<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ To ______
0-23270
Commission File Number
DOMINION HOMES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1393233
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
5501 Frantz Road, Dublin, Ohio
---------------------------------
(Address of principal executive offices)
43017-0766
------------
(Zip Code)
(614) 761-6000
-------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Formal Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
---
Number of common shares outstanding as of November 10, 1999: 6,357,480
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DOMINION HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
==========================================================================================================================
September 30, December 31,
1999 1998
(Unaudited)
------------------ --------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 694 $ 261
Notes and accounts receivable, net:
Trade 237 133
Due from financial institutions for residential closings 653 769
Real estate inventories:
Land and land development costs 91,130 71,404
Homes under construction 60,632 50,843
Other 4,453 2,906
------------------ --------------
Total real estate inventories 156,215 125,153
------------------ --------------
Prepaid expenses and other 3,657 3,111
Deferred income taxes 1,904 1,788
Property and equipment, at cost: 8,538 7,385
Less accumulated depreciation (3,710) (3,244)
------------------ --------------
Total property and equipment 4,828 4,141
------------------ --------------
Total assets $168,188 $135,356
================== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $ 7,067 $ 5,520
Deposits on homes under contract 2,221 2,601
Accrued liabilities 11,462 12,131
Note payable, banks 85,814 60,415
Term debt 5,790 4,461
------------------ --------------
Total liabilities 112,354 85,128
------------------ --------------
Commitments and contingencies
Shareholders' equity
Common shares, without stated value, 12,000,000 shares authorized,
6,345,480 and 6,281,504 shares issued and outstanding, respectively 31,134 30,851
Less deferred compensation (322) (371)
Retained earnings 25,022 19,748
------------------ --------------
Total shareholders' equity 55,834 50,228
================== ==============
Total liabilities and shareholders' equity $168,188 $135,356
================== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 3
<TABLE>
<CAPTION>
DOMINION HOMES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
===================================================================================================================
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $73,067 $67,769 $198,636 $190,258
Cost of real estate sold 58,852 55,260 160,970 153,848
-------- ------ --------- --------
Gross profit 14,215 12,509 37,666 36,410
Selling, general and administrative 8,475 6,901 24,707 20,324
-------- --------- --------- --------
Income from operations 5,740 5,608 12,959 16,086
Interest expense 1,196 1,192 3,948 3,594
-------- --------- --------- --------
Income before income taxes 4,544 4,416 9,011 12,492
Provision for income taxes 1,861 1,855 3,737 5,247
-------- --------- --------- --------
Net income $ 2,683 $ 2,561 $ 5,274 $ 7,245
======== ========= ========= ========
Earnings per share
Basic $0.43 $0.41 $0.84 $1.15
======== ========= ======== =========
Diluted $0.42 $0.39 $0.81 $1.10
======== ========= ======== =========
Weighted average shares outstanding
Basic 6,312,295 6,279,016 6,306,343 6,273,326
========= =========== =========== =========
Diluted 6,461,902 6,615,017 6,490,320 6,600,175
========= =========== =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 4
<TABLE>
<CAPTION>
DOMINION HOMES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
Common Shares Deferred Compensation
------------- --------------------- Retained
Shares Amount Liability Treasury Shares Earnings
Total
- ------------------------------------------ -------------- -------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 6,281,504 $30,851 $853 $(1,224) $19,748 $50,228
Net income 5,274 5,274
Shares awarded and redeemed 88,976 463 (35) 428
Treasury shares:
held for deferred compensation (27) (27)
other shares purchased (25,000) (180)
(180)
Deferred compensation 111 111
- ------------------------------------------ -------------- -------------- ------------- --------------- ------------- -------------
Balance, September 30, 1999 6,345,480 $31,134 $929 $(1,251) $25,022 $55,834
- ------------------------------------------ -------------- -------------- ------------- --------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
DOMINION HOMES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
=============================================================================================================
Nine Months Ended
September 30,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,274 $ 7,245
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 1,112 477
Disposal of property & equipment (7) (14)
Issuance of common shares for compensation 428 42
Writedown of real estate inventories 256
Deferred income taxes (116) (164)
Changes in assets and liabilities:
Notes and accounts receivable 12 (653)
Real estate inventories (29,746) (7,632)
Prepaid expenses and other (651) (1,731)
Accounts payable 1,547 (280)
Deposits on homes under contract (380) 776
Accrued liabilities (618) 2,531
-------------- -------------
Net cash (used in) provided by operating activities (22,889) 597
-------------- -------------
Cash flows from investing activities:
Proceeds from sale of property & equipment 8 24
Purchase of property & equipment (1,013) (1,386)
-------------- -------------
Net cash used in investing activities (1,005) (1,362)
-------------- -------------
Cash flows from financing activities:
Proceeds from note payable, banks
220,462 183,852
Payments on note payable, banks (195,063) (179,659)
Prepaid loan fees (181) (1,458)
Payments on term debt (684) (1,805)
Common shares purchased or redeemed (207) (165)
-------------- -------------
Net cash provided by financing activities 24,327 765
-------------- -------------
Net change in cash and cash equivalents 433 0
Cash and cash equivalents, beginning of period 261 252
============== =============
Cash and cash equivalents, end of period $ 694 $ 252
============== =============
Supplemental disclosures of cash flow information:
Interest paid (net of amounts capitalized) $ 1,067 $ 736
============== =============
Income taxes paid $ 4,887 $ 6,234
============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
DOMINION HOMES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements for Dominion Homes,
Inc. ("the Company"), have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
These financial statements should be read in conjunction with the December
31, 1998 audited annual financial statements of the Company contained in
its Annual Report to Shareholders or in the December 31, 1998 Form 10-K.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. The results of operations for the three months and nine months
ended September 30, 1999 and 1998 are not necessarily indicative of the
results to be expected for the full year.
2. RECLASSIFICATION
----------------
Certain prior period information has been reclassified to conform to
the current period presentation.
