest on such
Advance shall accrue to and be payable to such Lender.
(iii) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make its Advance on the Borrowing
Date, but neither Agent nor any Lender shall be responsible for the
failure of any other Lender to make the Advance to be made by such
other Lender on the Borrowing Date.
(iv) If a Borrowing Request is for a Swing Advance and Agent
elects to fund the Swing Advance so requested, Agent shall, as soon as
practicable after such election, notify Borrower and deposit the Swing
Advance in immediately available funds in the Collateral Account.
(b) L/C Advances. The following conditions and procedures apply to L/Cs:
------------
(i) Borrowing Request and L/C Agreement. Borrower may only
-----------------------------------
request a L/C by delivering to Agent a related Borrowing Request and
L/C Agreement before 11:30 a.m. on the second Business Day before the
L/C is to be issued.
(ii) Participations. Immediately upon Agent's issuance of any
--------------
L/C, Agent is deemed to have sold and transferred to each other
Lender, and each other Lender is deemed irrevocably and
unconditionally to have purchased and received from Agent, without
recourse or warranty, an undivided interest and participation in the
L/C and Agent's obligations under it to the extent of that Lender's
Commitment Percentage of the face amount of that L/C, which
participation must be paid for on Agent's demand if there is ever any
L/C Obligation outstanding in connection with it. Agent shall provide
a copy of each L/C to each other Lender promptly after issuance.
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(iii) Reimbursement Obligation. To induce Agent to issue and
------------------------
maintain L/Cs and Lenders to participate in issued L/Cs, Borrower
agrees to reimburse Agent (i) on demand, on or after the date when any
draft or draw request is presented under any L/C, the amount paid by
Agent and (ii) promptly, upon demand, the amount of any additional
fees Agent customarily charges for the application and issuance of a
letter of credit, amending letter of credit applications and
agreements, honoring drafts and draw requests, and taking similar
action in connection with letters of credit. Until repaid by Borrower
by a payment or a Borrowing under Section 2.1, the L/C Obligation is a
demand obligation and bears interest at the Reference Rate while
outstanding. Borrower's obligations in respect of the L/C Obligation
are absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim, or defense to payment that
Borrower may have at any time against Agent or any other Person.
(iv) Payments Under L/Cs. Agent shall promptly notify Borrower
-------------------
of the date and amount of any draft or draw request presented for
honor under any L/C. Agent's failure to give that notice will not
affect Borrower's obligations under this Agreement. Agent shall pay
the requested amount upon presentment of a draft or draw request
unless presentment on its face does not comply with the terms of the
applicable L/C. When making payment, Agent may disregard (i) any
default or potential default that exists under any other agreement and
(ii) obligations under any other agreement that have or have not been
performed by the beneficiary or any other Person. Agent is not liable
for any of those obligations.
(v) Absolute Obligations. Borrower's reimbursement obligations
--------------------
to Agent and Lenders, and each Lender's obligations to Agent, under
this Section 2.3(c) are absolute and unconditional irrespective of,
and Agent is not responsible for, (i) the validity, enforceability,
sufficiency, accuracy, or genuineness of documents or endorsements
(even if they are in any respect invalid, unenforceable, insufficient,
inaccurate, fraudulent, or forged), (ii) any dispute by Borrower with,
or any claims, setoffs, defenses, counterclaims, or other rights by
Borrower against, Agent, any Lender, or any other Person, or (iii) the
occurrence of any Default or Event of Default. However, nothing in
this Agreement constitutes a waiver of Borrower's or any Lender's
rights to assert any claim or defense based upon the gross negligence
or willful misconduct of Agent.
(vi) Issuance and Cancellation. Each L/C is deemed issued upon
-------------------------
delivery to the beneficiary of Borrower. If Borrower requests any L/C
be delivered to Borrower rather than the beneficiary and later cancels
that L/C, then Borrower shall return it to Agent together with
Borrower's written certification that it has never been delivered to
the beneficiary. If any L/C is delivered to the beneficiary under
Borrower's instructions, Borrower's cancellation is ineffective
without Agent's receipt of the beneficiary's written consent and the
L/C.
32
<PAGE>
Borrower shall indemnify Agent and each Lender for all losses, costs,
damages, expenses, and reasonable attorneys' fees suffered or incurred
by Agent or any Lender resulting from any dispute concerning
Borrower's cancellation of any L/C.
(vii) Agent's Responsibilities. Agent shall exercise and give
------------------------
the same care and attention to each L/C as it gives to its other
letters of credit. In paying any draft or draw under any L/C, Agent
has no responsibility to obtain any document (other than any documents
expressly required by the respective L/C) or to ascertain or inquire
as to any document's validity, enforceability, sufficiency, accuracy,
or genuineness or the authority of any Person delivering it. Neither
Agent nor its representatives will be liable to any Lender or Borrower
for any L/C's use or for any beneficiary's acts or omissions. Any
action, inaction, error, delay, or omission taken or suffered by Agent
or any of its representatives in connection with any L/C, applicable
draws, drafts, or documents, or the transmission, dispatch, or
delivery of any related message or advice, if in good faith and in
conformity with applicable Laws and in accordance with the standards
of care specified in the Uniform Customs and Practices for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500 is binding upon the Company and Lenders and does not place
Agent or any of its representatives under any resulting liability to
either Company or any Lender. Agent is not liable to the Company or
any Lender for any action taken or omitted, in the absence of gross
negligence or willful misconduct, by Agent or its Representative in
connection with any L/C.
(viii) Cash Collateral. On the Termination Date, during the
---------------
continuance of any Default under Section 8.1(f), (g), or (h) or upon
any demand by Agent while any other Default exists, Borrower shall
provide to Agent, for the benefit of Lenders, cash collateral in an
amount equal to the then-existing L/C Exposure or other collateral
acceptable to Agent in its sole discretion.
(ix) Other Agreements. Although referenced in any L/C, terms of
----------------
any particular agreement or other obligation to the beneficiary are
not incorporated into this Agreement in any manner.
33
<PAGE>
(x) Governing Provisions. The fees and other amounts payable
--------------------
with respect to each L/C are as provided in this Agreement, drafts and
draws under each L/C are part of the Obligation, and the terms of this
Agreement control any conflict between the terms of this Agreement and
any L/C Agreement.
2.4 Fees.
----
(a) Facility Fees. Borrower agrees to pay to Agent for the account of
-------------
each Lender a facility fee for each calendar quarter in an amount equal to
0.125% per annum of (i) such Lender's average Commitment Amount and (ii) on
such Lender's advanced portion of the Guidance Line. Facility fees accrued
through the last day of any calendar quarter shall be payable on the fifth
day of the following calendar quarter. Facility fees shall be computed on
the basis of actual days elapsed and a year of 360 days.
(b) L/C Issuance and Fronting Fee. In consideration of Agent serving
-----------------------------
as L/C issuer under this Agreement and the other Loan Documents, Borrower
agrees to pay Agent L/C fees as set forth in a separate Agent Fee Letter.
(c) Standby L/C Fee. Borrower shall pay to Agent, for the ratable
---------------
benefit of Lenders, a fee for each L/C equal to the product of (i) 1.00%
multiplied by (ii) the face amount of each L/C, payable at the issuance of
each L/C.
(d) Deficiency Fees. Borrower shall pay to each Deposit Holding
---------------
Lender from time to time for the account of such Deposit Holding Lender
any deficiency fees payable to such Deposit Holding Lender under its
Balance Funded Rate Agreement.
2.5 Mandatory Repayments. Borrower shall repay all outstanding Advances on the
--------------------
Termination Date. If at any time the aggregate amount of Advances outstanding
exceeds either the Total Commitment plus the Guidance Line or the Borrowing
Base, Borrower, upon the demand of Agent or any Lender, shall repay so much of
the outstanding Advances as may be necessary to eliminate such excess
2.6 Business Days. If the scheduled date for any payment hereunder falls on a
-------------
day which is not a Business Day, then for all purposes of the Notes and this
Agreement the same shall be deemed to have fallen on the next following Business
Day, and, except for such payments as to which interest had ceased to accrue
prior to the scheduled date for payment, such extension of times shall be
included in the computation of payments of interest.
2.7 Payment Procedure.
-----------------
(a) In General. All payments of the principal of and interest and
----------
fees upon the Notes shall be made by Borrower to Agent before 1:00 p.m. on
the respective dates when due in federal or other immediately available
funds at Agent's address set forth in Section 11.1. Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest or fees ratably to Lenders according to their
interests therein and like funds relating to the payment of any other
amount payable to any Lender
34
<PAGE>
to such Lender, in each case to be applied in accordance with terms of this
Agreement. Funds received after 1:00 p.m. shall be treated for all purposes
as having been received by Agent on the Business Day next following the
date of receipt of such funds.
(b) Order and Notice of Payments. Contemporaneously with the making
----------------------------
of any payments in respect of the Advances, Borrower shall give Agent
telephonic notice of the amount being repaid and shall promptly confirm
such payment by a delivering a Confirmation to Agent, duly completed and
executed by Borrower. If no Event of Default exists and is continuing,
Borrower shall repay all Advances in the following order:
First, Warehouse Advances outstanding under the Uncommitted Warehouse Promissory
Notes,
Second, L/C Advances,
Third, Swing Advances,
Fourth, Warehouse Advances outstanding under the Committed Warehouse
Promissory Notes;
provided, that at the election of Agent, Warehouse Advances outstanding under
the Committed Warehouse Promissory Notes shall be repaid prior to repayment of
Swing Advances.
Subject to the preceding sentence, if no Event of Default exists and is
continuing, payments in respect of the Obligations shall be applied to specific
types of Obligations (e.g., fees, expenses, principal and interest) as Borrower
directs. At any time when an Event of Default exists and is continuing, all
payments in respect of the Obligations shall (unless Agent and Lenders shall
otherwise unanimously agree) be applied first to all reasonable costs, expenses,
fees and reasonable attorneys' fees incurred by, and agency or custodian fees
due to, Agent arising out of or in connection with this Agreement, the Notes or
the other Loan Documents, including, without limitation, all reasonable costs,
expenses, fees and reasonable attorneys' fees arising out of or in connection
with the negotiation, preparation and enforcement of such documents; second, to
the payment of all expenses due and payable under Section 6.5 ratably among
Lenders in accordance with such amounts; third, to the payment of fees due and
payable under Section 2.4(a) and 2.4(b), ratably in accordance with such
amounts; fourth, to the payment of interest then due and payable under the
Notes, ratably in accordance with the amount of interest owed to each Lender;
and fifth, to the payment of principal of the Notes ratably in accordance with
the outstanding Advances of each Lender; provided, that (x) payments due under
the preceding clause fourth to any Lender which has failed to make any Advance
or purchase any participation required to be made or purchased by such Lender
under Section 2.1(d) shall be allocated first to the payment of interest then
due and payable under the L/C Advances, then under the Swing Promissory Note,
and then to such Lender and (y) payments due under the preceding clause fifth to
any Lender which has failed to make any Advance or purchase any participation
required to be made or purchased by such Lender under Section 2.1(d) shall be
allocated first to the payment of principal of the L/C Advances, then under the
Swing Promissory Note, and then to such Lender. Agent shall promptly notify
Borrower and each of Lenders of the
35
<PAGE>
application of any payment to anything other than the principal of or interest
on the Notes.
2.8 Payments Not in Full. Unless Agent shall have received notice from Borrower
--------------------
prior to the date on which any payment is to be made to Agent for the account of
Lenders hereunder that Borrower will not make such payment in full, Agent may
assume that Borrower has made such payment in full to Agent on such date and
Agent may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent that Borrower shall have not so made such payment in full to
Agent and Agent, in reliance on such assumption, has distributed such amounts to
Lenders, each Lender shall repay to Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from the
date such amount is distributed to such Lender until the date such Lender repays
such amount to Agent, at Average Adjusted Libor.
2.9 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether
------------------------
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Advances owing to it (other than pursuant to
Sections 2.4(d), 2.7, or 2.10) in excess of its ratable portion of payments on
account of the Advances obtained by all Lenders, such Lender shall forthwith
purchase from the other Lenders such participations in the Advances owing to
them as shall be necessary to cause such purchasing Lender to share the excess
payment ratable with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from such purchasing Lender, each
such purchase shall be rescinded, and each Lender from which such a purchase was
made shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. Borrower agrees that any Lender so purchasing
a participation from another Lender pursuant to this Section 2.9 may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off) with respect to such participation as fully as if such
Lender were the direct creditor of Borrower in the amount of such participation.
2.10 Requirements of Law.
-------------------
(a) General. In the event that the adoption of any new Requirement of
-------
Law or any change in any existing Requirement of Law (other than any change
in the articles of incorporation, by-laws or other organizational or
governing documents of the relevant Lender) or in the interpretation or
application thereof or compliance by any Lender with any request or
directive (whether or not having the force of law) from any central bank or
other Governmental Authority issued after the Agreement Date:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note or any Advance made by it, or
change the basis of taxation of payments to such Lender of principal,
facility fee, interest or any other amount payable hereunder (except
for changes in the rate of tax on the overall net income of such
Lender and changes in the computation of the overall net income of
such Lender that do not specifically involve payments to Lender
36
<PAGE>
under this Agreement, any Note, or any Advance, even though such
changes have the effect of increasing the effective rate of tax
imposed on income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, or deposits or other liabilities in or for the account of,
commitments, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Lender which are not
otherwise included in the determination of any interest rate under
such Lender's Notes;
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such
Lender, by any amount which such Lender deems to be material, of making,
renewing or maintaining its Commitment or Advances or to reduce any amount
receivable hereunder, in each case, in respect of its Advances, then,
Borrower shall promptly pay such Lender, upon its written demand setting
forth the basis for such demand, any additional amounts necessary to
compensate such Lender for such additional cost or reduced amount
receivable. A certificate as to any additional amounts payable pursuant to
the foregoing sentence submitted by such Lender, through Agent, to Borrower
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and payment of the Notes.
(b) Capital Adequacy. In the event that any Lender shall have
-----------------
determined that the adoption of any new law, rule, regulation or guideline
regarding capital adequacy, or any change therein or in the interpretation
or application thereof or compliance by any Lender or any corporation
controlling such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) from any central bank or
Governmental Authority issued after the Agreement Date, including, without
limitation, the issuance of any final rule, regulation or guideline, does
or shall have the effect of reducing the rate of return on such Lender's or
such corporation's capital as a consequence of its obligations hereunder to
a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into
consideration such Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then
Borrower shall promptly pay such Lender, upon its written demand setting
forth the basis for such demand, any additional amounts necessary to
compensate such Lender or such corporation for such reduced rate of return.
A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by such Lender, through Agent, to Borrower
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and payment of the Notes.
(c) Mandatory Suspensions and Conversions of LIBOR Segments. A
--------------------------------------------------------
Lender's obligations to make Advances as, or to continue or convert
Segments into, LIBOR Segments shall be suspended, all such outstanding
Segments under such
37
<PAGE>
Lender's Notes shall be converted into, and all pending requests for the
making of Advances as, or for continuation of or conversion of Segments
into, LIBOR Segments by such Lender shall be deemed requests for, Reference
Rate Segments, if:
(i) on or prior to the determination of an interest rate for a
LIBOR Segment, Agent determines that appropriate information is not
available to it for purposes of determining LIBOR;
(ii) Agent or Lenders determine that LIBOR as determined by
Agent would not accurately reflect the cost to such Lender of making
an Advance as, or continuing or converting a Segment into, a LIBOR
Segment; or
(iii) at any time such Lender determines that any new
Requirement of Law or any change in any Requirement of Law existing on
the Agreement Date (other than any change in the articles of
incorporation, by-laws or other organizational or governing documents
of the relevant Lender) or in the interpretation or application
thereof or compliance by any Lender with any request or directive
(whether or not having the force of law) from any central bank or
other Governmental Authority issued after the Agreement Date makes it
unlawful or impossible for such Lender to make, an Advance as, or to
continue or convert a Segment into, a LIBOR Segment, or to comply
with its obligations hereunder in respect thereof.
If, as a result of this Section 2.10(c), any Advance of any Lender that
would otherwise be made as a LIBOR Segment, or any Segment of any Lender
that would otherwise be maintained as or converted into a LIBOR Segment is
instead made or maintained as or converted into a Reference Rate Segment,
then, unless the corresponding Advances and Segments of each of the other
Lenders are also to be made or maintained as or converted into Reference
Rate Segments, such Advance and/or Segment, as the case may be, shall be
treated as being a LIBOR Segment for all purposes of this Agreement
(including the timing, application and proration among Lenders of interest
payments, conversions and prepayments) except for the calculation of the
interest rate borne by such Advance or Segment. Agent shall promptly
notify Borrower and each Lender of the existence or occurrence of any
condition or circumstance specified in clause (i) above, and each Lender
shall promptly notify Borrower, through Agent, and Agent of the existence
or occurrence of any condition or circumstance specified in clause (ii) or
(iii) above applicable to such Lender's Advances and Segments, but the
failure by Agent or such Lender to give any such notice shall not affect
such Lender's rights hereunder.
(d) Payment of Additional Amounts. Any additional amounts payable
-----------------------------
pursuant to this Section 2.10 shall be payable, in the case of those
applicable to prior periods, within 15 days after request by such Lender
for such payment and, in the case of those applicable to future periods, on
the dates specified, or determined in accordance with a method specified,
by such Lender.
(e) Certain Determinations; Notice. In making the determinations
------------------------------
38
<PAGE>
contemplated by Sections 2.10(a), (b), and (c), each Lender may make such
estimates, assumptions, allocations and the like that such Lender in good
faith determines to be appropriate, and such Lender's selection thereof in
accordance with this Section 2.10(e), and the determinations made by such
Lender on the basis thereof, shall be final, binding and conclusive upon
Borrower, except, in the case of such determinations, for manifest errors
in computation or transmission. Each Lender shall furnish to Borrower,
through Agent, a certificate outlining in reasonable detail the computation
of any amounts claimed by it under Section 2.10(a), (b), and (c) and the
assumptions underlying such computations. Each Lender will promptly notify
Borrower, through Agent, of any determination made by it referred to in
Section 2.10(a), (b), and (c) above, but the failure to give such notice
shall not affect such Lender's right to compensation.