3. CAPITALIZED INTEREST
--------------------
Interest is capitalized on land during the development period and on
housing construction costs during the construction period. As a lot is
transferred to homes under construction, the interest capitalized on the
lot during the land development period is included as a cost of the land
and it is expensed through cost of sales when the home is closed.
Capitalized interest related to housing construction costs is included in
interest expense in the period in which the home is closed. Capitalized
interest related to land under development and construction in progress was
$3.3 million and $2.0 million at September 30, 1999 and September 30, 1998,
respectively. The following table summarizes the activity with respect to
capitalized interest:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Interest incurred $1,686,000 $1,286,000 $4,852,000 $ 3,740,000
Interest capitalized (1,428,000) (973,000) (3,696,000) (2,952,000)
----------- --------- -------------- --------------
Interest expensed directly 258,000 313,000 1,156,000 788,000
Previously capitalized interest
charged to interest expense 938,000 879,000 2,792,000 2,806,000
------------ ------------ ------------ -------------
Total interest expense $1,196,000 $1,192,000 $3,948,000 $ 3,594,000
========== ========== ========== =============
</TABLE>
6
<PAGE> 7
4. NOTE PAYABLE, BANKS
-------------------
The Company is currently operating under a $125 million Senior
Unsecured Revolving Credit Facility ("the Facility") that was executed on
May 29, 1998 and is described in the Company's Annual Report and Form 10-K
for the year ended December 31, 1998. The Facility was amended by a First
Consent Agreement August 9, 1999 to increase to $2.5 million from $500,000,
the amount of Common Shares the Company is allowed to redeem or purchase in
the aggregate through December 31, 2001. The First Consent Agreement was
incorporated into a First Amendment to the Credit Agreement dated September
3, 1999, along with several other amendments to the Facility. The other
amendments, among other matters, revise the definition of the Company's
borrowing base to provide additional borrowing capacity; exclude developed
lots owned by the Company for more than 24 months from the borrowing base;
update the amount of Consolidated Tangible Net Worth the Company is
required to maintain to $45 million plus 75% of the Company's Consolidated
Net Income, beginning with the fiscal year ending December 31, 1999;
require the Company's Leverage Ratio to not exceed 2.50 to 1.00 from
September 30, 1999 through December 31, 2001 and 2.25 to 1.00 thereafter;
require that the Company's Ratio of Uncommitted Land Holdings to
Consolidated Tangible Worth not exceed 2.00 to 1.00 through December 31,
2001 and 1.75 to 1.00 thereafter; reduce the amount of speculative homes
the Company is allowed to maintain in inventory to $10.0 million from $12.5
million; exclude Louisville, Kentucky from the restrictions imposed under
new market investment limitations in the Facility; and limit investment by
the Company in Louisville, Kentucky to $20.0 million.
The Facility provides for a variable rate of interest on borrowings. In
order to reduce exposure to increasing interest rates, the Company has
entered into interest rate swap contracts that fix the interest rate on $30
million of borrowings under the Facility. The interest rate swap contracts
mature between October 16, 2000 and May 6, 2003 and fix interest rates
between 5.48% and 6.13%, plus a variable margin based on the Company's
Interest Coverage Ratio. The variable margin may range from 1.75% to 2.50%
and is determined quarterly. Since the inception of the Facility, the
variable margin has been 1.75%.
As of September 30, 1999, the Company was in compliance with Facility
covenants and had $21.2 million available under the Facility, after
adjustment for borrowing base limitations. Borrowing availability under the
Facility could increase, depending on the Company's utilization of the
proceeds.
7
<PAGE> 8
5. EARNINGS PER SHARE
------------------
A reconciliation of the weighted average shares used in basic and
diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
during the period 6,312,295 6,279,016 6,306,343 6,273,326
Assuming exercise of options 149,607 336,001 183,977 326,849
---------- --------- ---------- ---------
Weighted average shares outstanding
adjusted for common share equivalents 6,461,902 6,615,017 6,490,320 6,600,175
========= ========= ========= =========
</TABLE>
6. LEGAL PROCEEDINGS
-----------------
The Company is involved in various legal proceedings, most of which
arise in the ordinary course of business and some of which are covered by
insurance. In the opinion of the Company's management, none of the claims
relating to such proceedings will have a material adverse effect on the
financial condition or results of operations of the Company.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company recorded revenues of $73.1 million from 428 home closings
in third quarter 1999 compared to $67.8 million from 437 home closings in
third quarter 1998. Net income for third quarter 1999 increased 4.8% to a
quarterly record $2.7 million, or $.42 per share on a diluted basis,
compared to $2.6 million, or $.39 per share on a diluted basis, for third
quarter 1998. Revenues increased $5.3 million, or 7.8%, due to a 9.9%
increase in the average sale price of the Company's homes in third quarter
1999 compared to third quarter 1998. Gains in revenues and gross profit,
however, were partially offset by higher selling, general and
administrative expense that increased in third quarter 1999 to $8.5 million
from $6.9 million in third quarter 1998, an increase of $1.6 million or
22.8%.
Selling, general and administrative expense began increasing in the
second half of 1998 as the Company added field personnel and enhanced its
operations systems to meet the approximately 25% growth in business from
the previous year. However, many of these additional expenses were not
fully implemented during third quarter 1998. Additionally, third quarter
1998 selling, general and administrative expense was favorably impacted by
a $400,000 one time reduction of the Company's self insured medical plan
expense. Third quarter 1999 selling, general and administrative expense
reflects increased investment in the Company's Louisville, Kentucky
operations compared to the amount reported in third quarter 1998, when the
Company entered the Louisville, Kentucky market. It also includes expenses
the Company incurred in adding new communities and sales offices in Central
Ohio and amortizing its new information systems.