(f) Mitigation of Circumstances. Each Lender shall promptly notify
---------------------------
Borrower and Agent of any event of which it has knowledge which will result
in, and will use reasonable commercial efforts available to it (and not, in
such Lender's sole judgment, otherwise disadvantageous to such Lender) to
mitigate or avoid, (i) any obligation by Borrower to pay any amount
pursuant to Section 2.10(a) or Section 2.10(b) or (ii) the occurrence of
any circumstances described in Section 2.10(c) (and, if any Lender has
given notice of any such event described in clause (i) or (i) of this
sentence and thereafter such event ceases to exist, such Lender shall
promptly so notify Borrower and Agent). Without limiting the foregoing,
each Lender will designate a different funding office if such designation
will avoid (or reduce the cost to Borrower of) any event described in
clause (i) or (ii) of the preceding sentence and such designation will not,
in such Lender's sole judgment, be otherwise disadvantageous to such
Lender.
(g) Replacement of Lenders. If Borrower becomes obligated to pay
----------------------
additional amounts to an Lender pursuant to Section 2.10(a) or Section
2.10(b), or any Lender gives notice of the occurrence of any circumstances
described in Section 2.10(c), Borrower may designate another lender which
is acceptable to Agent in its reasonable discretion (such other lender
being called a "Replacement Lender") to purchase the Advances of such
Lender and such Lender's rights hereunder, without recourse to or warranty
by, or expense to, such Lender, for a purchase price equal to the
outstanding principal amount of the Advances payable to such Lender plus
any accrued but unpaid interest on such Advances and all accrued but unpaid
fees owed to such Lender and any other amounts payable to such Lender under
this Agreement, and to assume all the obligations of such Lender hereunder,
and, upon such purchase and assumption (pursuant to a Lender Addition
Agreement), such Lender shall no longer be a party hereto or have any
rights hereunder (other than rights with respect to indemnities and similar
rights applicable to such Lender prior to the date of such purchase and
assumption) and shall be relieved of all obligations to Borrower hereunder,
and the Replacement Lender shall succeed to the rights and obligations of
such Lender hereunder.
2.11 Interest.
--------
(a) In General. Interest accrued on the Notes through the last day
----------
of each calendar month shall be paid on the fifth day of the following
calendar month. Accrued
39
<PAGE>
interest shall also be paid on the Termination Date. Interest shall be
computed on the basis of the actual number of days elapsed and a year of
360 days.
(b) Balance Funded Rate Segment. A Balance Funded Rate Segment consisting of
---------------------------
any portion of a Construction/Lot Loan Tranche shall bear interest at the rate
of 1.75% per annum. A Balance Funded Rate Segment consisting of any portion of a
Gestation Loan Tranche shall bear interest at the rate of 0.65% per annum. A
Balance Funded Rate Segment consisting of any portion of a Regular Tranche shall
bear interest at the rate of 1.25% per annum.
(c) LIBOR Segments. A LIBOR Segment consisting of any portion of a
--------------
Construction/Lot Loan Tranche shall bear interest at a rate per annum
equal to the sum of LIBOR plus 1.75% per annum. A LIBOR Segment consisting
of any portion of a Gestation Loan Tranche shall bear interest at a rate
per annum equal to the sum of LIBOR plus 0.65% per annum. A LIBOR Segment
consisting of any portion of a Regular Tranche shall bear interest at a
rate per annum equal to the sum of LIBOR plus 1.25% per annum.
(d) Reference Rate Segment. Each Reference Rate Segment (whether
----------------------
consisting of a portion of a Construction/Lot Loan Tranche, a Gestation
Loan Tranche or a Regular Tranche) shall bear interest at a rate per annum
equal to the Reference Rate.
(e) Overdue Amounts. Overdue principal, interest and other amounts
---------------
shall bear interest for each day that such amounts are overdue (after, as
and 4.00% per annum. Interest payable on overdue amounts shall be payable
on demand.
(f) Balance Funded Rate Agreements. If they so elect, Borrower and any Deposit
------------------------------
Holding Lender may enter into additional written agreements (each an Balance
Funded Rate Agreement) providing for the maintenance by Borrower of deposit
account balances with such Deposit Holding Lender in amounts sufficient to
support Balance Funded Rate Segments from such Lender and the payment of any
balance deficiency fees, provided, that (i) nothing in such Balance Funded Rate
Agreement shall modify the circumstances under which interest due such Deposit
Holding Lender shall be paid to Agent for the account of such Deposit Holding
Lender, as set forth in Section 2.7(a); (ii) upon the written request of Agent
following the occurrence of any Event of Default, Borrower and each Deposit
Holding Lender shall deliver to Agent a certified copy of such Deposit Holding
Lender's Balance Funded Rate Agreement, and Borrower and each Lender which is
not a Deposit Holding Lender shall certify to Agent the absence of any such
Balance Funded Rate Agreement; and (iii) the provisions of this Section 2.11(f)
shall be controlling in the event of any conflict between such provisions and
any such Balance Funded Rate Agreement.
2.12 Conversions. On the terms and subject to the limitations hereof, Borrower
-----------
shall have the option at any time and from time to time to convert all or any
portion of a Segment of one Type into a Segment or Segments of another Type or
Types and to convert all or any portion of a Tranche of one Category into a
Tranche or Tranches of another Category or Categories by making a Conversion
Request upon Agent prior to 11:00 a.m. on the date on which such conversion is
to be effective (which shall be a Business Day), which Conversion Request shall
be
40
<PAGE>
promptly confirmed by Borrower by delivering to Agent a duly completed and
executed Confirmation; provided, that after giving effect to such Conversion
Request, (a) the aggregate principal amount of all Construction/Lot Loan
Tranches outstanding under the Notes of all Lenders at any time shall not exceed
the aggregate Collateral Value of Construction Loans and Lot Loans included in
the Collateral held by Agent at such time, (b) the aggregate principal amount of
all Construction/Lot Loan Tranches outstanding under any Lender's Notes at any
time shall not exceed the product of the aggregate Collateral Value of
Construction Loans and Lot Loans included in the Collateral held by Agent at
such time multiplied by a fraction the numerator of which is the aggregate
principal balance outstanding under such Lender's Notes at such time and the
denominator of which is the aggregate principal balance outstanding under all
Lenders' Notes at such time, (c) the aggregate principal amount of all Gestation
Loan Tranches outstanding under the Notes of all Lenders at any time shall not
exceed the aggregate Collateral Value of Eligible Gestation Mortgage Loans
included in the Collateral held by Agent at such time, (d) the aggregate
principal amount of all Gestation Loan Tranches outstanding under any Lender's
Notes at any time shall not exceed the product of the aggregate Collateral Value
of Eligible Gestation Mortgage Loans included in the Collateral held by Agent at
such time multiplied by a fraction the numerator of which is the aggregate
principal balance outstanding under such Lender's Notes at such time and the
denominator of which is the aggregate principal balance outstanding under all
Lenders' Notes at such time, (e) the aggregate principal amount of all Regular
Tranches outstanding under the Notes of all Lenders at any time shall not exceed
the remainder the Remainder Collateral Value at such time, and (f) the aggregate
principal amount of all Regular Tranches outstanding under any Lender's Notes at
any time shall not exceed the product of the Remainder Collateral Value at such
time multiplied by a fraction the numerator of which is the aggregate principal
balance outstanding under such Lender's Notes at such time and the denominator
of which is the aggregate principal balance outstanding under all Lenders' Notes
at such time. Any Conversion Request made Borrower under this Section shall be
irrevocable. All conversions of Segments and Tranches must be made uniformly and
ratably among Lenders.
SECTION 3. COLLATERAL
----------
3.1 Collateral.
----------
(a) In General. Pursuant to this Agreement and the Security
----------
Agreement, and to secure the payment of the Obligations, Borrower grants
Agent a security interest for the benefit of Lenders in and to certain
"Collateral," as such term is defined in the Security Agreement. Borrower
hereby confirms such grant in all respects and acknowledges and agrees
that:
(i) this Agreement as amended, modified, restated, or extended
constitutes the "Loan Agreement" as defined in the Security Agreement;
(ii) the Obligations (as defined herein) constitute
"Obligations" secured by the security interests granted under the
Security Agreement; and
(iii) each of the Lenders now or in the future party to this
Agreement
41
<PAGE>
constitutes a "Lender" (as defined in the Security Agreement) for all
purposes of the Security Agreement.
(b) Additional Collateral. From time to time Borrower may grant Agent
---------------------
for the benefit of Lenders a security interest in additional collateral
pursuant to this Agreement and the Security Agreement. Borrower hereby
agrees to execute all documents and instruments, and perform all other acts
reasonably deemed necessary by Agent or the Required Lenders, to perfect
the security interest of Agent for the benefit of Lenders in and to the
collateral identified in the granting clause of the Security Agreement.
3.2 Delivery of Collateral. The Collateral shall be delivered to Agent for the
----------------------
benefit of the Lenders in accordance with the Security Agreement and the
Attachments thereto.
3.3 Power of Attorney. Effective upon the occurrence of an Event of Default,
-----------------
Borrower hereby irrevocably appoints Agent its attorney-in-fact, with full power
of substitution, for and on behalf and in the name of Borrower, to (i) indorse
and deliver to any Person any check, instrument or other paper coming into
Agent's or any Lender's possession and representing payment made in respect of
any Mortgage Note or Mortgage-Backed Security included in the Collateral or in
respect of any other collateral for the Obligations including any Take-Out
Commitment; (ii) prepare, complete, execute, deliver and record any assignment
to Agent or to any other Person of any Mortgage relating to any Mortgage Note
included in the Collateral; (iii) indorse and deliver any Mortgage Note or
Mortgage-Backed Security included in the Collateral and do every other thing
necessary or desirable to effect transfer of all or any part of the Collateral
to Agent or to any other Person; (iv) take all necessary and appropriate action
with respect to all Obligations and the items of Collateral to be delivered to
Agent or held by Borrower in trust for Agent and Lenders including, without
limitation, instruct any title company or closing agent to deliver any Mortgage
Note or Mortgage Document held by it directly to Agent or its agent; (v)
commence, prosecute, settle, discontinue, defend, or otherwise dispose of any
claim relating to any Take-Out Commitment or any other part of the Collateral;
and (vi) sign Borrower's name wherever appropriate to effect the performance of
this Agreement. This section shall be liberally, not restrictively, construed so
as to give the greatest latitude to Agent's power, as Borrower's attorney-in-
fact, to collect, sell, and deliver any of the Collateral and all other
documents relating thereto. The powers and authorities herein conferred on Agent
may be exercised by Agent through any Person who, at the time of the execution
of a particular instrument, is an authorized officer of Agent. The power of
attorney conferred by this Section 3.3 shall become effective upon the
occurrence, and remain effective during the continuance, of an Event of Default
and is granted for a valuable consideration and is coupled with an interest and
irrevocable so long as the Obligations, or any part thereof, shall remain unpaid
or any Commitment is outstanding. All Persons dealing with Agent, any officer
thereof, or any substitute attorney, acting pursuant hereto shall be fully
protected in treating the powers and authorities conferred by this Section 3.3
as existing and continuing in full force and effect until advised by Agent that
the Obligations have been fully and finally paid and satisfied and the
Commitments have terminated.
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3.4 Disposition of Collateral.
-------------------------
(a) Generally. The disposition of Collateral shall be governed by the
---------
Security Agreement.
(b) Allocation of Mortgage Loans to Agency Pools; Eligible Gestation
----------------------------------------------------------------
Mortgage Loan Status. From time to time Borrower may, and prior to the
--------------------
delivery of any Pledged Mortgage Loans into an Agency Commitment Borrower
shall, by execution and delivery to Agent of a duly completed Shipping
Instruction Letter for Pools in the form of Exhibit E-1 hereto (a "Pool
Shipping Instruction") and duly completed a transmittal letter in the form
of Exhibit E-2 hereto (a "Pool Transmittal Letter"), together with the
enclosures referred to therein, instruct Agent to deliver the Mortgage
Notes relating to specific Pledged Mortgage Loans to the Agency Custodian
for inclusion in a pool of Mortgage Loans backing Mortgage-Backed
Securities issued or guaranteed by an Agency and may allocate such Pledged
Mortgage Loans to status as Eligible Gestation Mortgage Loans for purposes
of this Agreement and the Borrowing Base.
3.5 Concerning the Collateral Account and the Good Funds Wire Clearing Account.
--------------------------------------------------------------------------
Borrower hereby expressly acknowledges that the Collateral Account, the Good
Funds Wire Clearing Account, and any other of Borrower's accounts with any
Lender are subject in all respects to the right of offset in favor of Agent
granted under Section 11.10.
3.6 Borrower Appointed Agent. Each Lender hereby appoints Borrower (and, in the
------------------------
case of any Pledged Mortgage Loan originated by a Person other than Borrower
also appoints such other Person) as its agent at the sole cost and expense of
Borrower for purposes of (a) obtaining Appraisals with respect to the property
covered by the Mortgages which relate to the Pledged Mortgage Loans and (b)
otherwise complying with Appraisal Laws and Regulations.
SECTION 4. CONDITIONS PRECEDENT
--------------------
The obligation of each Lender to make Advances hereunder is subject to
fulfillment of the conditions precedent stated in this Section 4.
4.1 Initial Borrowing. The obligation of each Lender to make its initial
-----------------
Advance hereunder shall be subject to, in addition to the conditions precedent
specified in Section 4.2 hereof, delivery to Agent of the following (each of the
following documents being duly executed and delivered by each of the parties
thereto and in form and substance satisfactory to Agent and Lenders, and, with
the exception of the Notes, each in a sufficient number of originals that each
Lender may have an executed original of each document):
(a) this Agreement;
(b) the Notes;
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(c) the Security Agreement;
(d) a copy of the articles of incorporation of Borrower as amended
through the Agreement Date and as certified by the Secretary of State of
the Commonwealth of Virginia as of a date no earlier than _____, 1999;
(e) a certificate of the Secretary or Assistant Secretary of
Borrower, dated as of the Agreement Date and certifying as to (i)
resolutions of the board of directors of Borrower which authorize the
execution and delivery on behalf of Borrower by certain officers of
Borrower of this Agreement and the Notes, (ii) the incumbency of such
officers, (iii) the validity of specimen signatures of such officers, (iv)
the absence of any amendments to or rescission of the articles of
incorporation of Borrower since _____, 1999, and since the date of the copy
thereof certified by the Secretary of State of the Commonwealth of
Virginia, and (v) the completeness and validity of the copy of the by-laws
of Borrower (as amended through the Agreement Date) attached as an exhibit
to such certificate;
(f) a certificate from the Secretary of State of the Commonwealth of
Virginia as to (i) the good standing of Borrower of a date no earlier than
_____, 1999, and (ii) the existence of Borrower as of a date no earlier
than _____, 1999;
(g) a certificate from the Secretary of the Commonwealth of
Pennsylvania as to (i) the good standing of Borrower of a date no earlier
than _____, 1999, and (ii) the authority of Borrower to do business in
Pennsylvania as of a date no earlier than _____, 1999;
(h) a written opinion of legal counsel to Borrower as to the matters
set forth in Schedule 4.1(h) and such other matters as Agent or its counsel
may require;
(i) tax, judgment and Uniform Commercial Code lien searches in the
appropriate offices in the State of Virginia [and Uniform Commercial Code
lien searches in the appropriate offices in the State of Pennsylvania];
(j) Uniform Commercial Code financing statements prepared for filing
in the appropriate offices in the State of Virginia [and the State of
Pennsylvania]; and
(k) such other documents Agent or any Lender may reasonably request
hereunder or as referenced in Schedule 4.1(k).
In addition, the obligation of each Lender to make its initial Advance shall be
subject to the condition that Borrower shall have paid, or reimbursed Agent for,
the fees, service charges and expenses of Dorsey & Whitney LLP, Agent's legal
counsel, in connection with the preparation, negotiation, execution and delivery
of this Agreement, the Notes and the other Loan Documents, if and to the extent
that Borrower has received a statement therefor prior to the making of such
44
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Advance.
4.2 All Borrowings. The obligation of each Lender to make any Advance and to
--------------
fund any Borrowing pursuant to this Agreement is subject to the following
further conditions precedent:
(a) prior to 11:00 a.m. on the Borrowing Date, Agent shall have
received a Borrowing Request from Borrower, which Borrowing Request shall
be promptly confirmed by Borrower by delivering to Agent a duly completed
and executed Confirmation;
(b) subject to the provisions of the Security Agreement, all Property
in which Borrower has granted a Lien to Agent for the benefit of Lenders
shall have been physically delivered to the possession of Agent or any
bailee acceptable to Agent to the extent that such possession is necessary
or appropriate for the purpose of perfecting the Lien of Agent for the
benefit of Lenders in such collateral;
(c) the representations and warranties of Borrower contained in this
Agreement or any other Loan Document (other than those representations and
warranties which are by their terms limited to the date of the agreement in
which they are initially made) shall be true and correct in all material
respects on and as of the Borrowing Date;
(d) no Default or Event of Default shall have occurred and be
continuing and no change or event which constitutes a Material Adverse
Effect shall have occurred as of the Borrowing Date; and
(e) the Collateral Account and the Good Funds Wire Clearing Account
shall be established and in existence.
Each Borrowing Request shall be deemed to constitute a representation and
warranty by Borrower on the Borrowing Date set forth therein as to the
facts specified in Sections 4.2(c) and (d).
SECTION 5. BORROWER REPRESENTATIONS AND WARRANTIES
---------------------------------------
Borrower represents and warrants as follows:
5.1 Organization and Good Standing. Borrower (a) is a corporation duly
------------------------------
incorporated and existing in good standing under the laws of the jurisdiction of
its incorporation, (b) is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which its failure to be so qualified could have
a Material Adverse Effect, (c) has the corporate power and authority to own its
properties and assets and to transact the business in which it is engaged and is
or will be qualified in those states wherein it proposes to transact business in
the future and (d) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
5.2 Authorization and Power. Borrower has the corporate power and requisite
-----------------------
authority to execute, deliver and perform this Agreement, the Notes and the
other Loan Documents to which it is a party; Borrower is duly authorized to and
has taken all corporate action necessary to
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authorize it to, execute, deliver and perform this Agreement, the Notes and the
other Loan Documents to which it is a party and is and will continue to be duly
authorized to perform this Agreement, the Notes and such other Loan Documents.
5.3 No Conflicts or Consents. Neither the execution and delivery by Borrower of
------------------------
this Agreement, the Notes or the other Loan Documents to which it is a party,
nor the consummation of any of the transactions herein or therein contemplated,
nor compliance with the terms and provisions hereof or with the terms and
provisions thereof, will (a) materially contravene or conflict with any
Requirement of Law to which Borrower is subject, or any indenture, mortgage,
deed of trust, or other agreement or instrument to which Borrower is a party or
by which Borrower may be bound, or to which the Property of Borrower may be
subject, or (b) result in the creation or imposition of any Lien, other than the
Liens granted to Agent for the benefit of Lenders pursuant to the Security
Agreement and this Agreement, on the Property of Borrower.
5.4 Enforceable Obligations. This Agreement, the Notes and the other Loan
-----------------------
Documents to which Borrower is a party are the legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms,
except as limited by Debtor Laws.
5.5 Priority of Liens. Agent has a valid, enforceable, perfected, first-
-----------------
priority Lien and security interest for the benefit of Lenders in (i) each
Mortgage Loan heretofore identified on a Agreement to Pledge delivered to Agent
and not subsequently released by Agent pursuant to the Existing Loan Agreement,
or this Agreement, and (ii) each Take-Out Commitment of Borrower. Upon delivery
to Agent of a Agreement to Pledge identifying a Wet Mortgage Loan and the
funding by Lenders of the Warehouse Advances (or by Agent of the Swing Advance
or L/C Advance) requested in connection therewith, Agent will have valid,
enforceable, perfected, first priority Liens and security interests for the
benefit of Lenders in such Wet Mortgage Loan and in all Mortgage Documents
related thereto.
5.6 No Liens. Borrower has good and indefeasible title to the Collateral. All
--------
of the Collateral is free and clear of all Liens and other adverse claims of any
nature, other than Liens of the type set forth in clauses (a), (b), (c), (d),
and (k) of the definition of Permitted Liens.
5.7 Financial Condition. Borrower has delivered to Agent and Lenders copies of
-------------------
the balance sheet of Borrower as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flows for the fiscal year
ended such date; such financial statements fairly present the financial
condition of Borrower as of such date and the results of operations of Borrower
for the period ended on such date and have been prepared in accordance with
GAAP; except as has been disclosed in writing to Agent and Lenders, as of the
date thereof, there were no material obligations, liabilities or Indebtedness
(including material contingent and indirect liabilities and obligations and
forward or long-term commitments) of Borrower which are not reflected in such
financial statements; and no change which constitutes a Material Adverse Effect
has occurred in the financial condition or business of Borrower since the date
of such financial statements. Borrower has also delivered to Agent and Lenders
copies of the balance sheet of Borrower dated as of July 31, 1999 and the
related statements of income, and cash flows as of such date; such financial
statements fairly present the financial condition of Borrower as of such date
and have been prepared in accordance with GAAP, subject to normal year-end
adjustments;
46
<PAGE>
except as has been disclosed in writing to Agent and Lenders as of the date
thereof, there were no material obligations, liabilities or Indebtedness
(including material contingent and indirect liabilities and obligations and
forward or long-term commitments) of Borrower which are not reflected in such
financial statements; and no change which constitutes a Material Adverse Effect
has occurred in the financial condition or business of Borrower since the date
of such financial statements.
5.8 Full Disclosure. There is no material fact that Borrower has not disclosed
---------------
to Agent and Lenders which could have a Material Adverse Effect. Neither the
financial statements referred to in Section 5.7 hereof, nor any Borrowing
Request, officer's certificate or statement delivered by Borrower to Agent or
any Lender in connection with this Agreement, contains any untrue statement of
material fact.
5.9 No Default. Borrower is not in default under any loan agreement, mortgage,
----------
security agreement or other material agreement or obligation to which it is a
party or by which any of its Property is bound, which default could have a
Material Adverse Effect.
5.10 No Litigation. Except as set forth on Schedule 5.10, there are no material
-------------
actions, suits or legal, equitable, arbitration or administrative proceedings
pending, or to the knowledge of Borrower threatened, against Borrower the
adverse determination of which could constitute a Material Adverse Effect and as
to which there is a reasonable likelihood of an adverse determination.
5.11 Taxes. All tax returns required to be filed by Borrower in any
-----
jurisdiction and which, if not filed, could have a Material Adverse Effect have
been filed and all taxes, assessments, fees and other governmental charges upon
Borrower or upon any of its properties, income or franchises which, if not
paid, could give rise to a Lien thereon having a Material Adverse Effect, have
been paid prior to the time that such taxes could give rise to such Lien, unless
protested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been established on the books of Borrower.
Borrower has no knowledge of any proposed or threatened tax assessment against
Borrower which could have a Material Adverse Effect.
5.12 Principal Office, etc. As of the date hereof, the principal office, chief
---------------------
executive office and principal place of business of Borrower is located at 7601
Lewinsville Road, Suite 302, McLean, Virginia 22102, County of
Fairfax.
5.13 Compliance with ERISA.
---------------------
(a) Borrower has not violated the fiduciary responsibility rules of
Subtitle B of Title I of ERISA with respect to any Plan or any Welfare Plan
in a manner that could subject Borrower to, or cause Borrower to incur,
liability in respect of an action or a suit for damages, or a penalty,
under ERISA, or an excise tax under Section 4975 of the Code, which action,
suit, penalty or tax, in any case, would be materially adverse to Borrower.
(b) Each of Borrower and each Related Person has fulfilled its
obligations under the minimum funding standards of Section 412 of the Code
and Section 302 of
47
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ERISA with respect to each Plan as to which a failure to fulfill such
obligations could have a Material Adverse Effect; neither Borrower nor any
Related Person has incurred, nor are any of them aware of facts which would
cause them reasonably to conclude that any of them are likely to incur any
material liability to the PBGC, other than for the payment of premiums; and
neither Borrower nor any Related Person has incurred, nor are any of them
aware of facts which would cause them reasonably to conclude that any of
them are likely to incur, any material liability to any Plan or any Welfare
Plan, other than for the payment of contributions in the ordinary course.
Each Plan and each Welfare Plan is in compliance in all respects with, and
has been operated and administered in accordance with the applicable
provisions of, ERISA, the Code and each other applicable Federal or state
law except to the extent the failure to so comply, or to so operate or
administer any such Plan and any such Welfare Plan, would not be materially
adverse to Borrower. No event or condition is occurring or exists and
neither Borrower nor any Related Person is aware of any facts which would
cause them reasonably to conclude that any event or condition will likely
occur or exist with respect to any Plan concerning which Borrower would be
under an obligation to furnish a report to Agent in accordance with Section
6.17 hereof.
(c) Full payment has been timely made of all amounts which Borrower or
any Related Person is required under applicable law, the terms of each Plan
or any applicable collective bargaining agreement to have paid as
contributions to each Plan with respect to which a failure to make such
payment could have a Material Adverse Effect and no accumulated funding
deficiency under Section 412 of the Code or Section 302 of ERISA, whether
or not waived, exists or is expected to exist with respect to any Plan
which could have a Material Adverse Effect. As of the most recent
valuation date of each Plan, each Plan was "fully funded." For purposes of
this Section 5.13, "fully funded" means that the fair market value of the
assets of each Plan (determined separately for each Plan and not in the
aggregate) is not less than the present value of the accrued benefits of
all participants in each Plan (determined separately for each Plan and not
in the aggregate), computed on a Plan termination basis by more than
$2,000,000.
(d) Neither Borrower nor any Related Person is or has ever been
obligated to contribute to any "multiple employer plan" (within the meaning
of Section 4063 of ERISA) or to any Multiemployer Plan.
(e) The present value (determined in accordance with FAS 106 and using
actuarial and other assumptions which are reasonable in respect of the
benefits provided and the participants) of the liability of Borrower and
each Related Person for post-retirement benefits under any and all Welfare
Plans, whether written or unwritten, which are or have been established or
maintained, or to which contributions are or have been made, by Borrower or
any of its Related Persons does not materially exceed the assets under all
such Welfare Plans allocable to such benefits.
(f) No failure to comply with Code Section 4980B or Part 6 of Title I
of ERISA exists or has occurred with respect to any Welfare Plan.
48
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5.14 Ownership. The Parent owns, beneficially, of record and either directly or
---------
indirectly, 100% of the issued and outstanding shares of capital stock of
Borrower. Neither any "person" nor any "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended) is
the "beneficial owner" (as defined in Rule 13d-3 under such act) of more than
50% of the total aggregate voting power of all classes of voting stock of the
Parent and/or warrants or options to acquire such voting stock, calculated on a
fully diluted basis.
5.15 Subsidiaries. Borrower has no Subsidiaries other than Permitted
------------
Subsidiaries. Neither Borrower nor any Subsidiary has any interest in any joint
venture, partnership or other Person, except to the extent that such an interest
is a Permitted Investment.
5.16 Indebtedness. Borrower has no Indebtedness outstanding other than the
------------
Obligations and the other Indebtedness permitted by Section 7.2.
5.17 Permits, Patents, Trademarks, etc.
----------------------------------
(a) Borrower has all permits, licenses and governmental authorization
necessary for the operation of its business. All such permits, licenses
and governmental authorizations are in good standing and Borrower is in
compliance with all material terms of such permits, licenses and
governmental authorizations.
(b) Borrower owns or possesses (or is licensed or otherwise has the
necessary right to use) all patents, trademarks, service marks, trade names
(including the name "NVR Mortgage Finance, Inc.") and copyrights,
technology, know-how and processes, and all rights with respect to the
foregoing, which are necessary for the operation of its business, without
any known material conflict with the rights of others. The consummation of
the transactions contemplated hereby will not alter or impair in any
material respect any of such rights of Borrower.
5.18 Status Under Certain Federal Statutes. Borrower is not (a) a "holding
-------------------------------------
company" or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended,
(b) a "public utility," as such term is defined in the Federal Power Act, as
amended, (c) an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended, or (d) a "rail carrier," or a "person controlled by or affiliated
with a rail carrier," within the meaning of Title 49, U.S.C., or a "carrier" to
which 49 U.S.C. (S)11301(b)(1) is applicable.
5.19 Securities Acts and Securities Credit Transaction Regulations. Borrower has
-------------------------------------------------------------
not issued any unregistered securities in violation of the registration
requirements of the Securities Act of 1933, as amended, or of any other
Requirement of Law, and is not violating any rule, regulation, or requirement
under the Securities Act of 1933, as amended, or the Securities and Exchange Act
of 1934, as amended. Borrower is not required to qualify an indenture under the
Trust Indenture Act of 1939, as amended, in connection with its execution and
delivery of the Notes. Borrower is not a party, whether as a customer or a
creditor, to any transaction that is
49
<PAGE>
subject to the Securities Credit Transaction Regulations.
5.20 Pollution Control. Borrower is in compliance with, and to the best of
-----------------
Borrower's knowledge, Borrower has, at all times since its incorporation, been
in material compliance with, all Requirements of Law relating to the
environment, hazardous material or pollution control.
5.21 No Approvals Required. Other than consents and approvals previously
---------------------
obtained and actions previously taken, neither the execution and delivery of
this Agreement, the Notes and the other Loan Documents to which Borrower is a
party, nor the consummation of any of the transactions contemplated hereby or
thereby requires the consent or approval of, the giving of notice to, or the
registration, recording or filing by Borrower of any document with, or the
taking of any other action in respect of, any Governmental Authority which has
jurisdiction over Borrower or any of its Property.
5.22 Material Agreements with Affiliates. Except as set forth on Schedule 5.22,
-----------------------------------
Borrower is not party to any material agreement, whether written or oral, with
the Parent or any other Affiliate of Borrower. As used in the preceding
sentence, "material agreement" includes any agreement in which the fair value of
the consideration paid or performance due any party exceeds $100,000 and "with
the Parent or any other Affiliate of Borrower" includes any direct or indirect
agreement with the Parent or any other Affiliate of Borrower.
5.23 Taxpayer Identification. The Federal tax employer identification number of
-----------------------
Borrower is 25-1664458.
5.24 Not an Insider. Neither Borrower nor the Parent, or any other Affiliate of
--------------
Borrower is, and no person having "control" as defined in 12 U.S.C. (S)375(b)(9)
of Borrower or of any of the Parent or any other Affiliate of Borrower is, an
"executive officer," "director," or "principal shareholder" (as such terms are
defined in 12 U.S.C. (S)375(b)(9) and the regulations promulgated pursuant
thereto) of any Lender, of any bank holding company of which any Lender is a
Subsidiary, or of any Subsidiary of any bank holding company of which any Lender
is a Subsidiary.
5.25 Survival of Representations. All representations and warranties by Borrower
---------------------------
herein shall survive delivery of the Notes and the making of the Advances, and
any investigation at any time made by or on behalf of Agent or any Lender shall
not diminish the right of Agent or any Lender to rely thereon.
5.26 Year 2000 Compliance. Borrower has (i) initiated a review and assessment of
--------------------
all areas within its and each of its Subsidiaries' business and operations
(including those affected by suppliers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its Subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to, including and after December 31,
1999), (ii) developed a plan and time line for addressing the Year 2000 Problem
on a timely basis, and (iii) implemented in all material respects that plan in
accordance with that timetable. Based on the foregoing, Borrower has no reason
to believe that the Year 2000 Problem will result in a material adverse change
in the business, condition (financial or otherwise), operations or prospects of
Borrower
50
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and its Subsidiaries, or Borrower's ability to repay Lenders.
SECTION 6. AFFIRMATIVE COVENANTS
---------------------
Borrower shall at all times comply with the covenants contained in this Section
6, from the date hereof and for so long as any part of the Obligations or any
Commitment is outstanding.
6.1 Financial Statements and Reports. Borrower shall furnish to each Lender the
--------------------------------
following, all in form and detail reasonably satisfactory to Lenders:
(a) Promptly after becoming available, and in any event within 90 days
after the close of each fiscal year of Borrower, the consolidated balance
sheet of Borrower and its Subsidiaries, if any, as of the end of such year,
and the related consolidated statement of income of Borrower and its
Subsidiaries accompanied by the related report of independent certified
public accountants reasonably acceptable to the Required Lenders which
report shall be unqualified and to the effect that such statements have
been prepared in accordance with GAAP applied on a basis consistent with
prior periods except for such changes in such principles with which the
independent public accountants shall have concurred, and accompanied by
audited financials (including balance sheets, profit and loss statements,
statements of cash flow, and any other financial statements, reports, or
information specified by Agent) of the Parent reflecting the corresponding
figures as of the end of and for the preceding fiscal year in comparative
form, together with the related report prepared by an independent certified
public accountant reasonably acceptable to Required Lenders;
(b) Promptly after becoming available, and in any event within 30 days
after the end of each month, a consolidated balance sheet of Borrower and
its Subsidiaries, if any, as of the end of such month and the related
consolidated statements of income, stockholders' equity and cash flows of
Borrower and its Subsidiaries, if any, for such month and the period from
the beginning of the current fiscal year of Borrower through the end of
such month, (i) certified by the chief financial officer of Borrower to
have been prepared in accordance with GAAP applied on a basis consistent
with prior periods, subject to normal year-end adjustments, and (ii)
accompanied by a completed Officer's Certificate in the form of Exhibit I
hereto, executed by the president or chief financial officer of Borrower;
(c) Promptly (i) upon receipt thereof, a copy of each other report
submitted to Borrower or any affiliate of Borrower by independent
accountants in connection with any annual, interim or special audit of the
books of such Person and (ii) upon preparation thereof, a copy of each
audit report regarding Borrower submitted to FNMA, FHLMC or GNMA;
(d) Simultaneously with the delivery of the financial information set
forth in Section 6.1(b), a report in detail satisfactory to Agent setting
forth, for the calendar month to which such financial information relates,
all Permitted Intercompany Payables, all receivables from Affiliates, all
transactions of Borrower which give rise to Permitted
51
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Intercompany Payables, all receivables from affiliates, all transactions of
Borrower which give rise to Permitted Intercompany Payables and all
transactions of Borrower with any Affiliate of Borrower;
(e) Promptly and in any event within 30 days after the end of each
month, management report regarding Borrower's commitment position, pipeline
position, mortgage servicing/delinquency and production;
(f) No later than 11:00 a.m. on each Business Day, a Take-Out Report,
properly completed by an officer of Borrower, setting forth, as of the
close of business on the preceding Business Day, the Weighted Average Take-
Out Price; and
(g) Such other information concerning the business, Properties or
financial condition of Borrower, any Affiliate or any Investor as Agent or
any Lender may reasonably request.
6.2 Taxes and Other Liens. Borrower shall pay and discharge promptly all taxes,
---------------------
assessments and governmental charges or levies imposed upon it or upon its
income or upon any of its Property as well as all claims of any kind (including
claims for labor, materials, supplies and rent) which, if unpaid, might become a
Lien upon any or all of its Property and could have a Material Adverse Effect;
provided, however, that Borrower shall not be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted by or on behalf of Borrower and if Borrower shall have set
up reserves therefor which are adequate under GAAP.