New home contracts increased 22.4% to 404 for third quarter 1999
compared to 330 for the same period a year ago. The number of sales
contracts in backlog remained stable with 825 home sales contracts in
backlog at September 30, 1999 compared to 837 home sales contracts in
backlog at September 30, 1998. However, the aggregate sales value of the
homes in backlog at September 30, 1999 increased $10.3 million, or 7.6%, to
$146.6 million from $136.3 million at September 30, 1998.
On July 26, 1999 the Company announced the Board of Directors had
authorized a program to repurchase up to 500,000 of the Company's common
shares through July 31, 2000. As of September 30, 1999, the Company had
repurchased 25,000 common shares at an average price of $6.88 per share.
COMPANY OUTLOOK
Although the Company expects to close fewer homes in 1999 than it did
in 1998, it expects its average per home closing price to be higher in 1999
than in 1998. As a result, the Company expects 1999 revenues and gross
profit to be comparable to 1998 revenues and gross profit. However, because
of the increased level of selling, general, and administrative expense that
the Company has incurred during the first nine months of 1999, and expects
to maintain during fourth quarter 1999, in order to position itself for
growth in Central Ohio and Louisville, Kentucky, the Company expects 1999
net income to be lower than 1998 net income.
9
<PAGE> 10
The Company anticipates that its operations in Louisville, Kentucky
will become profitable in 2000. The Company is currently selling homes in
three communities in Louisville and has a fourth community under
development. The Company has sold 47 homes and closed 4 homes in the
Louisville market during the first nine months of 1999.
On November 5, 1999, the Company entered into an agreement with
Homebuilders Financial Network, Inc., providing for Homebuilders to assist
the Company in establishing a mortgage finance company to be wholly-owned
by the Company. The Company expects the mortgage finance company to be
operational by the end of first quarter, 2000. The Company does not expect
the mortgage finance company to materially impact the Company's revenues or
expenses during 1999.
YEAR 2000 READINESS DISCLOSURE STATEMENT
The Year 2000 issue exists because many computer programs use only the
last two digits to refer to a year. Accordingly, such computer programs do
not distinguish a year that begins with "20" from a year that begins with
"19." If not corrected, these computer programs could fail or create
erroneous results.
The Company has developed and implemented a plan for the identification
and remediation of Year 2000 issues that could affect its business. The
identification and remediation plan has five categories: (1) mission
critical software, (2) other software, (3) information technology hardware,
(4) non-information technology systems, and (5) third party related issues.
MISSION CRITICAL SOFTWARE: The Company has identified four mission
critical software systems: homebuilding accounting and job cost, contract
administration, sales management, and lumber division accounting and
inventory management. In January 1998, the Company purchased and began
implementation of a JDEdwards homebuilding and job cost accounting software
system. This is the primary software the Company uses to run its business.
The project was completed July 1, 1998 and has been tested as Year 2000
compliant. In August 1998, the Company completed transition of its contract
administration and sales management software systems to new software
systems, which have been tested as Year 2000 compliant. In February 1999,
the Company completed implementation of a JDEdwards accounting and
inventory management software system at its lumber division. This system
has been tested as Year 2000 compliant.
OTHER SOFTWARE: The Company maintains and periodically updates an
inventory of all other software utilized by it, such as word processing,
spreadsheet, and database management. During third quarter 1998, the
Company began testing this software for Year 2000 compliance. The Company
completed this testing and transition to Year 2000 compliant software
during third quarter 1999.
INFORMATION TECHNOLOGY HARDWARE: The Company maintains and periodically
updates an inventory of all information technology hardware. The Company
has identified and obtained written confirmation from hardware
manufacturers that their hardware is Year 2000 compliant. The Company has
tested all hardware and has replaced any that was not Year 2000 compliant.
NON-INFORMATION TECHNOLOGY SYSTEMS: The Company has developed an
inventory of all non-information technology systems that are likely to have
a material impact on the
10
<PAGE> 11
Company's ability to conduct business, such as telephones and security
systems. The Company has performed internal testing and has completed all
necessary changes.
THIRD PARTY RELATED ISSUES: The Company has identified those vendors
and subcontractors which have a material effect on the Company's ability to
conduct business. The Company has developed and distributed a questionnaire
to all vendors and subcontractors with respect to their own Year 2000
compliance. The Company has received responses from the vendors and
subcontractors that it considers to be material to its operations. Based on
these responses, the Company has not identified any anticipated Year 2000
problems that could materially impact the Company's operations.
Nonetheless, the Company expects to buy additional lumber, prior to
December 31, 1999, to help assure an adequate supply of lumber in the event
that its lumber suppliers encounter an unanticipated Year 2000 problem. In
the event that any of the Company's other vendors or subcontractors
encounter a material Year 2000 problem, the Company will attempt to move
its business to alternate vendors or subcontractors. The Company, however,
cannot guarantee that other vendors and subcontractors will be available or
that they will be able to meet the demands of the Company
COSTS TO ADDRESS THE YEAR 2000 ISSUES: The Company has spent
approximately $2.6 million on its Year 2000 compliance plan through
September 30, 1999. These costs include normal system upgrades and
technology improvements that would have been implemented regardless of the
Year 2000 issue.