6.3 Maintenance. Borrower shall (i) maintain its corporate existence, rights
-----------
and franchises; (ii) observe and comply in all material respects with all
Requirements of Law, and (iii) maintain its Properties (and any Properties
leased by or consigned to it or held under title retention or conditional sales
contracts) in good and workable condition at all times and make all repairs,
replacements, additions, betterments and improvements to its Properties as are
needful and proper so that the business carried on in connection therewith may
be conducted properly and efficiently at all times.
6.4 Further Assurances. Borrower shall, within 3 Business Days (or, in the case
------------------
of Mortgage Notes or other Mortgage Documents returned to Borrower under a Trust
Receipt, the period specified in such Trust Receipt), after the request of Agent
or any Lender, cure any defects in the execution and delivery of any Note, this
Agreement or any other Loan Document and Borrower shall, at its expense,
promptly execute and deliver to Agent and Lenders upon request all such other
and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of Borrower in this Agreement and
in the other Loan Documents or to further evidence and more fully describe the
collateral intended as security for the Notes, or to correct any omissions in
this Agreement or the other Loan Documents, or more fully to state the security
for the Obligations set out herein or in any of the other Loan Documents, or to
perfect, protect or preserve any Liens created (or intended to be created)
pursuant to any of the other Loan Documents, or to make any recordings, to file
any
52
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notices, or obtain any consents.
6.5 Reimbursement of Expenses. Borrower shall, within 10 Business Days of
-------------------------
notice of the amount thereof (which notice shall include appropriate evidence of
the amount of such reimbursable item) pay (i) all reasonable legal fees incurred
by Agent (including, without limitation, the fees, service charges and expenses
of Dorsey & Whitney LLP, legal counsel to the Agent) in connection with the
preparation, negotiation, execution and delivery of this Agreement, the Notes
and the other Loan Documents and any amendments, consents or waivers executed in
connection therewith, (ii) all fees, charges or taxes for the recording or
filing of the Security Instruments, (iii) all shipping, postage and transfer
costs incurred by Agent in connection with the administration of this Agreement,
the Notes and the other Loan Documents, including courier expenses incurred in
connection with the Collateral as provided in the Custodial Fee Letter, and (iv)
all amounts expended, advanced or incurred by Agent or any Lender to satisfy any
obligation of Borrower under this Agreement or any of the other Loan Documents
or to collect any Note, or to enforce the rights of Agent or any Lender under
this Agreement or any of the other Loan Documents, which amounts shall include
all court costs, attorneys' fees (including, without limitation, for trial,
appeal or other proceedings), fees of auditors and accountants, and
investigation expenses, reasonably incurred by Agent or any Lender in connection
with any such matters, together with interest at the post-maturity rate
specified in each Note on each item specified in clauses (i) through (iv) from
30 days after the date of written demand or request for reimbursement until the
date of reimbursement; provided, however, that Borrower shall, prior to the
first Advance (if and to the extent that Borrower has received a statement
therefor, which statement shall constitute appropriate evidence of the amount
thereof), pay, or reimburse Agent for, the fees, service charges and expenses of
Dorsey & Whitney LLP, Agent's legal counsel, in connection with the preparation,
negotiation, execution and delivery of this Agreement, the Notes and the other
Loan Documents.
6.6 Insurance. Borrower shall maintain with financially sound and reputable
---------
insurers, insurance with respect to its Properties and business against such
liabilities, casualties, risks and contingencies and in such types and amounts
as is customary in the case of Persons engaged in the same or similar businesses
and similarly situated, including, without limitation, a fidelity bond or bonds
with financially sound and reputable insurers with such coverage and in such
amounts as is customary in the case of Persons engaged in the same or similar
businesses and similarly situated. Borrower shall cause the improvements on the
land covered by each Mortgage relevant to Mortgage Loans included in the
Mortgage Collateral to be kept continuously insured at all times by responsible
insurance companies against fire and extended coverage hazards under policies,
binders, letters or certificates of insurance, with a standard mortgagee clause
in favor of Borrower and its assigns. Each such policy must be in an amount no
less than the lesser of the maximum insurable value of the improvements or the
original principal amount of the relevant Mortgage Loan, without reduction by
reason of any co-insurance, reduced rate contribution, or similar clause of the
policies or binders. Upon request of Agent or any Lender, Borrower shall furnish
or cause to be furnished to Agent from time to time a summary of the insurance
coverage of Borrower in form satisfactory to the Person requesting such summary
and if requested shall furnish Agent copies of the applicable policies. Agent
shall promptly distribute copies of any summaries and policies received by it
under this Section 6.6 to any Lender which so requests.
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6.7 Accounts and Records; Servicing Records. Borrower shall keep books of
---------------------------------------
record and account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business activities, in accordance
with GAAP. Borrower shall implement and maintain administrative and operating
procedures (including without limitation, an ability to recreate all material
records pertaining to the performance of Borrower's obligations under the
Servicing Agreements in the event of the destruction of the originals of such
records) and keep and maintain all documents, books, records, computer tapes and
other information reasonably necessary or advisable for the performance by
Borrower of its obligations under the Servicing Agreements.
6.8 Appraisals. Borrower shall obtain and maintain a copy of an Appraisal with
----------
respect to the underlying property covered by the Mortgage which relates to each
Pledged Mortgage Loan, shall require that all Appraisals delivered to it in
connection with the Pledged Mortgage Loans (whether originated by Borrower or
purchased by it) comply in all respects with the Appraisal Laws and Regulations,
shall implement and maintain administrative and operating procedures which
permit Borrower, Agent and Lenders to verify such compliance, and shall permit
and shall use all reasonable efforts to cause each Person from whom it purchases
Mortgage Loans to permit any officer, employee or agent of Agent or any Lender
to visit and inspect the Properties of Borrower and such Person relevant to such
compliance, to inspect the records of Borrower and such Person relevant to such
compliance, to take copies and extracts therefrom, and to discuss the Appraisals
relevant to the Mortgage Loans from time to time pledged to Agent for the
benefit of Lenders with the responsible officers, employees and agents
(including any third party appraisers) of Borrower and such Person, at all such
reasonable times (which may include unannounced "spot" checks) and as often as
Agent or any Lender may desire.
6.9 Right of Inspection. Borrower shall permit any officer, employee or agent
-------------------
of Agent or any Lender to visit and inspect any of the Properties of Borrower,
examine Borrower's Servicing Records and books of record and accounts, take
copies and extracts therefrom, and discuss the affairs, finances and accounts of
Borrower with Borrower's officers, accountants and auditors, all at such
reasonable times upon reasonable notice and as often as Agent or any Lender may
desire.
6.10 Notice of Certain Events. Borrower shall promptly notify Agent and each
------------------------
Lender (i) the receipt of any notice from, or the taking of any other action by,
the holder of any promissory note, debenture or other evidence of Indebtedness
of Borrower with respect to a claimed default, together with a detailed
statement by a responsible officer of Borrower specifying the notice given or
other action taken by such holder and the nature of the claimed default and what
action Borrower is taking or proposes to take with respect thereto; (ii) the
commencement of, or any determination in, any legal, judicial or regulatory
proceedings which, if adversely determined, could have a Material Adverse
Effect; (iii) the occurrence of any dispute between Borrower and any
Governmental Authority or any other Person which, if adversely determined, could
have a Material Adverse Effect; (iv) the occurrence of any event or condition
which, if adversely determined, would have a Material Adverse Effect; or (v)
obtaining knowledge of any event or condition if the effect thereof is to cause
or permit with the giving of notice or lapse of time or both the holder of any
promissory note, debenture or other evidence of Indebtedness of Borrower
54
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to cause such Indebtedness to become due prior to its stated maturity.
6.11 Performance of Certain Obligations. Borrower shall perform and observe
----------------------------------
in all material respects each of the provisions of each Agency Commitment, each
Take-Out Commitment and each of the Servicing Agreements on its part to be
performed or observed and will cause all things to be done which are necessary
to have each item of Mortgage Collateral "covered" (within the meaning given
such term in Section 6.20) by an Agency Commitment or a Take-Out Commitment
comply with the requirements thereof.
6.12 Use of Proceeds; Margin Stock. The proceeds of the Advances shall be used
-----------------------------
by Borrower solely for the funding and acquisition of Mortgage Loans in the
ordinary course of Borrower's business, including the refinancing of Eligible
Mortgage Loans funded or acquired by Borrower in the ordinary course of business
with its own funds. None of such proceeds shall be used for the purpose of
purchasing or carrying any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System, or for the purpose of reducing
or retiring any Indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of such Regulation U. Neither Borrower nor
any Person acting on behalf of Borrower shall (i) take any action in violation
of Regulation U or Regulation X of the Board of Governors of the Federal Reserve
System, (ii) violate Section 7 of the Securities Exchange Act of 1934, as
amended, or any rule or regulation thereunder, or (iii) engage in any
transaction which is subject to the Securities Credit Transaction Regulations.
6.13 Notice of Default. Borrower shall furnish to Agent and to each Lender
-----------------
immediately upon becoming aware of the existence of any Default or Event of
Default, a written notice specifying the nature and period of existence thereof
and the action which Borrower is taking or proposes to take with respect
thereto.
6.14 Compliance with Loan Documents. Borrower shall promptly comply with any
------------------------------
and all covenants and provisions of this Agreement, the Notes and the other Loan
Documents.
6.15 Compliance with Material Agreements. Borrower shall comply in all
-----------------------------------
material respects with all material agreements, indentures, or documents binding
on it or affecting its Property or business.
6.16 Operations and Properties. Borrower shall act in accordance, in all
-------------------------
material respects, with all Requirements of Law and customary industry standards
in managing and operating its Property.
6.17 ERISA and Plans. As soon as practicable, and in any event within 10 days
---------------
after an officer of Borrower or any Related Person knows or reasonably should
know that any of the events or conditions specified below has occurred or
exists, or is expected to occur or exist, Borrower shall deliver to Agent an
officer's certificate executed by the president or any vice president of
Borrower and setting forth details respecting such event or condition and the
action, if any, that Borrower or any Related Person proposes to take with
respect thereto (and a copy of any notice or report filed with, given to or
received from the PBGC, the Internal Revenue
55
<PAGE>
Service or the Department of Labor with respect to such event or condition);
(a) any reportable event, as defined in Section 4043(b) of ERISA and
the regulations issued thereunder, with respect to a Plan, as to which the
PBGC has not by regulation waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard of Section
412 of the Code or Section 302 of ERISA shall be a reportable event
regardless of the issuance of any waivers in accordance with Section 412(d)
of the Code and shall be required to be reported pursuant to this
subsection (a));
(b) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan or the amendment of any
Plan in a manner which would be treated as a termination of such Plan under
Section 4041(e) of ERISA;
(c) a substantial cessation of operations within the meaning of
Section 4062(e) of ERISA under circumstances which could result in the
treatment of Borrower or any Related Person as a substantial employer under
a "multiple employer Plan" or the application of the provisions of Section
4062, 4063 or 4064 of ERISA to Borrower or any Related Person;
(d) the institution by the PBGC of proceedings under Section 4062 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by Borrower or any Related Person of a
notice from a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan;
(e) the complete or partial withdrawal by Borrower or any Related
Person under Section 4063, 4203 or 4205 or ERISA from a Plan which is a
"multiple employer Plan" or a Multiemployer Plan, or the receipt by
Borrower or any Related Person of notice from a Multiemployer Plan that it
is in reorganization or it is insolvent pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate under Section 4041A of ERISA or from
a "multiple employer Plan" that it intends to terminate; and
(f) any event or series of events occurs or exists which could
reasonably by expected to result in (i) a material liability on the part of
Borrower or any Related Person under Title IV of ERISA, (ii) the
institution of a proceeding against Borrower or any Related Person to
enforce Section 515 of ERISA, or (iii) the imposition of a Lien on any
Property of Borrower or any Related Person pursuant to Section 4068 of
ERISA or Section 412(n) of the Code.
6.18 Environmental Matters. Borrower shall comply in all material respects
---------------------
with all Requirements of Law relating to the environment, hazardous materials or
pollution control and where noncompliance could have a Material Adverse Effect
and shall furnish to Agent and to each Lender immediately upon becoming aware of
any claim under any such Requirement of Law, a written notice specifying the
nature of such claim, the Person bringing such claim and the action which
Borrower is taking or proposes to take with respect thereto.
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6.19 Take-Out Commitments; Coverage. Borrower shall enter into and maintain
------------------------------
Agency Commitments and Take-Out Commitments sufficient at all times to cover
each Mortgage Loan (except Investment Mortgage Loans, Construction Loans, and
Lot Loans) and Mortgage-Backed Security included in the Mortgage Collateral
(including any Mortgage-Backed Security to be issued or guaranteed pursuant to
an Agency Commitment by which Mortgage Loans included in the Collateral are
covered). For purposes of this Agreement, a Mortgage Loan or Mortgage-Backed
Security shall be "covered" by an Agency Commitment or a Take-Out Commitment if
and only if (i) such Mortgage Loan or Mortgage-Backed Security is of a type,
including as to amount, maturity and rate or yield, which satisfies the
requirements of such Agency Commitment or Take-Out Commitment, (ii) the sum of
the principal amount of such Mortgage Loan or Mortgage-Backed Security and the
principal amounts of the Mortgage Loans or Mortgage-Backed Securities previously
assigned to such Agency Commitment or Take-Out Commitment for purposes of
determining coverage do not exceed the maximum amount thereof, (iii) with
respect to Mortgage Loans, the documentation and underwriting of each such
Mortgage Loan complies in all respects with the requirements of such Agency
Commitment or Take-Out Commitment and (iv) with respect to Mortgage Loans
covered by an Agency Commitment, any Mortgage-Backed Security to be issued or
guaranteed pursuant thereto is covered by a Take-Out Commitment. For purposes of
Sections 3.7 and 3.8 and any Agreement to Pledge , a Mortgage Loan shall be
"covered" by a Take-Out Commitment only if it is either (x) saleable directly
into a Take-Out Commitment as a Mortgage Loan rather than as part of a Mortgage-
Backed Security or (y) covered by both an Agency Commitment and a Take-Out
Commitment.
6.20 Failure to Close a Wet Mortgage Loan. Borrower shall make a mandatory
------------------------------------
repayment in an amount equal to the Collateral Value (determined as if such Wet
Mortgage Loan had closed) of any Wet Mortgage Loan listed in a Agreement to
Pledge within one (1) Business Day of the date such Mortgage Loan was to have
closed, if (i) such Wet Mortgage Loan shall not have closed before the close of
business on the Business Day after the date of delivery of such Agreement to
Pledge) and (ii) Borrower shall have received Advances to fund the payment of
the proceeds of such Mortgage Loan. Borrower shall give Agent notice of each
repayment pursuant to this Section 6.20, which notice shall identify the Wet
Mortgage Loan which has not closed, contemporaneously with the making of such
repayment.
6.21 Year 2000 Compliance. Borrower will promptly notify the Agent in the
--------------------
event Borrower discovers or determines that any computer application (including
those of its suppliers and vendors) that is material to its or any of its
Subsidiaries' business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that such failure is not reasonably expected
to cause a Material Adverse Effect.
SECTION 7. NEGATIVE COVENANTS
------------------
Borrower shall at times comply with the covenants contained in this Section 7,
from the date hereof and for so long as any part of the Obligations or any
Commitment is outstanding.
7.1 No Merger. Borrower shall not merge or consolidate with or into any
---------
corporation, nor shall Borrower acquire by purchase or otherwise all or
substantially all of the assets (except to the extent that such assets consist
solely of Mortgage Notes, Mortgage-Backed Securities and
57
<PAGE>
rights to service Mortgage Loans) or capital stock of any Person.
7.2 Limitation on Indebtedness. Borrower shall not incur, create, contract,
--------------------------
assume, have outstanding, guarantee or otherwise be or become, directly or
indirectly, liable in respect of any Indebtedness except (a) Repurchase
Agreements, (b) Permitted Intercompany Payables, (c) Indebtedness, including the
Obligations, secured by Permitted Liens and by no other Liens on the Property of
Borrower, (d) liabilities in respect of unfunded vested benefits under a Plan as
determined in accordance with ERISA, to the extent permitted under Section 7.16,
(e) liabilities as lessee under leases which have been or, in accordance with
GAAP, should be classified as capitalized leases in an aggregate amount not
greater than $5,000,000, (f) Investment Line of Credit Indebtedness, (g) other
Indebtedness in an aggregate amount at any time outstanding not greater than
$1,000,000.
7.3 Fiscal Year, Method of Accounting. Borrower shall not change its fiscal
---------------------------------
year or method of accounting.
7.4 Business. Borrower shall not, directly or indirectly, engage in any
--------
business other than that currently engaged in by Borrower or any other business
customarily engaged in by other Persons in the mortgage banking business.
7.5 Liquidations, Consolidations and Dispositions of Substantial Assets.
-------------------------------------------------------------------
Borrower shall not dissolve or liquidate or sell, transfer, lease or otherwise
dispose of any material portion of its property or assets or business; provided,
however, that subject to the Security Agreement nothing in this Section 7.5
shall be construed to prohibit Borrower from selling Servicing Rights, Mortgage
Notes or Mortgage-Backed Securities in the ordinary course of its business.
7.6 Loans, Advances and Investments. Borrower shall not make any loan (other
-------------------------------
than loans made in the ordinary course of its business as a mortgage company),
advance, or capital contribution to, or investment in (including any investment
in any Subsidiary, joint venture or partnership), or purchase or otherwise
acquire any of the capital stock, securities, or evidences of indebtedness of,
any Person (collectively, "Investment"), or otherwise acquire any interest in,
or control of, another Person, except for the following:
(a) Cash Equivalents;
(b) Any acquisition of securities or evidences of indebtedness of
others when acquired by Borrower in settlement of accounts receivable or
other debts arising in the ordinary course of its business, so long as the
aggregate amount of any such securities or evidence of indebtedness is not
material to the business or financial condition of Borrower;
(c) Mortgage-Backed Securities and Mortgage Notes acquired in the
ordinary course of Borrower's business;
(d) Loans and advances to (i) employees, officers and directors of
Borrower or any Affiliate of Borrower or (ii) the Parent and other
Affiliates of Borrower which are
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neither Subsidiaries nor Persons which would, if organized as a corporation
and Borrower owned a sufficient interest therein, constitute a Subsidiary
of Borrower, in an aggregate principal amount outstanding at any one time
not to exceed $250,000 (or such larger amount as Agent may, in its sole
discretion, approve in writing prior to the making thereof); and
(e) Capital contributions to Permitted Subsidiaries, and other
Persons which would, if organized as a corporation and Borrower owned a
sufficient interest therein, constitute a Permitted Subsidiary in an
aggregate amount not greater than $1,000,000.
7.7 Use of Proceeds. Borrower shall not permit the proceeds of the Advances to
---------------
be used for any purpose other than those permitted by Section 6.12. Borrower
shall not, directly or indirectly, use any of the proceeds of the Advances for
the purpose of engaging in any transaction which is subject to the Securities
Credit Transaction Regulations.
7.8 Actions with Respect to Collateral. Borrower shall not:
----------------------------------
(a) Compromise, extend, release, or adjust payments on any Mortgage
Loan included in the Collateral, accept a conveyance of mortgaged property
in full or partial satisfaction of any such Mortgage Loan, or release any
Mortgage securing any Mortgage Loan;
(b) other than pursuant to pair-offs in the ordinary course of
business, agree to the amendment or termination of any Take-Out Commitment
included in the Collateral or to the substitution of any Take-Out
Commitment for such a Take-Out Commitment without the consent of Agent;
(c) transfer, sell, assign, or deliver any Collateral pledged to
Agent to any Person other than Agent, except in accordance with the
Security Agreement; or
(d) grant, create, incur, permit or suffer to exist any Lien upon any
Mortgage Collateral except for (i) Liens granted to Agent for the benefit
of Lenders to secure the Obligations, (ii) such non-consensual Liens may be
deemed to arise as a matter of law pursuant to any Take-Out Commitment,
(iii) Liens permitted under Section 6.2 to the extent that such Liens
constitute Permitted Liens, (iv) Liens which constitute Permitted Liens
under clauses (f) and (g) of the definition of Permitted Liens.
7.9 Adjusted Tangible Net Worth. The Adjusted Tangible Net Worth of Borrower at
---------------------------
any date shall not be less than $11,500,000.
7.10 Liabilities to Adjusted Tangible Net Worth Ratios. The ratio of (a) the
-------------------------------------------------
Total Liabilities, excluding (i) net deferred taxes, (ii) Advances to the extent
of the aggregate Collateral Value of all Eligible Gestation Mortgage Loans, and
(iii) obligations of Borrower in respect of Repurchase Agreements, of Borrower
to (b) the Adjusted Tangible Net Worth of Borrower shall not average more than
12.0 to 1.0 at any reporting time pursuant to Section 6.1, and never, at any
time, exceed 17.5 to 1.0.
59
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7.11 Restrictions on Dividends, Returns of Capital and Servicing Proceeds
--------------------------------------------------------------------
Distributions. Borrower shall not directly or indirectly declare or make, or
- -------------
incur any liability to make, any Dividend, Return of Capital unless, prior
thereto, Borrower shall have submitted to Agent a certificate of its President
or Chief Financial Officer certifying that no Default or Event of Default exists
or would result therefrom and, in the case of any Return of Capital,
demonstrating the amount and source of such return or distribution.
7.12 Transactions with Affiliates.
----------------------------
(a) Borrower shall not enter into any transactions, including,
without limitation, any purchase, sale, lease or exchange of property or
services with or the incurring of Indebtedness to any Affiliate unless such
transactions are otherwise permitted under this Agreement, are in the
ordinary course of Borrower's business and are upon fair and reasonable
terms no less favorable to Borrower than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate; and
(b) the aggregate amount paid or payable by Borrower to Affiliates of
Borrower exclusive of Permitted Dividends, Permitted Tax Payments, payments
in respect of Permitted Intercompany Payables, Permitted Returns of
Capital, and Permitted Servicing Proceeds Distributions shall not exceed
$250,000 in the aggregate in any twelve month period.
7.13 Liens. Borrower shall not grant, create, incur, assume, permit or suffer
-----
to exist any Lien which is not a Permitted Lien upon any of its Property,
including without limitation any and all of Borrower's Mortgage Loans, Mortgage-
Backed Securities (except as permitted under Section 7.8(d)) and Servicing
Rights and the proceeds from any thereof.
7.14 Compliance with ERISA. Borrower shall not, and shall not permit any
---------------------
Related Person to:
(a) (i) engage in any transaction in connection with which Borrower
or any Related Person could be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, (ii) fail to make full payment when due of all amounts which would be
deductible by Borrower or any Related Person and which, under the
provisions of any Plan, applicable law or applicable collective bargaining
agreement, Borrower or any Related Person is required to pay as
contributions thereto, or (iii) permit to exist any accumulated funding
deficiency, whether or not waived, with respect to any Plan (other than a
Multiemployer Plan or a "multiple employer Plan"), if, in the case of any
of clause (i), (ii) or (iii) above such penalty or tax, or the failure to
make such payment, or the existence of such deficiency, as the case may be,
will likely have a material adverse effect on the financial position of
Borrower;
(b) permit the amount of unfunded benefit liabilities (within the
meaning of Section 4001(a)(18) of ERISA) under each Plan maintained,
established or contributed to at such time by Borrower or any of its
Related Persons (other than Multiemployer Plans or "multiple employer
plans") to exceed $2,000,000; or
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(c) permit the aggregate complete or partial withdrawal liability
under Title IV of ERISA with respect to all Plans which are "multiple
employer plans" and all Multiemployer Plans incurred by Borrower or any
Related Person to exceed $50,000.
7.15 Change of Principal Office. Borrower shall not (a) change the location of
--------------------------
its principal office, chief executive office and principal place of business
from that specified in Section 5.12 or (b) change its name, identity or
corporate structure to such an extent that any financing statement filed by
Agent in connection with this Agreement would become seriously misleading,
unless it shall have given Agent at least 30 days prior written notice thereof
and prior to effecting any such change, taken such steps as Agent or the
Required Lenders may deem necessary or desirable to continue the perfection and
priority of the Liens in favor of Agent for the benefit of Lenders granted in
connection herewith.
7.16 Tax Payments. Except in accordance with the Tax Allocation Agreement,
------------
Borrower shall not make any payments to or on behalf of the Parent or any
Affiliate of Borrower in respect of taxes.
7.17 Tax Allocation Agreement. Borrower shall not permit the amendment or
------------------------
modification of the Tax Allocation Agreement in any way which has an adverse
effect on Borrower.
7.18 Permitted Subordinated Indebtedness. Borrower shall not increase the
-----------------------------------
outstanding amount of the Permitted Subordinated Indebtedness, modify or amend
the Parent Note without providing a copy of the Parent Note, as modified, to
Agent within 20 days after execution of the Parent Note, or make any payment in
respect of the Parent Note; provided, that so long as no Default or Event of
Default exists or would result therefrom, Borrower may borrow, repay and
reborrow under the Parent Note.
SECTION 8. EVENTS OF DEFAULT
-----------------
8.1 Nature of Event. An Event of Default shall exist if any one or more of the
---------------
following occurs:
(a) Borrower fails to make any payment of principal of or interest on
any Note, or payment of any fee, expense or other amount due hereunder,
under any of the Notes or under any other Loan Document, on or before the
date such payment is due;
(b) Borrower fails to observe or perform (i) any term, covenant or
agreement set forth in Sections 2.3(b)(iii), 2.5, 6.13, 6.17, 6.19, or 6.20
or Section 7 (other than Sections 7.11, 7.12, 7.16, 7.18, and 7.14, which
Section 7.14 is governed by Section 8.1(i) regarding payments of
judgments), and (ii) any term, covenant or agreement set forth in Sections
6.22, 7.11, 7.12, 7.14, or 7.16, or 7.18 if such failure shall remain
unremedied for 20 days, and (iii) any other term, covenant or agreement in
this Agreement on its part to be performed or observed if the failure to
perform or observe such other term, covenant or agreement shall remain
unremedied for 20 days after written notice thereof shall have been given
to Borrower by Agent or the Required Lenders;
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(c) Borrower fails to observe or perform any of the covenants or
agreements contained in any other Loan Document, and (unless such default
otherwise constitutes a Default pursuant to other provisions of this
Section 8.1) such default continues unremedied beyond the expiration of any
applicable grace period which may be expressly allowed under such other
Loan Document;
(d) any material statement, warranty or representation by or on
behalf of Borrower contained in this Agreement, the Notes or any other Loan
Document or any Borrowing Request, officer's certificate or other writing
furnished in connection with this Agreement, proves to have been incorrect
or misleading in any material respect as of the date made or deemed made;
(e) Borrower fails to make when due or within any applicable grace
period any payment on any Indebtedness with an unpaid principal balance of
over $500,000; or any event or condition occurs under any provision
contained in any such obligation or any agreement securing or relating to
such obligation (or any other breach or default under such obligation or
agreement occurs) if the effect thereof is to cause or permit the holder or
trustee of such obligation to cause such obligation to become due prior to
its stated maturity; or any such obligation becomes due (other than by
regularly scheduled payments) prior to its stated maturity; or any of the
foregoing occurs with respect to any one or more items of Indebtedness of
Borrower with unpaid principal balances exceeding, in the aggregate,
$500,000;
(f) Borrower shall generally not pay its debts as they become due or
shall admit in writing its inability to pay its debts, or shall make a
general assignment for the benefit of creditors;
(g) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of it or of all or a
substantial part of its assets, (ii) file a voluntary petition in
bankruptcy, (iii) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any Debtor Laws, (iv)
file an answer admitting the material allegations of, or consent to, or
default in answering, a petition filed against it in any bankruptcy
reorganization or insolvency proceeding, or (v) take corporate action for
the purpose of effecting any of the foregoing;
(h) an involuntary petition or complaint shall be filed against
Borrower seeking bankruptcy or reorganization of Borrower or the
appointment of a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or all or substantially all of its assets, and such petition or
complaint shall not have been dismissed within 60 days of the filing
thereof; or an order, order for relief, judgment or decree shall be entered
by any court of competent jurisdiction or other competent authority
approving a petition or complaint seeking reorganization of Borrower or
appointing a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or of all or substantially all of its assets;
(i) Borrower fails within 30 days to pay, bond or otherwise discharge
any
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final judgment or order for payment of money in excess of $250,000 or
Borrower fails within 30 days to pay, bond or otherwise discharge final
judgments or orders for payment of money which exceed in the aggregate
$250,000, or Borrower fails within 30 days to timely appeal or pay, bond or
otherwise discharge any judgments or orders for payment of money which
exceed, in the aggregate, $250,000 and which Borrower may appeal;
(j) any default or event of default occurs under any other
Indebtedness of Borrower to any Lender;
(k) any Person levies on, seizes or attaches all or any material
portion of the assets of Borrower and within 30 days thereafter Borrower
shall not have dissolved such levy or attachment, as the case may be, and,
if applicable, regained possession of such seized assets;
(l) an event or condition specified in Section 7.14 occurs or exists
and, as a result of such event or condition, together with all other such
events or conditions, Borrower or any Related Person incurs or is
reasonably likely to incur a liability to a Plan, a participant or the PBGC
(or any combination of the foregoing) that is material in relation to the
financial position of Borrower;
(m) any change in the senior management of Borrower shall occur or
any reason other than death or disability;
(n) Borrower shall cease to be an eligible seller or servicer under
the FNMA Guide or the FHLMC Guide, or FNMA or FHLMC shall impose any
sanctions upon or take any action to terminate or revoke any servicing of
Borrower, or FNMA or FHLMC shall take any action to initiate the transfer
of any servicing from Borrower to another Person (including, without
limitation, the giving of notice to Borrower that it intends to terminate
or transfer any servicing) or FNMA or FHLMC shall seek any judicial relief
with respect to Borrower;
(o) GNMA shall revoke or terminate any servicing of Borrower, or GNMA
shall issue a letter of extinguishment under any GNMA guaranty agreement or
GNMA shall notify Borrower that it intends to revoke or terminate any
servicing of Borrower or issue a letter of extinguishment, or GNMA shall
seek any judicial relief with respect to Borrower;
(p) the Parent shall cease to own beneficially, of record and either
directly or indirectly, 100% of the issued and outstanding shares of
capital stock of Borrower, or any "person" or "group" (within the meaning
of Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended) shall become the "beneficial owner" (as defined in Rule 13d-3
under such act) of more than 50% of the total aggregate voting power of all
classes of the voting stock of the Parent and/or warrants or options to
acquire such stock, calculated on a fully diluted basis; or
(q) any provision of this Agreement, the Notes or any other Loan
Document
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shall for any reason cease to be in full force and effect, or be declared
null and void or unenforceable in whole or in part; or the validity or
enforceability of any such document shall be challenged or denied.
8.2 Default Remedies. Upon the occurrence of an Event of Default, Agent, at
----------------
the request of the Required Lenders, provided such Event of Default has not been
previously cured by Borrower, may (i) declare each of the Commitments to be
terminated and/or declare the entire principal of and all interest accrued on
the Notes to be, and the Notes, together with all Obligations, shall thereupon
become, forthwith due and payable, without presentment, demand, protest, notice
of protest and nonpayment, notice of acceleration or of intent to accelerate or
other notice of any kind, all of which hereby are expressly waived and (ii)
exercise any other right or remedy available at law or pursuant to any Loan
Document. Notwithstanding the foregoing, if an Event of Default specified in
Section 8.1(f), (g), (h) or (p) above occurs, the Commitment of each Lender
shall automatically and immediately terminate and the Notes and all other
Obligations shall become automatically and immediately due and payable, both as
to principal and interest, without any action by Agent or any Lender and without
presentment, demand, protest, notice of protest and nonpayment, notice of
acceleration or of intent to accelerate, or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in any Note to
the contrary notwithstanding.
SECTION 9. AGENT.
-----
9.1 Authorization and Action. Each Lender hereby appoints U.S. Bank National
------------------------
Association, as Agent under this Agreement and the other Loan Documents and
authorizes Agent to take such action on its behalf and to exercise such powers
and perform such duties as are expressly delegated to Agent by the terms of this
Agreement and such other Loan Documents, together with such powers as are
reasonably incidental thereto. As to any matter not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes), Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lenders
and all holders of the Notes; provided, however, that Agent shall not be
required to take any action which exposes Agent to personal liability or which
is contrary to this Agreement or applicable law. Agent agrees to give to each
Lender prompt notice of each notice given to it by Borrower pursuant to the
terms of this Agreement.
9.2 Agent's Reliance, Etc. Notwithstanding anything to the contrary in this
---------------------
Agreement or any other Loan Document, neither Agent nor any of its directors,
officers, agents, employees, attorneys-in-fact or Affiliates shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement or the other Loan Documents, except for its or their own
gross negligence or willful misconduct. Without limitation of the generality of
the foregoing, Agent: (a) may treat the payee of any Note as the holder thereof;
(b) may consult with legal counsel (including counsel for Borrower), independent
public accountants and other experts selected by it or Borrower and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (c) makes no
warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations made in or in
connection with this Agreement;
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(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on the
part of Borrower or to inspect the property (including the books and records) of
Borrower, except receipt of delivery of the items required under the Security
Agreement and Sections 4.1, 4.2, and 6.1; (e) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; and (f) shall incur no liability under or in respect
of this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopy) believed by it to be genuine
and signed or sent by the proper party or parties.
9.3 Agent and Affiliates. With respect to its Commitment, the Advances made by
--------------------
it and the Notes issued to it, Agent shall have the same rights and powers under
this Agreement and the other Loan Documents as any other Lender and may exercise
the same as though it were not Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include Agent in its individual capacity.
Agent and the Affiliates of Agent may accept deposits from, lend money to, act
as trustee under indentures of, and generally engage in any kind of business
with, Borrower, any of its Affiliates and any Person who may do business with or
own securities of Borrower or any of its Affiliates, all as if Agent were not
Agent and without any duty to account therefor to Lenders.
9.4 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon Agent or any other Lender and based on
the financial statements referred to in Sections 5.7 and 6.1 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter this Agreement. Each Lender also acknowledges
that it will, independently and without reliance upon Agent or any other Lender
and based on such documents and information as it shall deem appropriate at the
time, to make its own credit decisions in taking or not taking action under this
Agreement.
9.5 Indemnification. Lenders agree to indemnify Agent (to the extent not
---------------
reimbursed by Borrower), ratably according to their respective Commitments, from
and against any and all liabilities, obligations, losses, damages, penalties,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against Agent in
any way relating to or arising out of this Agreement or any action taken or
omitted by Agent under this agreement (including any of same which may result
from the negligence, but not gross negligence, of Agent), provided that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, but subject to the proviso clause of the preceding
sentence, each Lender agrees to reimburse Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including counsel fees) incurred by
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that Agent is not
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reimbursed for such expenses by Borrower.