RISKS: Failure of the Company or its vendors and subcontractors to
adequately address the Year 2000 issues in a timely manner could impede the
Company's ability to build and close homes and thus have a material adverse
affect on the Company's ability to generate revenues. Accordingly, the
Company has implemented all aspects of its plan to address all known Year
2000 issues. Should the efforts on the part of the Company, its vendors,
and its subcontractors fail to adequately address their relevant Year 2000
issues, the worst case scenario would be an interruption of revenues of an
undetermined length of time. The Company has developed the contingency plan
identified above under "Third Party Related Issues," to deal with any
unexpected Year 2000 problems from its vendors and subcontractors. The
Company does not expect to develop any further contingency plans prior to
the end of 1999.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard is effective for
financial statements for fiscal quarters of fiscal years beginning after
June 15, 2000. The Company will be required to adopt SFAS No. 133 effective
January 1, 2001. SFAS No. 133 standardizes the accounting for derivative
instruments by requiring that all entities recognize them as assets and
liabilities in the balance sheet and subsequently measure them at fair
market value. It also prescribes specific accounting principles to be
applied to hedging activities and hedging transactions, which are
significantly different from prior accounting principles. The Company has
not yet determined the impact of SFAS No. 133.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
The statements contained in this report under the captions "Company
Outlook," "Year 2000 Readiness Disclosure Statement" and other provisions
of this report which are not
11
<PAGE> 12
historical facts are "forward looking statements" that involve various
important risks, uncertainties and other factors which could cause the
Company's actual results for 1999 and beyond to differ materially from
those expressed in such forward looking statements. These important factors
include, without limitation, the following risks and uncertainties: real or
perceived adverse economic conditions, an increase in mortgage interest
rates, mortgage commitments that expire prior to homes being delivered, the
Company's ability to install public improvements or build and close homes
on a timely basis due to adverse weather conditions, delays or adverse
decisions in the zoning, permitting or inspection processes, adverse
decisions or change in requirements by environmental agencies, the effect
of changing consumer tastes on the market acceptance for the Company's
products, the impact of competitive products and pricing, the effect of
shortages or increases in the costs of materials, subcontractors, labor and
financing, the continued availability of credit, the outcome of litigation,
the impact of changes in government regulation, problems associated with
the Year 2000 issue, problems that could arise from expansion into the
Louisville, Kentucky market and the other risks described in the Company's
Securities and Exchange Commission filings.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience,
significant seasonality and quarter-to-quarter variability in homebuilding
activity levels. Typically, closings and related revenues will increase in
the second half of the year. The Company believes that this seasonality
reflects the tendency of homebuyers to shop for a new home in the Spring
with the goal of closing in the Fall or Winter. Weather conditions can also
accelerate or delay the scheduling of closings.
The following table sets forth certain data for each of the last eight
quarters:
<TABLE>
<CAPTION>
THREE SALES BACKLOG
MONTHS REVENUES CONTRACTS CLOSINGS (AT PERIOD END)
ENDED (IN THOUSANDS) (IN UNITS) (1) (IN UNITS) (IN UNITS)
===========================================================================================================
<S> <C> <C> <C> <C>
Dec. 31, 1997 $55,534 333 358 703
Mar. 31, 1998 $54,458 670 370 1,003
June 30, 1998 $68,031 402 461 944
Sept. 30, 1998 $67,769 330 437 837
Dec. 31, 1998 $74,679 381 467 751
Mar. 31, 1999 $52,774 453 331 873
June 30, 1999 $72,795 412 436 849
Sept. 30, 1999 $73,067 404 428 825
- -----------------
(1) Net of cancellations
</TABLE>
At September 30, 1999, the aggregate sales value of homes in backlog
was $146.6 million compared to $136.3 million at September 30, 1998. The
average sales value of homes in backlog at September 30, 1999 increased to
$177,742 from $162,881 at September 30, 1998. This increase reflects home
sales price increases and the sale of larger homes.
12
<PAGE> 13
The Company annually incurs a substantial amount of indirect
construction costs, which are essentially fixed in nature. For purposes of
financial reporting, the Company capitalizes these costs to real estate
inventories on the basis of the ratio of estimated annual indirect costs to
direct construction costs to be incurred. Thus, variations in construction
activity cause fluctuations in interim and annual gross profits.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the statements of income expressed as percentages of total
revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of real estate sold 80.5 81.5 81.0 80.9
--------- ---------- --------- --------
Gross profit 19.5 18.5 19.0 19.1
Selling, general and
administrative expenses 11.6 10.2 12.5 10.6
---------- ---------- --------- --------
Income from operations 7.9 8.3 6.5 8.5
Interest expense 1.7 1.8 2.0 1.9
---------- ---------- --------- --------
Income before income taxes 6.2 6.5 4.5 6.6
Provision for income taxes 2.5 2.7 1.8 2.8
---------- ---------- --------- --------
Net income 3.7% 3.8% 2.7% 3.8%
========== ========== ========= ========
</TABLE>
13
<PAGE> 14
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES. Revenues for third quarter 1999 increased to $73.1 million
from $67.8 million for third quarter 1998. The Company closed 428 homes
during third quarter 1999 compared to 437 homes closed during third quarter
1998. The increase in revenues is attributable to a higher average home
price, which increased by 9.9% to $170,030 during third quarter 1999 from
$154,657 during third quarter 1998. Included in revenues were other
revenues, consisting of the sale of land and building supplies to other
builders, which were $290,000 for third quarter 1999 compared to $180,000
for third quarter 1998.
GROSS PROFIT. Gross profit for third quarter 1999 increased to $14.2
million from $12.5 million for third quarter 1998. As a percentage of
revenues, the gross profit margin increased to 19.5% for third quarter 1999
from 18.5% for third quarter 1998. The primary reasons for the increase in
third quarter 1999 gross profit were an increase in the average sales price
of homes delivered during third quarter 1999 compared to third quarter 1998
and more effective control of financing and direct construction costs
during third quarter 1999 than third quarter 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for third quarter 1999 increased to $8.5 million
from $6.9 million for third quarter 1998. As a percentage of revenues,
selling, general and administrative expenses increased to 11.6% from 10.2%.
Selling, general and administrative expense grew quarter to quarter as the
Company increased its investment in the Louisville, Kentucky market, added
communities in Central Ohio and amortized its new information systems. The
quarter to quarter comparison was also impacted by a $400,000 one-time
reduction of the Company's self insured medical expense in third quarter
1998.
INTEREST EXPENSE. Interest expense for third quarter 1999 was $1.2
million, the same interest expense as third quarter 1998. As a percentage
of revenues, interest expense for third quarter 1999 decreased to 1.7% from
1.8% for third quarter 1998. Interest expense remained stable between third
quarter 1999 and 1998 despite higher borrowing levels due to a lower
average rate of interest and increased capitalization of interest during
third quarter 1999. The average revolving line of credit borrowings were
$82.2 million and $56.6 million for third quarter 1999 and 1998,
respectively. The weighted average rate of interest under the Company's
revolving line of credit was 7.8% for third quarter 1999 compared to 8.6%
for third quarter 1998. The Company capitalized more interest during third
quarter 1999 as a result of having increased land development and home
construction inventories during third quarter 1999 compared to third
quarter 1998.