9.6 Successor Agent. Agent may resign at any time by giving written notice
---------------
thereof to Lenders and Borrower and may be removed at any time with or without
cause by the Required Lenders. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint a successor Agent with the
written consent of Borrower, which consent shall not be unreasonably withheld or
delayed, provided that the consent of the Borrower shall not be required if a
Default or an Event of Default shall have occurred and is continuing. If no
successor Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
of notice of resignation or the Required Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of Lenders, appoint a successor Agent,
which shall be a commercial bank or savings bank organized under the laws of the
United States of America or of any State thereof which has a combined capital
and surplus of at least $200,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from any
further duties and obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement. The appointment of a Successor Agent
shall not release the retiring Agent from any liability it may have for any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
9.7 Right of Inspection. Agent shall permit any officer, employee or agent of
-------------------
Borrower or any Lender, upon written request by such party to the Agent, to
visit and inspect the premises on which the custodial duties of Agent hereunder
are performed at a time which is mutually satisfactory to Agent and such
requesting party, and allow such requesting party to examine the books and
records of Agent which pertain to such custodial duties, take copies and
extracts therefrom, and discuss the performance of such custodial duties with
the officers, accountants and auditors of Agent that are responsible therefor,
all at such reasonable times and as often as Borrower or any Lender may desire.
9.8 Reports. On the fifth (5th) day of each calendar month (or if such day is
not a Business Day, the next succeeding Business Day), Agent shall deliver to
each Lender and Borrower (a) a report of the Pledged Mortgage Loans (noting any
document exceptions) for the month ended (a "Basic Status Report"); and (b) a
report of the Pledged Mortgage Loans shipped to Investors for which Agent has
not received the full purchase price in cash (a "Shipped Not Paid Report"). The
information on the Basic Status Report and the Shipped Not Paid Report shall be
dated as of the end of the immediately preceding month.
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SECTION 10. INDEMNIFICATION OF LENDERS
--------------------------
10.1 Indemnification.
---------------
(a) Borrower will indemnify and hold harmless Agent, each Lender,
and Agent's and each Lender's directors, officers, employees and each
Person, if any, who is deemed to control any Lender (any and all whom are
referred to as the "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several (including all
losses, claims, damages and liabilities resulting from the negligence, but
not the gross negligence of such Indemnified Party, and including all legal
fees or other expenses reasonably incurred by any Indemnified Party in
connection with the preparation for or defense of any pending or threatened
claim, action or proceeding, whether or not resulting in any liability), to
which such Indemnified Party may become subject (whether or not such
Indemnified Party is a party thereto) under any applicable Federal, state
or local law or otherwise caused by or arising out of, or allegedly caused
by or arising out of, this Agreement any L/C or L/C Agreement, any other
Loan Document or any transaction contemplated hereby, including, without
limitation, any liability or penalty arising out of any fact or
circumstance which causes the representations or warranties set forth in
SECTION 5 OF THE SECURITY AGREEMENT to be false or incorrect, excepting
only losses, claims, damages or liabilities arising from the gross
negligence or willful misconduct or fraud of such Indemnified Party.
(b) Promptly after receipt by an Indemnified Party of notice of
any claim or proceeding with respect to which an Indemnified Party is
entitled to indemnity hereunder, such Indemnified Party will notify
Borrower of such claim or the commencement of such action or proceeding,
provided that the failure of an Indemnified Party to give notice as
provided herein shall not relieve Borrower of its obligations under this
Section 10.1 with respect to such Indemnified Party, except to the extent
that Borrower is actually prejudiced by such failure. Borrower will assume
the defense of such claim, action or proceeding and will employ counsel
reasonably satisfactory to the Indemnified Party and will pay the
reasonable fees and expenses of such counsel. Notwithstanding the preceding
sentence, the Indemnified Party will be entitled, at the expense of
Borrower, to employ counsel separate from counsel for Borrower and for any
other party in such action if the Indemnified Party reasonably determines
that a conflict of interest or other reasonable basis exists which makes
representations by counsel chosen by Borrower not advisable, provided that
Borrower shall not be obligated to pay for the fees and expenses of more
than one counsel for all Indemnified Parties in respect of a particular
controversy. In the event an Indemnified Party appears as a witness in any
action or proceeding brought against Borrower or any of its Subsidiaries
(or any of its officers, directors or employees) in which an Indemnified
Party is not named as a defendant, Borrower agrees to reimburse such
Indemnified Party for all reasonable expenses
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incurred by it (including reasonable fees and expenses of counsel) in
connection with its appearing as a witness.
10.2 Limitation of Liability. Neither any Lender nor the directors, officers,
-----------------------
agents or employees of any Lender shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for such actions taken or omitted to be taken as constitute gross
negligence or willful misconduct on the party of such Lender or its directors,
officers, agents or employees.
SECTION 11. MISCELLANEOUS
-------------
11.1 Notices. Any notice or request required or permitted to be given under or
-------
in connection with this Agreement, the Notes or the other Loan Documents (except
as may otherwise be expressly required therein) shall be in writing and shall be
mailed by first class or express mail or overnight messenger, postage prepaid,
or sent by telex, telegram, telecopy or other similar form of rapid
transmission, confirmed by mailing (by first class or express mail, postage
prepaid) written confirmation at substantially the same time as such rapid
transmission, or personally delivered to an officer of the receiving party. All
such communications shall be mailed, sent or delivered to the parties hereto at
their respective addresses as follows:
Borrower: NVR Mortgage Finance, Inc.
7601 Lewinsville Road, Suite 302
McLean, VA 22102
Attention: William J. Inman
Telecopy: (703) 761-2030
Agent: U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Kathleen M. Connor
Telecopy: (612) 973-0826
Lenders: The address listed for each Lender
on Schedule 1.1(a)
or at such other addresses or to such individual's or department's attention as
any party may have furnished the other parties in writing. Any communications
so addressed and mailed shall be deemed to be given when so mailed, sent or
delivered, except that communications given pursuant to Sections 2.5 and 6.13,
Borrowing Requests, Conversion Requests and Agreements to Pledge and
communications related thereto shall not be effective until actually received by
Agent, a Lender or Borrower, as the case may be, any communication mailed by
first class shall be deemed to have been given on the third day following the
day it is mailed, any communication sent by rapid transmission shall be deemed
to be given when receipt of such
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transmission is confirmed, and any communication delivered in person shall be
deemed to be given when receipted for by, or actually received by, an officer of
Borrower, Agent or a Lender, as the case may be.
11.2 Amendments, Etc.
---------------
(a) In General. Neither this Agreement, any Note or any other Loan
----------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 11.2.
With the written consent of the Required Lenders, Agent and Borrower may,
from time to time, enter into written amendments, supplements or
modifications hereto for the purpose of adding any provisions to this
Agreement, the Notes, or the other Loan Documents to which Borrower is a
party or changing in any manner the rights of Lenders or of Borrower
hereunder or thereunder or waiving, on such terms and conditions as Agent
may specify in such instrument, any of the requirements of this Agreement
or the Notes or the other Loan Documents to which Borrower is a party or
any Default or Event of Default and its consequences; provided, however,
that no such waiver and no such amendment, supplement or modification shall
(i)(A) waive any condition set forth in Section 4, (B) extend the maturity
of any Note or any installment thereof, or reduce the rate or extend the
time of payment of interest thereon, or reduce the principal amount
thereof, (C) reduce any fee payable to any Lender under this Agreement, (D)
change any Lender's Commitment Amount, (E) amend, modify or waive any
provision of this Section 11.2, (F) consent to the assignment or transfer
by Borrower of any of its rights and obligations under this Agreement, (G)
waive any Event of Default specified in Section 8.1 (f), (g), (h) or (p),
(H) amend, supplement or modify the definition of Borrowing, Borrowing
Base, Collateral Value, Eligible Gestation Mortgage Loan, Eligible Mortgage
Loan, Wet Mortgage Loan, Jumbo Loan, Super Jumbo Loan or Required Lenders
or of any component of any thereof, or any provision of Section 2.1 or
Section 6.12, (I) change the several nature of Lenders' obligations under
this Agreement, (J) release any Collateral except as expressly permitted by
the Loan Documents, or (K) change any release provision in any Loan
Document, in each of the foregoing cases without the written consent of all
Lenders, (ii) amend, modify or waive any provision pertaining to Swing
Advances without the written consent of Agent, or (iii) amend, modify or
waive any provision of Section 4 without the written consent of all Persons
then serving or having served as Agent; and provided, further, Borrower and
Agent may, without the approval of the Required Lenders, add Additional
Lenders pursuant to Section 11.11(c); provided, that such addition does not
result in the Total Commitment exceeding $250,000,000. Any such waiver and
any such amendment, supplement or modification shall apply equally to each
of Lenders and shall be binding upon Borrower, Lenders, Agent and all
future holders of the Notes. In the case of the waiver of any Default or
Event of Default, Borrower, Lenders and Agent shall be restored to their
former position and rights hereunder and under the outstanding Notes, and
any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other
Default or Event of Default, or impair any right consequent thereon.
(b) Regarding Investors. Notwithstanding anything in Section 11.2(a)
-------------------
to the
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contrary:
(i) The Required Lenders may, at any time and from time to time,
without the consent of Borrower but effective upon thirty (30) days'
prior written notice by Agent to Borrower, amend Schedule 1.1(b) to
delete any Person which, in the sole discretion of the Required
Lenders, is no longer acceptable as an Investor; provided, that (A)
any Investor with respect to which any proceeding of the types
described in Sections 8.1(g) and (h) has been commenced shall,
immediately upon notice to Borrower from Agent or any Lender (with a
copy to Agent) be automatically deleted from Schedule 1.1(b) without
the necessity for any other action (including prior written notice of
any duration to Borrower) by Agent or any lender and (B) upon any
Investor being deleted from Schedule 1.1(b), Borrower shall not enter
into any new Take-Out Commitments or Repurchase Agreements with such
Investor; and
(ii) At any time and from time to time at the request of Borrower
and with the consent of Agent , Schedule 1.1(b) may be supplemented to
include any Person not then an Investor which, in the sole discretion
of Agent, is acceptable as an Investor.
(c) Commitment Amount. Notwithstanding anything in Section 11.2(a)
-----------------
to the contrary, Borrower, Agent and any Lender (the "Increasing Lender") may,
at any time and from time to time, without the consent of any other Lender or
Lenders but by written agreement with notice to each Lender, increase the
Commitment Amount of such Increasing Lender for up to one hundred and twenty
days; provided, that after giving effect to such increase, the Total Commitment
at such time does not exceed the Total Commitment on the Agreement Date by more
than $25,000,000.
11.3 Invalidity. In the event that any one or more of the provisions contained
----------
in any Note, this Agreement or any other Loan Document shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of such
document.
11.4 Survival of Agreements. All covenants and agreements herein and in any
----------------------
other Loan Document not fully performed before the date hereof or the date
thereof, and all representations and warranties herein or therein, shall survive
until payment in full of the Obligations and termination of all of the
Commitments.
11.5 Renewal, Extension or Rearrangement. All provisions of this Agreement and
-----------------------------------
of the other Loan Documents shall apply with equal force and effect to each and
all promissory notes hereafter executed which in whole or in part represent a
renewal, extension for any period, increase or rearrangement of any part of the
Obligations originally represented by the Notes or any part of such other
Obligations.
11.6 Waivers. No course of dealing on the part of Agent or any Lender, or any
-------
of their officers, employees, consultants or agents, nor any failure or delay by
Agent or any Lender with
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respect to exercising any right, power or privilege of Agent or any Lender under
the Notes, this Agreement or any other Loan Document shall operate as a waiver
thereof, except as otherwise provided in Section 11.2.
11.7 Cumulative Rights. The rights and remedies of Lenders and Agent under the
-----------------
Notes, this Agreement, and any other Loan Document shall be cumulative, and the
exercise or partial exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.
11.8 Construction. THIS AGREEMENT, EACH NOTE AND EACH OTHER LOAN DOCUMENT IS A
------------
CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF MINNESOTA, AS SUCH
LAWS ARE NOW IN EFFECT, EXCEPT AS OTHERWISE SPECIFIED HEREIN OR THEREIN, AND,
WITH RESPECT TO USURY LAWS, IF ANY, APPLICABLE TO LENDERS AND TO THE EXTENT
ALLOWED THEREBY, AS SUCH LAWS MAY HEREAFTER BE IN EFFECT WHICH ALLOW A HIGHER
MAXIMUM NONUSURIOUS INTEREST RATE THAN SUCH LAWS NOW ALLOW. CHAPTER 346 OF THE
TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR ANY NOTE.
11.9 Interest. Any provisions herein, in any Note, or in any other Loan
--------
Document, or any other document executed or delivered in connection herewith, or
in any other agreement or commitment, whether written or oral, expressed or
implied, to the contrary notwithstanding, no Lender shall in any event be
entitled to receive or collect, nor shall or may amounts received hereunder be
credited, so that such Lender shall be paid, as interest, a sum greater than the
maximum amount permitted by applicable law to be charged to the Person primarily
obligated to pay such Note at the time in question. If any construction of this
Agreement, any Note or any other Loan Document, or any and all other papers,
agreements or commitments indicate a different right given to any Lender to ask
for, demand or receive any larger sum as interest, such is a mistake in
calculation or wording which this clause shall override and control, it being
the intention of the parties that this Agreement, each Note, and all other Loan
Documents or other documents executed or delivered in connection herewith shall
in all things comply with applicable law and proper adjustments shall
automatically be made accordingly. In the event that any Lender shall ever
receive, collect or apply as interest, any sum in excess of the maximum
nonusurious rate permitted by applicable law (the "Maximum Rate"), if any, such
excess amount shall be applied to the reduction of the unpaid principal balance
of the Note or Notes held by such Lender, and if the same be paid in full, any
remaining excess shall be paid to Borrower. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the Maximum
Rate, if any, Borrower and each Lender shall, to the maximum extent permitted
under the applicable law: (a) characterize any nonprincipal payment as an
expense or fee rather than as interest, (b) exclude voluntary prepayments and
the effects thereof, and (c) "spread" the total amount of interest throughout
the entire term of such Lender's Note or Notes; provided that if a Note is paid
and performed in full prior to the end of the full contemplated term hereof, and
if the interest received for the actual period of existence thereof exceeds the
Maximum Rate, if any, the Lender holding such Note shall refund to Borrower the
amount of such excess.
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If Texas Laws are applicable for purposes of determining the "Maximum Rate" or
the "Maximum Amount," then those terms mean the "weekly ceiling" from time to
time in effect under Article 5069-1D.001, et seq., Title 79, Texas Revised Civil
Statutes, as amended. Chapter 346 of the Texas Finance Code, as amended (which
regulates certain revolving credit loan accounts and revolving triparty
accounts), does not apply to the Obligation.
11.10 Right of Offset. Borrower hereby grants to Agent, to each Lender and to
---------------
any assignee or participation of any Lender a right of offset, to secure the
repayment of Obligations, upon any and all monies, securities or other property
of Borrower, and the proceeds therefrom now or hereafter held or received by or
in transit to such Person, from or for the account of Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and also
upon any and all deposits (general or special, time or demand, provisional or
final) and credits of Borrower, and any and all claims of Borrower against such
Person at any time existing. Upon the occurrence of any Event of Default, such
Person is hereby authorized at any time and from time to time, without notice to
Borrower, to offset, appropriate, and apply any and all items hereinabove
referred to against the Obligations. Notwithstanding anything in this Section
11.10 or elsewhere in this Agreement to the contrary, Agent, Lenders and any
assignee or participant of any Lender shall not have any right to offset,
appropriate or apply any accounts of Borrower which consist of escrowed funds
(except and to the extent of any beneficial interest of Borrower in such
escrowed funds) on deposit in accounts which accounts have been identified on
the books and records of the Person with whom such accounts are maintained as
containing escrowed funds.
11.11 Assignments, Additional Lenders, etc.
------------------------------------
(a) Assignments and Participations. All covenants and agreements by
------------------------------
or on behalf of Borrower in the Notes, this Agreement, or any other Loan
Document shall bind Borrower's successors and assigns and shall inure to
the benefit of Agent and Lenders and their successors and assigns.
Borrower shall not, however, have the right to assign its rights or
obligations under this Agreement or any interest herein, without the prior
written consent of Agent and each Lender. Each Lender may assign to one or
more Persons all or any part of, and may grant Participations to one or
more Persons in all or any part of, its rights and obligations under this
Agreement (including without limitation, its Commitment, the Advances owing
to it and the Note or Notes held by it); provided, however, in respect of
each such Participation, that (i) such Lender's obligations under this
Agreement (including without limitation, its Commitment to Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) whether or not such Lender shall remain the holder of
any such Note, such Lender shall retain all voting rights with respect to
such Note, the Advances thereunder and the Commitment relevant thereto and
Borrower, Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and in connection with any rights or
obligation of the holder of any such Note. In the case of an assignment by
any Lender, Borrower retains the right to approve the assignment, which
approval may not be unreasonably withheld.
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(b) Confidentiality. Any Lender may, in connection with any
---------------
assignment or participation or proposed assignment or participation
pursuant to this Section 11.11, disclose to the actual or proposed assignee
or participant any information relating to Borrower furnished to such
Lender by or on behalf of Borrower; provided, that prior to any such
disclosure, the actual or proposed assignee or participant shall agree to
preserve the confidentiality of any information relating to Borrower that
has been identified in writing by Borrower to be confidential.
(c) Additional Lenders. From time to time additional lenders may be
------------------
added hereto upon (i) the request of Borrower and the consent of Agent and
(ii) execution by Borrower, Agent and such additional lenders of a Lender
Addition Agreement. Each Lender hereby agrees to execute each Lender
Addition Agreement for purposes of acknowledging the terms and provisions
thereof.