PROVISION FOR INCOME TAXES. Income tax expense for both third quarter
1999 and 1998 was $1.9 million. The Company's estimated annual effective
tax rate was 41.0% for third quarter 1999 and 42.0% for third quarter 1998.
14
<PAGE> 15
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES. Revenues for the nine months ended September 30, 1999
increased to $198.6 million from $190.3 million for the nine months ended
September 30, 1998. The number of closings during the first nine months of
1999 declined by 73 homes, or 6%, to 1,195 homes compared to the 1,268
homes closed during the same period in 1998. Closings for the nine months
ended September 30, 1998 included seven model homes the Company sold and
leased back for use as sales models. The increase in revenues is
attributable to a higher average home sales price, which increased 10.9% to
$165,840 during the first nine months of 1999 from $149,538 during the
first nine months of 1998. The increase in the average home sales price is
primarily attributable to the Company's customers purchasing larger homes,
homes with more options, and price increases by the Company. Customers were
able to purchase larger homes and homes with more options during 1999
because the Company offered a greater selection of larger homes and because
FHA mortgage limits were increased, allowing more customers to finance
larger homes. Included in revenues were other revenues, consisting of the
sales of land and building supplies to other builders, which were $460,000
for the first nine months of 1999 and 1998.
GROSS PROFIT. Gross profit for the first nine months of 1999 increased
to $37.7 million from $36.4 million for the first nine months of 1998,
primarily as a result of closing homes with higher average sale prices in
the first nine months of 1999 than 1998. As a percentage of revenues, the
gross profit margin declined slightly to 19.0% for the first nine months of
1999 from 19.1% for the first nine months of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first nine months of 1999 increased to
$24.7 million from $20.3 million for the first nine months of 1998. As a
percentage of revenues, selling, general and administrative expenses for
the first nine months of 1999 increased to 12.5% from 10.6% for the first
nine months of 1998. Selling, general and administrative expense grew as
the Company increased its investment in the Louisville, Kentucky market,
added communities in Central Ohio and amortized its new information
systems. The comparison was also impacted by a $400,000 one-time reduction
of the Company's self insured medical expense in third quarter 1998.
INTEREST EXPENSE. Interest expense for the first nine months of 1999
increased to $3.9 million from $3.6 million for the first nine months of
1998. As a percentage of revenues, interest expense for the first nine
months of 1999 increased to 2.0% from 1.9% for the first nine months of
1998. Interest expense increased because of higher average borrowings,
offset by a lower average rate of interest and because the Company
capitalized more interest during the first nine months of 1999 than the
first nine months of 1998. The average revolving line of credit borrowings
outstanding were $79.2 million and $55.4 million for the first nine months
of 1999 and 1998, respectively. The weighted average rate of interest under
the Company's revolving line of credit was 7.9% for the first nine months
of 1999 compared to 8.4% for the first nine months of 1998. The Company
capitalized more interest in 1999 as a result of having increased land
development and home construction inventories during the first nine months
of 1999 compared to the first nine months of 1998.
15
<PAGE> 16
PROVISION FOR INCOME TAXES. Income tax expense for the first nine
months of 1999 decreased to $3.7 million from $5.2 million for the first
nine months of 1998. The Company's estimated annual effective tax rate was
41.5% for the first nine months of 1999 and 42.0% for the first nine months
of 1998.
SOURCES AND USES OF CASH
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Operating activities for the first nine months of 1999 required cash of
$22.9 million compared to providing cash of $597,000 during the first nine
months of 1998. The principal reason for the increased use of cash during
the first nine months of 1999 was the Company's investment in real estate
inventories. The Company invested $18.4 million in land and land
development inventories, $9.8 million in home construction inventories, and
$1.5 million in lumber and building supply inventories during the first
nine months of 1999. This represented a total investment of $29.7 million
in real estate inventories during the first nine months of 1999 compared to
$7.6 million invested during the first nine months of 1998. Operating
activities also provided less cash during the first nine months of 1999 as
net income declined to $5.3 million from $7.2 million for the first nine
months of 1998. Net cash used in investing activities during the first nine
months of 1999 was $1.0 million compared to $1.4 million during the first
nine months of 1998. The Company increased its bank and term debt $24.3
million during the first nine months of 1999 compared to $765,000 during
the first nine months of 1998. The Company increased its bank term debt
principally to fund its increased investment in real estate inventories,
which includes homes under construction.
REAL ESTATE INVENTORIES
The Company's practice is to develop most of the lots on which it
builds its homes. Generally, the Company attempts to maintain a land
inventory that will be sufficient to meet its anticipated lot needs for the
next three to five years. At September 30, 1999, the Company either owned
or was under contract to purchase lots or land that could be developed into
approximately 5,900 lots, including 200 lots in Louisville, Kentucky. The
Company controlled through option agreements an additional 5,900 lots,
including 700 lots in Louisville, Kentucky. During third quarter 1999, the
Company exercised options to purchase 800 lots, including 57 lots in
Louisville, Kentucky. Option agreements expire at varying dates through
2003. The Company's decision to exercise any particular option or otherwise
acquire additional land is based upon an assessment of a number of factors,
including its existing land inventory at the time and its evaluation of the
future demand for its homes.
Land and land development inventories at September 30, 1999 increased
to $91.1 million from $71.4 million at December 31, 1998. Included in the
$91.1 million of land and land development inventories at September 30,
1999 are $5.8 million of land and land development inventories located in
Louisville, Kentucky. There were no land and land development inventories
in Louisville, Kentucky at September 30, 1998. Land and land development
inventories in Central Ohio increased due to seasonal development
activities and to replace the record number of lots sold in 1998.
Inventories also increased because the Company is developing a larger
number of communities and communities with more amenities and more up-front
development costs. Homes under construction increased $9.8
16
<PAGE> 17
million to $60.6 million from $50.8 million at December 31, 1998. The
principal reason for this increase is that the Company is building larger
and more expensive homes.
On September 30, 1999, the Company had 60 inventory homes in various
stages of construction, which represented an aggregate investment of $4.4
million. At September 30, 1998, the Company had 79 inventory homes, in
various stages of construction, which represented an aggregate investment
of $4.2 million. Inventory homes are not reflected in sales or backlog.
SELLER-PROVIDED DEBT
Seller-provided term debt was $4.4 million at September 30, 1999
compared to $3.3 million at September 30, 1998. The Company expects to
repay $1.6 million of the $4.4 million term debt prior to the end of 1999
and the balance of such term debt will be due prior to August 2001.
Interest rates range from 6.5% to the prime rate.
LAND PURCHASE COMMITMENTS
At September 30, 1999, the Company had commitments to purchase 105
residential lots in Central Ohio, at an aggregate cost of $2.5 million, net
of $1.2 million in good faith deposits. In addition, at September 30, 1999,
the Company had $77.4 million of cancelable obligations to purchase
residential lots and unimproved land in which $2.9 million in good faith
deposits had been invested by the Company. The majority of the land subject
to cancelable obligations is for post 1999 development activities. The
Company expects to fund its capital requirements for land acquisition and
development and its obligations under purchase contracts and mortgage notes
from internally generated cash and from the borrowing capacity available
under its bank credit facility.
CREDIT FACILITIES
The Company is currently operating under a $125 million Senior
Unsecured Revolving Credit Facility ("the Facility") that was executed on
May 29, 1998 and is described in the Company's Annual Report and Form 10-K
for the year ended December 31, 1998. The Facility was amended by a First
Consent Agreement August 9, 1999 to increase to $2.5 million from $500,000,
the amount of Common Shares the Company is allowed to redeem or purchase in
the aggregate through December 31, 2001. The First Consent Agreement was
incorporated into a First Amendment to the Credit Agreement dated September
3, 1999, along with several other amendments to the Facility. The other
amendments, among other matters, revise the definition of the Company's
borrowing base to provide additional borrowing capacity; exclude developed
lots owned by the Company for more than 24 months from the borrowing base;
update the amount of Consolidated Tangible Net Worth the Company is
required to maintain to $45 million plus 75% of the Company's Consolidated
Net Income, beginning with the fiscal year ending December 31, 1999;
require the Company's Leverage Ratio to not exceed 2.50 to 1.00 from
September 30, 1999 through December 31, 2001 and 2.25 to 1.00 thereafter;
require that the Company's Ratio of Uncommitted Land Holdings to
Consolidated Tangible Worth not exceed 2.00 to 1.00 through December 31,
2001 and 1.75 to 1.00 thereafter; reduce the amount of speculative homes
the Company is allowed to maintain in inventory to $10.0 million from $12.5
million; exclude Louisville, Kentucky from the restrictions imposed under
new market investment limitations in the Facility; and limit investment by
the Company in Louisville, Kentucky to $20.0 million.
<PAGE> 18
The Facility provides for a variable rate of interest on borrowings. In
order to reduce exposure to increasing interest rates, the Company has
entered into interest rate swap contracts that fix the interest rate on $30
million of borrowings under the Facility. The interest rate swap contracts
mature between October 16, 2000 and May 6, 2003 and fix interest rates
between 5.48% and 6.13%, plus a variable margin based on the Company's
Interest Coverage Ratio. The variable margin may range from 1.75% to 2.50%
and is determined quarterly. Since the inception of the Facility, the
variable margin has been 1.75%.
As of September 30, 1999, the Company was in compliance with Facility
covenants and had $21.2 million available under the Facility, after
adjustment for borrowing base limitations. Borrowing availability under the
Facility could increase, depending on the Company's utilization of the
proceeds.
INFLATION AND OTHER COST INCREASES
The Company is not always able to reflect all of its cost increases in
the prices of its homes because competitive pressures and other factors
require it in many cases to maintain or discount those prices. While the
Company attempts to maintain costs with subcontractors from the date a
sales contract with a customer is accepted until the date construction is
completed, unanticipated additional costs may be incurred which cannot be
passed onto the customer. For example, delays in construction of a home can
cause the mortgage commitment to expire and can require the Company, if
mortgage interest rates have increased, to pay significant amounts to the
mortgage lender to extend the original mortgage interest rate. In addition,
during periods of high construction activities, additional costs may be
incurred to obtain subcontractor availability when certain trades are not
readily available, which additional costs can result in lower gross
profits.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has entered into three interest rate swap contracts with
notional amounts of $10,000,000 each, maturing on October 16, 2000, January
14, 2001 and May 6, 2003. These interest rate swap contracts, reflected in
aggregate in the table below, commenced on October 16, 1997, January 14,
1998 and May 6, 1998, respectively, and fix the variable interest rate on
the Company's revolving credit note at 6.125%, 5.475% and 5.960%,
respectively. The Company entered into interest rate swap contracts to
achieve an appropriate level of variable and fixed-rate debt as approved by
senior management. Interest rate swap contracts allow the Company to have
variable-rate borrowings and to select the level of fixed-rate debt for the
Company as a whole. The expectation is that the resulting cost of funds is
lower than that available under the variable-rate borrowings. Under
interest rate swap contracts, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed rate and
floating-rate amounts calculated by reference to an agreed notional amount.
The level of fixed rate debt, after the effect of interest rate swap
contracts have been considered, is maintained at approximately 36% of total
borrowings under the revolving line of credit facility. The Company does
not enter into derivative financial instrument transactions for speculative
purposes.