11.12 Lender Covenants, Representations and Warranties. Each Lender severally
------------------------------------------------
covenants to return its Note or Notes to Borrower upon receipt of its
replacement Notes. Each Lender severally represents and warrants that it:
(a) is either a banking association duly organized and validly
existing under the laws of the United States of America or a State therein,
or is a Federal savings bank duly organized and validly existing under the
laws of the United States of America;
(b) has the power and authority to own its properties and assets and
to transact the business in which it is engaged;
(c) has the power and requisite authority to execute, deliver and
perform this Agreement and the other Loan Documents to which it is a party,
and is duly authorized to, and has taken all action necessary to authorize
it to, execute, deliver and perform this Agreement and the other Loan
Documents to which it is a party and will continue to be authorized to so
perform; and
(d) will continuously maintain all components of this Agreement and
the other Loan Documents as an official record of such Lender.
11.13 Consent to Jurisdiction. Borrower hereby agrees that any action or
-----------------------
proceeding under this agreement or any other Loan Document may be commenced
against it in any court of competent jurisdiction SITTING IN HENNEPIN COUNTY OR
RAMSEY COUNTY, Minnesota, by service of process upon Borrower by first-class
registered or certified mail, return receipt requested, addressed to Borrower at
its address last known to Agent. Borrower agrees that any such suit, action, or
proceeding arising out of or relating to this agreement or any other Loan
Document may be instituted in the courts of the State of Minnesota, or in the
United States District Court for the District of Minnesota, sitting, in either
case, in Hennepin County or Ramsey County, Minnesota, at the option of any
Lender; and Borrower hereby waives any objection to the venue of any such
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suit, action, or proceeding. Nothing herein shall affect the right of each
Lender to accomplish service of process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against Borrower in any other
jurisdiction or court.
11.14 Exhibits. The exhibits attached to this Agreement are incorporated
--------
herein and shall be considered a part of this Agreement for the purposes stated
herein, except that in the event of any conflict between any of the provisions
of such exhibits and the provisions of this Agreement, the provisions of this
Agreement shall prevail.
11.15 Titles of Articles and Sections. All titles or headings to articles,
-------------------------------
sections, or other divisions of this Agreement or the exhibits hereto are only
for the convenience of the parties and shall not be construed to have any effect
or meaning with respect to the other content of such articles, sections,
subsections or other divisions, such other content being controlling as to the
agreement between the parties hereto.
11.16 Counterparts. This Agreement may be executed in two or more counterparts,
------------
and it shall not be necessary that the signatures of each of the parties hereto
be contained on any one counterpart hereof; each counterpart shall be deemed an
original, but all counterparts together shall constitute one and the same
instrument.
11.17 Rights of Individual Lenders to Take Action. Notwithstanding any
-------------------------------------------
provision in the Loan Documents to the contrary, no Lender shall have any right
by virtue of (or by availing itself of) any provision of this Agreement or any
other Loan Document to institute any action or proceedings at law or in equity
or otherwise (excluding any actions in bankruptcy and the exercise of any rights
of offset) upon or under or with respect to this Agreement or any other Loan
Document or for the appointment of a receiver or for any other remedy unless
after an Event of Default has occurred and before Agent has declared in writing
that it has been cured or waived, (a) the Required Lenders have (i) made a
written request that Agent institute such action or proceeding in its own name
as agent under this Agreement and (ii) offered to Agent such reasonable
indemnity as it may require against any costs, expenses and liabilities to be
incurred therein or thereby, and (b) Agent, for 30 days after its receipt of
such request and offer of indemnity, shall have failed to institute any such
action or proceedings and no direction inconsistent with such request shall have
been given to Agent by the Required Lenders. Lenders intend and mutually
covenant that no one or more of Lenders or other holders of the Notes shall have
any right in any manner whatever to affect, disturb or prejudice the rights of
any other Lender or to obtain or seek to obtain priority over or preference to
any other Lender, or to enforce any right under this Agreement or any other Loan
Document, except in the manner provided in this Agreement and for the ratable
benefit of all Lenders. For the protection and enforcement of this Section
11.17, Agent and each Lender shall be entitled to such relief as can be given
either at law or in equity.
11.18 Entire Agreement. The Notes, this Agreement, and the other Loan
----------------
Documents executed and delivered as of even date herewith represent the final
agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. There are no
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<PAGE>
unwritten oral agreements among the parties.
11.19 Agreement Regarding Effective Date. Notwithstanding the date of this
----------------------------------
Agreement or any other Loan Document, this Agreement and the other Loan
Documents dated as of the date hereof are being executed and delivered on the
Agreement Date and each of the terms and provisions of this Agreement and of
each of the other Loan Documents shall become effective on the Agreement Date
and not prior thereto.
[REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed as of the Agreement Date below.
Agreement Date: September 7, 1999
NVR MORTGAGE FINANCE, INC., as U.S. BANK, NATIONAL
Borrower ASSOCIATION, as Agent and Lender
By __________________________ By _________________________
Its________________________ Its_______________________
THE BANK OF NEW YORK, as Lender BANK BOSTON, N.A., as Lender
By __________________________ By __________________________
Its________________________ Its________________________
CHASE BANK OF TEXAS, NATIONAL GUARANTY FEDERAL BANK, F.S.B.,
- ----- --------
ASSOCIATION, as Lender as Lender
By __________________________ By __________________________
Its________________________ Its________________________
<PAGE>
EXHIBIT 10.31
NVR, INC.
HIGH PERFORMANCE COMPENSATION PLAN - Number 2
(EFFECTIVE JANUARY 1, 1999)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
I. GENERAL................................................................... 3
1.1. Purpose...................................................... 3
1.2. Effective Date............................................... 3
II. DEFINITIONS............................................................... 3
III. ELIGIBILITY AND PARTICIPATION............................................. 5
3.1. Eligibility.................................................. 5
3.2. Participation in Performance Awards.......................... 5
IV. PLAN DESIGN............................................................... 5
4.1. Eligibility Period........................................... 5
4.2. Performance Period........................................... 5
4.3. Performance Awards........................................... 5
4.4. Performance Goals............................................ 5
4.5. Committee Discretion to Adjust Awards........................ 6
V. Payment................................................................... 6
5.1. Committee Determination of Performance Compensation Payable.. 6
5.2. Timing and Form of Payment................................... 6
5.3. Distribution Upon a Change of Control........................ 7
5.4. Distribution upon Termination of Employment.................. 7
5.5. Payment of Deferred Benefits................................. 8
5.6. Hardship Distributions....................................... 8
5.7. Form of Payment.............................................. 8
5.8. Commencement of Payments..................................... 9
5.9. Beneficiary Designation...................................... 9
VI. ADMINISTRATION............................................................ 9
6.1. Committee.................................................... 9
6.2. General Rights, Powers, and Duties of Committee.............. 9
6.3. Information to be Furnished to Committee..................... 10
6.4. Responsibility and Indemnification........................... 10
VII. modification, AMENDMENT AND TERMINATION................................... 10
7.1. Modification................................................. 10
7.2. Amendment.................................................... 10
7.3. Company's Right to Terminate................................. 10
VIII. MISCELLANEOUS............................................................. 10
8.1. No Implied Rights; Rights on Termination of Service.......... 10
8.2. No Right to Company Assets................................... 11
8.3. No Employment Rights......................................... 11
8.4. Offset....................................................... 11
8.5. Non-assignability............................................ 11
8.6. Notice....................................................... 11
8.7. Governing Laws............................................... 11
8.8. Gender and Number............................................ 11
8.9. Severability................................................. 11
9.0. Participation Agreement...................................... 11
</TABLE>
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I. GENERAL
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1.1. Purpose. The purposes of the Plan are to retain officers and other
key employees, to support the achievement of the Company's strategic business
objectives, and to provide officers and other key employees competitive long-
term incentive opportunities that are linked to the profitability of the
Company's business, growth in earnings per share and the creation of long term
shareholder value.
1.2. Effective Date. The Plan shall become effective as of January 1,
1999.
II. DEFINITIONS
- ----------------
2.1. "Beneficiary" means the person or persons so designated by a
Participant pursuant to Section 5.9.
2.2. "Board of Directors" means the Board of Directors of the Company.
2.3 "Cause" means (i) conviction of a felony or other crime involving
moral turpitude; (ii) gross misconduct in connection with the performance of
such Participant's duties including a breach of such Participant's fiduciary
duty of loyalty; (iii) a willful violation of any criminal law involving a
felony, including federal or state securities laws; or (iv) a material breach
(following notice and an opportunity to cure) of any covenant by the Participant
contained in any written agreement between the Participant and the Company or
any of its affiliates.
2.4. "Change in Control" means the dissolution or liquidation of the
Company, or a merger, consolidation, reorganization or other business
combination of the Company with one or more other entities in which the Company
is not the surviving entity, or a sale of substantially all of the assets of the
Company to another entity, or any transaction (including, without limitation, a
merger or reorganization in which the Company is the surviving entity) which
results in any person or entity (or persons or entities acting as a group or
otherwise in concert) owning 20 percent or more of the common stock of the
Company, or any person commencing a tender or exchange offer or entering into an
agreement or receiving an option to acquire beneficial ownership of 20 percent
or more of the total number of voting shares of the Company (unless the Board
has made a determination that such action does not constitute and will not
constitute a change in the persons in control of the Company).
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
2.6. "Committee" means the committee referred to in Section 6.1.
2.7. "Common Stock" means common stock, par value $.01 per share, of the
Company.
2.8. "Company" means NVR, Inc., a Virginia corporation.
2.9. "Deferred Compensation Account" means the account maintained for a
Participant by the Company, in accordance with Section 5.2(b)(i), with respect
to the Compensation for which the Participant has made a deferral election.
2.10. "Disability" shall have the same meaning as under the Company-
sponsored long-term disability plan under which the applicable Participant is
then eligible to participate.
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2.11. "Eligibility Period" means a period, as determined by the Committee
pursuant to Section 4.1.
2.12. "Fair Market Value" means as of any given date the closing price on
such date of Common Stock on the American Stock Exchange Composite Tape or, if
not listed on such exchange, on any other national securities exchange on which
such Common Stock is listed or on NASDAQ. If there is no regular public trading
market for such Common Stock, the Fair Market Value of such Common Stock shall
be determined by the Committee in good faith.
2.13. "Hardship" means the immediate and heavy financial need of a
Participant or his Beneficiary as determined by the Committee in accordance with
uniform standards established by the Committee.
2.14. "Normal Retirement" means termination of employment after attainment
of age 65. However, the Committee, within its discretion, may determine that a
Participant who terminates employment prior to age 65 has terminated by virtue
of Normal Retirement.
2.15. "Participant" means a person who is designated, pursuant to Article
III, to be eligible to receive benefits under the Plan.
2.16. "Performance Award" means a determination by the Committee of the
maximum Performance Compensation that may be awarded to a Participant for an
Eligibility Period and the basis for such award.
2.17 "Performance Goals" means the performance standards established by
the Committee pursuant to Section 4.4.
2.18. "Performance Period" means a period of service, as determined
pursuant to Section 4.2, over which the achievement of established Performance
Goals will be measured.
2.19. "Plan" means this NVR, Inc. High Performance Compensation Plan -
Number 2, as amended from time to time.
2.20. "Pro-rated" or "Pro-rata" means, for purposes of determining the
amount of Performance Compensation payable to a Participant pursuant to Sections
4.4(c) or 7.3 the percentage to be applied to the Performance Compensation that
would have been payable at the end of the Performance Period based on the number
of months (rounded to the nearest whole month) of the Performance Period during
which the Participant participated in the Plan prior to the event described in
Sections 4.4(c) or 7.3, divided by the number of months (rounded to the nearest
whole month) in such Performance Period. "Pro-rated" or "Pro-rata" means, for
purposes of determining the amount of Performance Compensation payable to a
Participant whose eligibility to participate in the Plan with respect to an
Eligibility Period ceases prior to the end of the related Performance Period for
any of the reasons described in subsection (a), (b), (c) or (d) of Section 5.4,
the percentage to be applied to the Performance Compensation that would have
been payable at the end of the Performance Period to such Participant if he had
participated for the entire Performance Period based on the number of months
(rounded to the nearest whole month) of the Performance Period during which the
Participant was designated by the Committee as eligible to participate in the
Plan divided by the number of months (rounded to the nearest whole month) in
such Performance Period. A Participant who, pursuant to Section 3.2 but subject
to the limitations of Section 4.3, is designated as eligible to participate in
the Plan after the applicable Performance Period has commenced, shall, for
purposes of this Section 2.20, be deemed to have been eligible as of the
beginning of such Performance Period; provided, however, that the Committee
shall, in accordance with its authority under Section 4.5, have the discretion
to reduce the Performance Compensation award that is
4
<PAGE>
otherwise payable to such Participant to account for such late commencement of
participation.
III. ELIGIBILITY AND PARTICIPATION
- -----------------------------------
3.1. Eligibility. Participation in the Plan shall be limited to officers
and other key employees of the Company or any of its subsidiaries or other
affiliates who are designated to be eligible by the Committee. The number of
Participants and each Participant's share of any Performance Award may be
changed at any time by the Committee.
3.2. Participation in Performance Awards. The Committee will determine the
persons who will participate for each Eligibility Period under the Plan. Subject
to Section 4.3, after an Eligibility Period has commenced, persons may be
designated as eligible to participate in the Plan with respect to such
Eligibility Period. A Performance Award with respect to a Performance Period
contained in any Eligibility Period does not guarantee participation in
subsequent Eligibility Periods.
IV. PLAN DESIGN
- -----------------
4.1. Eligibility Period. An Eligibility Period is a certain period of
time, as determined by the Committee, over which eligibility to receive benefits
under the Plan shall be measured. Eligibility Periods under the Plan shall
commence and terminate as determined by the Committee in its sole discretion.
The Committee may establish a separate Eligibility Period for persons determined
to be eligible for participation after the commencement of any Eligibility
Period.
4.2. Performance Period. Each Eligibility Period under the Plan shall
include a Performance Period which shall be a specified period of service over
which the achievement of applicable Performance Goals will be measured.
Performance Periods shall commence and terminate as determined by the Committee;
provided that each such Performance Period shall commence coincident with the
commencement of the corresponding Eligibility Period and shall terminate
coincident with or prior to the termination of the corresponding Eligibility
Period. The Committee may also establish a separate Performance Period for
persons determined to be eligible for participation after the commencement of
any Performance Period with equivalent goals.
4.3. Performance Awards. On or about the commencement of each Eligibility
Period under the Plan, the Committee shall establish the maximum Performance
Compensation that may be awarded to Participants in the Plan for such
Eligibility Period and the basis for such awards. The Committee may also award
Performance Compensation to persons determined to be eligible for participation
after the commencement of any Eligibility Period.
4.4. Performance Goals.
(a) The Performance Goals with respect to each Performance Period shall
be established by the Committee. The Committee may in its discretion adjust the
terms of such Performance Goals.
(b) The Performance Goals set by the Committee shall be based on growth
in earnings per share. The Committee shall specify the manner in which such
Performance Goals shall be calculated.
(c) In the event of a Change of Control, the Committee shall terminate
the Performance Period making appropriate adjustments to the Performance Goals
so that they are substantially equivalent to the Performance Goals prior to the
Change of Control, taking into account the shortened Performance Period. The
Participants will be eligible for a Pro-rated portion of the Performance
Compensation that would have otherwise been payable to them after the end of the
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<PAGE>
applicable Performance Period if the Change of Control had not occurred.
4.5. Committee Discretion to Adjust Awards. At any time prior to the time
the Committee determines, pursuant to Section 5.1, the amount to be paid to any
Participant in satisfaction of a Performance Compensation award hereunder, the
Committee shall have the authority to modify, amend, or adjust the terms and
conditions of such Performance Compensation award, the terms and conditions of
the corresponding Performance Goals, and/or the amount of Performance
Compensation payable, provided, however, such authority to modify, amend or
adjust the terms and conditions of such Performance Compensation award shall be
exercised to reduce an award only in unusual circumstances not anticipated in
the original design of the Plan. Notwithstanding the forgoing, Participants
designated to be eligible to participate in a Performance Period subsequent to
the initial Performance Period commencement date shall have their award reduced
to reflect their participation for less than the full Performance Period.
V. Payment
- ------------
5.1. Committee Determination of Performance Compensation Payable. After a
Performance Period has ended, each Participant who has been awarded Performance
Compensation and satisfied the Performance Goals with respect to such
Performance Period shall be entitled to receive a specified amount of
Performance Compensation as determined by the Committee. The Committee shall
determine the extent to which the Performance Goals set pursuant to Section 4.4
have been met, (as Pro-rated in accordance with Sections 2.20, 4.4(c), 5.3, 5.4
and/or 7.3, if applicable).
5.2. Timing and Form of Payment.
(a) Payments to Participants pursuant to Section 5.1 shall be payable at
dates and in a form as determined solely by the Committee.
(b) Prior to any specified payment date of any portion of a Performance
Award, Participants may elect to defer, subject to a minimum deferral of
$25,000, Performance Compensation for a specified period of years (minimum two
(2) years) and/or until termination of employment, if sooner. A deferral
election made pursuant to this Section 5.2(b) shall be irrevocable, except that
the Committee in its discretion may at any time reduce, or waive the remainder
of, the amount to be deferred under the deferral election upon determining that
the Participant has suffered a Hardship and the Participant may request an
additional deferral period pursuant to Section 5.2(c).
(i) The Company shall maintain, for recordkeeping purposes only, a
Deferred Compensation Account for each Participant who files a deferral
election. The Performance Compensation deferred pursuant to a deferral election
shall be credited to the Participant's Deferred Compensation Account as it
otherwise would become payable to the Participant.
(ii) Each Participant's Deferred Compensation Account shall, at the
option of the Participant, (1) be adjusted quarterly as if an amount of cash
equal to the amount that would have been payable to the Participant, but for the
Participant's deferral election, had been invested in Company common stock on
the distribution dates determined pursuant to Section 5.2(a), or (2) be credited
with interest quarterly based upon the balance of the Participant's Deferred
Compensation Account (the rate of interest will equal the same rate as that of
the ninety (90) day Treasury Bill as of the close of the quarter). Once a
method for determining the investment experience of the Deferred Compensation
Account is selected by the Participant, that method selected for calculating
investment experience can not be changed.