The following table presents descriptions of the financial instruments
and derivative instruments that are held by the Company at September 30,
1999, and which are sensitive to changes in interest rates. For the
liabilities, the table presents principal calendar year cash flows that
exist by maturity date and the related average interest rate. For the
interest rate derivatives, the table presents the notional amounts and
expected interest rates that exist by contractual dates. The notional
amount is used to calculate the contractual payments to be exchanged under
the contract. The variable rates are estimated based on the three-month
forward LIBOR rate plus a variable margin of 1.75%. All dollar amounts are
reflected in U.S. Dollars (thousands).
<TABLE>
<CAPTION>
FAIR
1999 2000 2001 2002 2003 TOTAL VALUE
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Variable rate $85,814 $85,814 $85,814
Average interest rate 6.750% 6.750%
Interest-Rate Derivatives
Notional amount $30,000 $30,000 $20,000 $10,000 $10,000 $30,000 $ 99
Average pay rate 5.853% 5.853% 5.718% 5.960% 5.960% 5.869%
Average receive rate 6.750% 6.750% 6.750% 6.750% 6.750% 6.750%
</TABLE>
19
<PAGE> 20
DOMINION HOMES, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in various legal proceedings, most of
which arise in the ordinary course of business and some of which
are covered by insurance. In the opinion of the Company's
management, none of the claims relating to such proceedings will
have a material adverse effect on the financial condition or
results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not
applicable
Item 5. Other Information. Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See attached index (following the signature page).
(b) Reports on Form 8-K. Not applicable.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
DOMINION HOMES, INC.
(Registrant)
<S> <C>
Date: November 11, 1999 By: /s/Douglas G. Borror
-------------------------------------------
Douglas G. Borror
Chairman, Chief Executive Officer
Date: November 11, 1999 By: /s/Jon M. Donnell
-------------------------------------------
Jon M. Donnell
President, Chief Operating Officer
Date: November 11, 1999 By: /s/Peter J. O'Hanlon
-------------------------------------------
Peter J. O'Hanlon
Chief Financial Officer
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
2.1 Corporate Exchange and Subscription Agreement, dated January 20, Incorporated by reference to
1994, between Borror Corporation and Borror Realty Company Exhibit 2.1 to the Company's
Registration Statement on Form S-1
(File No. 33-74298) as filed with the
Commission on January 21, 1994 and as
amended on March 2, 1994 (The "Form
S-1").
2.2 Form of First Amendment to Corporate Exchange and Subscription Incorporated by reference to
Agreement Exhibit 2.2 to Form S-1.
3.1 Amended and Restated Articles of Incorporation of Dominion Homes, Incorporated by reference to
Inc., as amended May 7, 1997 Exhibit 4(a)(3) to the Company's
Registration Statement on Form S-8
(File No. 333-26817) filed with the
Commission on May 9, 1997.
3.2 Amended and Restated Code of Regulations of Borror Corporation Incorporated by reference to
Exhibit 3.2 to Form S-1.
4. Specimen of Stock Certificate of Dominion Homes, Inc. Incorporated by reference to Exhibit 4
to the Company's March 31, 1997 Form
10-Q.
10.1 Split Dollar Life Insurance Agreement dated July 11, 1999 between Incorporated by reference to
Dominion Homes, Inc. and Douglas G. Borror (which agreement is the Exhibit 10.1 to the Company's June 30,
same as Split Dollar Life Insurance Agreements entered into 1999 Form 10-Q.
between the Company and other executive officers of the
Company except for life insurance values for which a
supplemental schedule is attached)
10.2 Stock Option Agreement dated April 29, 1999 between Dominion Incorporated by reference to
Homes, Inc. and Pete A. Klisares (which agreement is the same as Exhibit 10.2 to the Company's June 30,
Stock Option Agreements entered into between the Company and its 1999 Form 10-Q.
other outside, independent directors, Gerald E. Mayo and C. Ronald
Tilley)
10.3 Assignment and Assumption of Lease dated June 24, 1999 by and Incorporated by reference to
among Rommy K. Chung, Dominion Homes, Inc. and BRC Properties Inc. Exhibit 10.3 to the Company's June 30,
(formerly The Borror Corporation) 1999 Form 10-Q.
10.4 Lease dated March 1, 1994 between The Borror Corporation and Rommy Incorporated by reference to
K. Chung Exhibit 10.4 to the Company's June 30,
1999 Form 10-Q.
10.5 Assignment and Assumption of Lease dated June 24, 1999 by Incorporated by reference to
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
and among Dao Q. Nguyen, Dominion Homes, Inc., and Exhibit 10.5 to the Company's June 30,
BRC Properties Inc. (formerly Borror Realty Company) 1999 Form 10-Q.
10.6 Lease dated November 12, 1997 between Borror Realty Company and Incorporated by reference to
Thomas M. Nguyen and assigned on October 2, 1998 to Dao Q. Nguyen Exhibit 10.6 to the Company's June 30,
1999 Form 10-Q.
10.7 First Consent Agreement dated August 9, 1999 amending the Loan Incorporated by reference to
Agreement dated May 29, 1998, among Dominion Homes, Inc., Exhibit 10.7 to the Company's June 30,
Huntington Capital Corp. as Syndicating Agent, Huntington National 1999 Form 10-Q.
Bank as Administrative and Issuing Agent and the Lenders listed
therein
10.8 First Amendment to Credit Agreement dated September 3, 1999 Filed herewith
amending the Loan Agreement dated May 29, 1998, among Dominion
Homes, Inc., Huntington Capital Corp. as Syndicating Agent,
Huntington National Bank as Administrative and Issuing Agent and
the Lenders listed therein
10.9 Lease dated September 29, 1999 between BRC Properties Inc. and Filed herewith
Dominion Homes, Inc.
10.10 Agreement For Services dated November 5, 1999 between Homebuilders Filed herewith
Financial Network, Inc. and Dominion Homes, Inc.