6
<PAGE>
(c) On or before December 15 of the year immediately prior to the year in
which the Participant's Deferred Compensation Account would be distributable in
accordance with the provisions of the Participant's deferral election, the
Participant may submit a new deferral election request to extend for a minimum
of two (2) full years the date on which the Participant's Deferred Compensation
Account in the Plan would be distributed. The Company may, in its sole
discretion, approve or deny the requested extension. Only one request for an
extension of the commencement of distributions may be granted by the Company for
a Participant.
(d) The Company shall have the right to deduct from cash distributions
hereunder any federal, state, or local taxes required by law to be withheld with
respect to such distributions.
5.3. Distribution Upon a Change of Control
(a) Upon a Change of Control, Performance Compensation determined to be
earned pursuant to Section 5.1 will be paid to the Participant in a lump sum
payable on demand by the Participant after the Change of Control Event occurs.
(b) Notwithstanding the forgoing (including Section 4.4(c)), a majority
vote by the Plan's Participants may cause the continuation of the Plan in its
then existing format. The vote will be monitored by the Committee, and must
occur within two business days subsequent to the Change of Control event. Each
Participant is granted one (1) vote, which is weighted by the ratio of his
respective Performance Compensation granted pursuant to Section 5.1 to the
aggregate Performance Compensation granted pursuant to Section 5.1. Uncast votes
are excluded from formulating the election results.
5.4. Distribution upon Termination of Employment.
(a) Death. If a Participant in the Plan dies before the end of a
Performance Period for which Performance Compensation has been granted to him,
such Participant's Beneficiary will be eligible for a Pro-rated portion of the
Performance Compensation that would have otherwise been payable to the
Participant after the end of the applicable Performance Period. This
distribution, if any is payable, will be made to the Beneficiary in the same
form and at the same time that all other Participants under the Plan receive
their distributions with respect to that Performance Period.
(b) Disability. If a Participant in the Plan, upon becoming Disabled,
terminates employment with the Company before the end of a Performance Period
for which Performance Compensation has been granted to him, the Participant will
be eligible for a Pro-rated portion of the Performance Compensation that would
have otherwise been payable to him after the end of the applicable Performance
Period. This distribution, if any is payable, will be made to the Participant in
the same form and at the same time that all other Participants under the Plan
receive their distributions with respect to that Performance Period.
(c) Normal Retirement. If a Participant in the Plan terminates employment
upon attaining Normal Retirement before the end of a Performance Period for
which Performance Compensation has been granted to him, the Participant will be
eligible for a Pro-rated portion of the Performance Compensation that would have
otherwise been payable to him after the end of the applicable Performance
Period. This distribution, if any is payable, will be made to the Participant in
the same form and at the same time that all other Participants under the Plan
receive their distributions with respect to that Performance Period.
(d) Termination of Employment Without Cause Before the End of the
Performance Period. If, (i) the Company terminates a Participant's employment
other than for Cause or (ii) the
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Participant terminates the Participant's employment at the request of the
Company, before the end of a Performance Period for which Performance
Compensation has been granted to him, the Participant will be eligible for a
Pro-rated portion of the Performance Compensation that would have otherwise been
payable to him after the end of the applicable Performance Period. This
distribution, if any is payable, will be made to the Participant in the same
form and at the same time that all other Participants under the Plan receive
their distributions with respect to that Performance Period.
(e) Termination of Employment Without Cause After End of the Performance
Period but Before the End of the Eligibility Period. If, after the end of the
Performance Period but before the end of the Eligibility Period (i) the Company
terminates a Participant's employment other than for Cause (ii) the Participant
terminates the Participant's employment at the request of the Company, or (iii)
the Participant terminates a Participant's employment by reason of Death,
Disability or Normal Retirement, the Participant or his or her beneficiary will
be distributed the Performance Compensation that has been determined pursuant to
Section 5.1. This distribution is payable in the same form and at the same time
that all other Participants under the Plan receive their distributions with
respect to the Performance Period.
(f) Other Termination of Employment. If, before the end of the Eligibility
Period, including any and all Performance Periods, a Participant in the Plan
incurs a voluntary termination of employment for any reason other than those
specified in subsections (a)-(e) of this Section 5.4, or the Participant is
terminated for Cause, he shall forfeit all rights to receive any further
distributions of Performance Compensation under the Plan.
5.5 Payment of Deferred Benefits. A Participant shall be entitled to
receive an amount equal to the balance of his Deferred Compensation Account,
payable as provided in Section 5.7 at the end of the deferral period elected
pursuant to Section 5.2(b), 5.2(c) or on termination of employment, if earlier.
5.6 Hardship Distributions. The Committee may, in its sole discretion,
make distributions to a Participant or his Beneficiary from his Deferred
Compensation Account prior to the date that amounts would otherwise become
payable if the Committee determines that the Participant or his Beneficiary has
suffered a Hardship. The amount of any such distribution shall be limited to the
amount reasonably necessary to meet the Participant's or his Beneficiary's needs
created by the Hardship. In the event that the Participant or his Beneficiary is
incapacitated, the Participant's or Beneficiary's guardian or legal
representative is authorized by the Plan to request Hardship relief on behalf of
the Participant or his Beneficiary.
5.7. Form of Payment.
(a) Except as provided in paragraph (c), the amount which a
Participant or Beneficiary becomes entitled to receive pursuant to Section 5.5
shall be paid either (i) as a lump sum or (ii) in annual installments payable
over a period of time not to exceed 5 years, with each installment computed by
dividing the Participant's Deferred Compensation Account by the number of years
remaining in the distribution period.
(b) The Participant shall elect, at the time and in the manner
prescribed by the Committee, the form specified in paragraph (a) in which
payment shall be made. If the Participant fails to elect the form of payment,
payment shall be made in accordance with paragraph (a)(ii) over a period of 5
years, provided that in the case of such a participant's death, the
Participant's Beneficiary shall receive a single lump sum payment of the amount
credited to the Participant's Deferred Compensation Account.
8
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(c) Notwithstanding any other provision of this Plan or the
Participant's deferral election, the amount which a beneficiary becomes entitled
to receive on account of the death of a Participant shall be paid in a lump sum.
5.8. Commencement of Payments. Payment which a Participant or Beneficiary
becomes entitled to receive in the event of the Participant's termination of
employment pursuant to Section 5.4 shall commence or be made, as the case may
be, as soon as practicable after the occurrence of such event. The Committee
retains the right in its sole discretion to accelerate the payment of Deferred
Compensation Accounts after termination of employment or other separation from
service.
5.9. Beneficiary Designation. A Participant may designate a Beneficiary who
is to receive, upon his death, the distributions that otherwise would have been
paid to him. All designations shall be in writing and shall be effective only if
and when delivered to the Senior Vice President--Human Resources of the Company
during the lifetime of the Participant. If a Participant designates a
Beneficiary without providing in the designation that the Beneficiary must be
living at the time of each distribution, the designation shall vest in all of
the distribution whether payable before or after the Beneficiary's death, and
any distributions remaining upon the Beneficiary's death shall be made to the
Beneficiary's estate.
A Participant may from time to time during his lifetime change his
Beneficiary by a written instrument delivered to the Senior Vice President--
Human Resources of the Company. In the event a Participant shall not designate
a Beneficiary as aforesaid, or if for any reasons such designation shall be
ineffective, in whole or in part, the distribution that otherwise would have
been paid to such Participant shall be paid to his estate, and in such event the
term "Beneficiary" shall include his estate.
VI. ADMINISTRATION
- -------------------
6.1. Committee. The Plan shall be administered by the Compensation
Committee of the Board of Directors, or such other Committee of the Board of
Directors. The Committee may designate person(s) who are Company employees to
oversee the day to day administration of the Plan.
6.2. General Rights, Powers, and Duties of Committee. The Committee shall
be responsible for the management, operation, and administration of the Plan.
Subject to the limitations contained in Section 4.5 and to the remaining terms
of the Plan, the Committee shall, in addition to those provided elsewhere in the
Plan, have the following powers, rights, and duties:
(a) To maintain records concerning the Plan sufficient to prepare reports,
returns and other information required by the Plan or by law;
(b) To direct the payment of benefits under the Plan, and to give such
other directions and instructions as may be necessary for the proper
administration of the Plan; and
(c) To be responsible for the preparation, filing and disclosure on behalf
of the Plan of such documents and reports as are required by any applicable
federal or state law.
The Committee shall also have the authority to adopt, alter, and repeal
such administrative rules, guidelines, and practices governing the Plan as it
shall, from time to time, deem advisable, to interpret the terms and provisions
of the Plan and any award issued under the Plan (and any Notice of Award or
other agreement relating thereto), and to otherwise supervise the administration
of the Plan.
9
<PAGE>
Any determination made by the Committee pursuant to the provisions of the
Plan with respect to any grants, payments, or other transactions under the Plan
shall be made in the sole discretion of the Committee at the time of the grant,
payment, or other transaction or, unless in contravention of any express term of
the Plan, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and Plan Participants.
6.3. Information to be Furnished to Committee. Participants and their
Beneficiaries shall furnish to the Committee such evidence, data, or information
and execute such documents as the Committee requests.
6.4. Responsibility and Indemnification. No member of the Committee or of
the Board of Directors or any person who is designated to oversee the day to day
administration of the Plan (as provided in Section 6.1) shall be liable to any
person for any action taken or omitted in connection with the administration of
this Plan unless attributable to his own fraud or willful misconduct; nor shall
the Company be liable to any person for any such action unless attributable to
fraud or willful misconduct on the part of a director, officer, or employee of
the Company within the scope of his Company duties. Each officer, employee,
director or member of the Committee shall be indemnified and held harmless by
the Company for any liability arising out of the administration of the Plan, to
the maximum extent permitted by law.
VII. modification, AMENDMENT AND TERMINATION
- --------------------------------------------
7.1. Modification The Committee may elect to modify Performance Awards
under the Plan at any time without the Participant's consent.
7.2. Amendment. The Plan may be amended in whole or in part by the
Company, by action of the Board of Directors, at any time. The Committee
reserves the unilateral right to change any rule under the Plan if it deems such
a change necessary to avoid the application of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), to the Plan.
7.3. Company's Right to Terminate. The Company reserves the sole right to
terminate the Plan, by action of the Board of Directors, at any time provided
that if such termination is before the end of a Performance Period for which
Performance Compensation has been granted, the Participants will be eligible for
a Pro-rated portion of the Performance Compensation that would have otherwise
been payable to them after the end of the applicable Performance Period. This
distribution, if any is payable, will be made to the Participants in the same
form and at the same time that the Participants under the Plan would otherwise
receive their distributions with respect to that Performance Period. Furthermore
such termination shall not impair any rights of the Participants in the
Participants' Deferred Compensation Accounts at the time of termination.
VIII. MISCELLANEOUS
- --------------------
8.1. No Implied Rights; Rights on Termination of Service. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant, Beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan or conferred by
specific action of the Committee in accordance with the terms and provisions of
the Plan. Except as expressly provided in this Plan, the Company shall not be
required or be liable to make any payment under the Plan.
10
<PAGE>
8.2. No Right to Company Assets. Neither the Participant nor any other
person shall acquire, by reason of the Plan, any right in or title to any
assets, funds or property of the Company whatsoever including, without limiting
the generality of the foregoing, any specific funds, assets, or other property
which the Company, in its sole discretion, may set aside in anticipation of a
liability hereunder. Any benefits which become payable hereunder shall be paid
from the general assets of the Company. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder unsecured by any
asset of the Company. Nothing contained in the Plan constitutes a guarantee by
the Company that the assets of the Company shall be sufficient to pay any
benefit to any person.
8.3. No Employment Rights. Nothing herein shall constitute a contract of
employment or of continuing service or in any manner obligate the Company to
continue the services of the Participant, shall obligate the Participant to
continue in the service of the Company, or shall serve as a limitation of the
right of the Company to discharge any of its employees, with or without cause.
Nothing herein shall be construed as fixing or regulating the compensation
payable to the Participant.
8.4. Offset. If, at the time payments are to be made hereunder, the
Participant or the Beneficiary or both are indebted or obligated to the Company,
then the payments under the Plan remaining to be made to the Participant or the
Beneficiary or both may, at the discretion of the Company, be reduced by the
amount of such indebtedness or obligation, provided, however, that an election
by the Company not to reduce any such payment or payments shall not constitute a
waiver of its claim for such indebtedness or obligation.
8.5. Non-assignability. Neither the Participant nor any other person shall
have any voluntary or involuntary right to commute, sell, assign, pledge,
anticipate, mortgage, or otherwise encumber, transfer, hypothecate, or convey in
advance of actual receipt the amounts, if any payable hereunder or any part
thereof, which are expressly declared to be unassignable and non-transferable.
No part of the amounts payable prior to actual payment shall be subject to
seizure or sequestration for the payment of any debts, judgments, alimony, or
separate maintenance owed by the Participant or any other person, or be
transferable by operation of law in the event of the Participant's or any other
person's bankruptcy or insolvency.
8.6. Notice. Any notice required or permitted to be given under the Plan
shall be sufficient if in writing and hand delivered, sent by registered or
certified mail, or sent by facsimile to the Company at its principal office,
directed to the attention of the Committee c/o the Vice President--Human
Resources of the Company. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail or facsimile, as of the date shown on
the postmark, facsimile, or the receipt for registration or certification.
8.7. Governing Laws. The Plan and all awards made and actions taken under
the Plan shall be governed and construed according to the laws of the
Commonwealth of Virginia.
8.8. Gender and Number. Where appropriate, references in this Plan to the
masculine shall include the feminine, and references to the singular shall
include the plural.
8.9. Severability. In the event any provision of the Plan shall be held
legally invalid for any reasons, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
9.0. Participation Agrement. All Participants who are eligible to
participate in the Plan will receive their notice of eligibility in a written
form via a Participation Agreement.
11
<PAGE>
EXHIBIT 11
NVR, Inc.
Computation of Earnings Per share
(amounts in thousands, except per Share amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
1. Net income $108,881 $56,706 $28,879
======== ======= =======
2. Average number of Shares
outstanding 10,190 11,131 11,839
3. Shares issuable upon exercise of
dilutive options, warrants and
subscriptions outstanding during
period, based on average market price 1,898 2,169 1,406
-------- ------- -------
4. Average number of Shares and
Share equivalents outstanding (2 + 3) 12,088 13,300 13,245
======== ======= =======
5. Basic earnings per share (1/2) $ 10.69 $ 5.10 $ 2.44
======== ======= =======
6. Diluted earnings per share (1/4) $ 9.01 $ 4.26 $ 2.18
======== ======= =======
</TABLE>
<PAGE>
EXHIBIT 21
NVR, Inc. Subsidiaries
State of
--------
Incorporation or
----------------
Name of Subsidiary Organization
- ------------------ ------------
NVR Mortgage Finance, Inc. Virginia
NVR Settlement Services, Inc. Pennsylvania
Ryan Mortgage Acceptance Corporation IV Delaware
RVN, Inc. Delaware
Fox Ridge Homes, Inc. Tennessee
First Republic Mortgage Company Maryland
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
-------------------------------
The Board of Directors
NVR, Inc.:
We consent to incorporation by reference in the registration statement (No. 33-
69754) on Form S-8 (for the NVR, Inc. Directors' Long-Term Incentive Plan), the
registration statement (No. 33-69756) on Form S-8 (for the NVR, Inc. Management
Equity Incentive Plan), the registration statement (No. 33-69758) on Form S-8
(for the NVR, Inc. Equity Purchase Plan), the registration statement (No. 33-
87478) on Form S-8 (for the NVR, Inc. 1994 Management Equity Incentive Plan),
the registration statement (No. 333-04975) on Form S-8 (for the NVR, Inc.
Management Long-Term Stock Option Plan), the registration statement (No. 333-
04989) on Form S-8 (for the NVR, Inc. Directors' Long-Term Stock Option Plan),
the registration statement (No. 33-69436) on Form S-3, the registration
statement (No. 333-44515) on Form S-3 (for a universal shelf registration for
senior or subordinated debt in an amount up to $400 million), the amended
registration statement (No. 333-44515) on Form S-3A (for a universal shelf
registration for senior or subordinated debt in an amount up to $400 million),
the registration statement (No. 333-79949) on Form S-8 (for the NVR, Inc. 1998
Directors' Long-Term Stock Option Plan), and the registration statement (No.
333-79951) on Form S-8 (for the NVR, Inc. 1998 Management Stock Option Plan) of
our reports on the consolidated balance sheets of NVR, Inc. and subsidiaries as
of December 31, 1999 and 1998 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1999, included herein.
KPMG LLP
McLean, Virginia
March 8, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NVR INC.'S
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906163
<NAME> NVR, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 89,126
<SECURITIES> 0
<RECEIVABLES> 2,171
<ALLOWANCES> 0
<INVENTORY> 323,455
<CURRENT-ASSETS> 0
<PP&E> 17,353
<DEPRECIATION> 0
<TOTAL-ASSETS> 767,281
<CURRENT-LIABILITIES> 0
<BONDS> 145,000
0
0
<COMMON> 196,858
<OTHER-SE> 3,782
<TOTAL-LIABILITY-AND-EQUITY> 767,281
<SALES> 1,942,660
<TOTAL-REVENUES> 2,006,648
<CGS> 1,610,727
<TOTAL-COSTS> 1,791,509
<OTHER-EXPENSES> 8,090<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,037
<INCOME-PRETAX> 185,212
<INCOME-TAX> 76,331
<INCOME-CONTINUING> 108,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,881
<EPS-BASIC> 10.69
<EPS-DILUTED> 9.01
<FN>
<F1>ITEM REPRESENT THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE AND
GOODWILL.
</FN>
</TABLE>