27 Financial Data Schedule Filed herewith
</TABLE>
23
<PAGE> 1
Exhibit 10.8
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS AMENDMENT (this "Amendment") to the Credit Agreement is entered
into as of the 3rd day of September, 1999, by and between (a) Dominion Homes,
Inc. (the "Borrower"), (b) the institutions from time to time party to the
Credit Agreement (as defined below) as lenders (individually, a "Lender" and
collectively, the "Lenders"), and (c) The Huntington National Bank
("Huntington"), in its separate capacity as administrative agent for the Lenders
(with its successors in such capacity, "Administrative Agent").
RECITALS:
A. As of May 29, 1998, the Borrower, the Lenders, the Administrative
Agent, Huntington, in its capacity as Issuing Bank, and Huntington Capital
Corp., in its capacity as Syndication Agent for the Lenders executed a certain
Credit Agreement, which was amended by a certain First Consent Amendment dated
as of August 9, 1999 (collectively the "Credit Agreement"), setting forth the
terms of certain extensions of credit to the Borrower; and
B. As of May 29, 1998, the Borrower executed and delivered to the
Administrative Agent, inter alia, promissory notes in favor of each Lender, in
the original aggregate principal sum of One Hundred Twenty Five Million Dollars
($125,000,000.00) (hereinafter collectively, the "Notes"); and
C. In connection with the Credit Agreement and the Notes, the Borrower
executed and delivered to the Administrative Agent certain other loan documents,
consents, assignments, agreements, and instruments in connection with the
indebtedness referred to in the Credit Agreement (all of the foregoing, together
with the Notes and the Credit Agreement, are hereinafter collectively referred
to as the "Loan Documents"); and
D. The Borrower has requested that the Lenders and the Administrative
Agent amend and modify certain terms and covenants in the Credit Agreement, and
the Lenders and the Administrative Agent are willing to do so upon the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto for
themselves and their successors and assigns do hereby agree, represent and
warrant as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein
shall have the meanings ascribed to such terms in the Credit Agreement.
2. Section 2.1, "BORROWING BASE," of the Credit Agreement is hereby
amended to recite in its entirety as follows:
2.1 BORROWING BASE.
"Borrowing Base" shall mean (without duplication) the aggregate sum of
the following:
1
<PAGE> 2
(a) 100% of Available Cash, plus
(b) 80% of Eligible Accounts Receivable, plus
(c) 75% of Eligible Lumber Inventory, plus
(d) 90% of Eligible Home Work-in-Process, plus
(e) the lesser of $15,000,000.00 or 50% of Eligible Real Estate Held
for Development, plus
(f) the lesser of $10,000,000.00 or 50% of Eligible Investments in
Joint Ventures, plus
(g) the lesser of or $5,850,000.00 or 90% of the aggregate sum of
Eligible Model Homes, plus
(h) the lesser of $6,000,000.00 or 90% of Eligible Speculative Homes,
plus
(i) 70% of Eligible Developed Lots that have been added to the
Developed Lots category within 18 months immediately preceding the date
of calculation, and 62.5% of Eligible Developed Lots that have been
added to the Developed Lots category more than 18 months, but less than
24 months immediately preceding the date of calculation, plus
(j) 60% of Eligible Lots Under Development, plus
(k) 100% of the Eligible Acquisition Assets.
The Administrative Agent shall deduct from any borrowing
availability under the Borrowing Base 100% of the amounts of
outstanding Excess Permitted Nonrecourse Borrowings (the "Excess
Permitted Nonrecourse Borrowings Reserve").
3. Section 2.3, "DEVELOPED LOTS," of the Credit Agreement is hereby
amended to recite in its entirety as follows:
2.3 DEVELOPED LOTS.
"Developed Lots" means all lots of the Company and its
Restricted Subsidiaries located in the State of Ohio or any contiguous
state on which all development activity has been completed, including
without limitation, all site development for streets and sewers, and
for which application has been made for final acceptance by the
applicable controlling municipality, valued at the lesser of cost or
market, provided however, that no Developed Lot which the Company or a
Restricted Subsidiary owns for more than 24 months from the time the
same became a Developed Lot shall be an Eligible Developed Lot.
4. Section 8.8, "ACQUISITION OF CAPITAL STOCK," of the Credit Agreement
is hereby amended to recite in its entirety as follows:
2
<PAGE> 3
8.8 ACQUISITION OF CAPITAL STOCK.
The Company shall not redeem or acquire any of its own capital
stock or any options or other interests in respect thereof having an
aggregate value in excess of (i) $2,500,000.00 in the aggregate during
the period beginning January 1, 1999, and ending December 31, 2001, and
(ii) $500,000.00 in any fiscal year beginning with the fiscal year
ending December 31, 2002, and continuing thereafter, except (a) the
purchase or redemption of capital stock in connection with a
simultaneous sale of an equivalent or greater amount of capital stock
for not less than the same aggregate purchase or redemption price, or
(b) up to the aggregate amount of $1,000,000.00 in any fiscal year for
the purchase of capital stock, options or other interests in respect
thereto using funds escrowed pursuant to the Company's Amended and
Restated Executive Deferred Compensation Plan or otherwise pursuant to
any of the Company's management incentive plans. None of the
Subsidiaries shall redeem or acquire any of its own capital stock.
5. Section 8.13, "TANGIBLE NET WORTH," of the Credit Agreement is
hereby amended to recite in its entirety as follows:
8.13 TANGIBLE NET WORTH.
At all times, the Company shall maintain a Consolidated
Tangible Net Worth of the sum of (i) $45,000,000, plus (ii) 75% of the
Company's Consolidated Net Income after taxes in each fiscal year which
the Company's Consolidated Net Income after taxes is positive,
beginning with the fiscal year ending December 31, 1999, and ending
with the most recently ended fiscal year as of the date of calculation.
6. Section 8.14, "LEVERAGE RATIO," of the Credit Agreement is hereby
amended to recite in its entirety as follows:
8.14 LEVERAGE RATIO.
The Company shall maintain at all times a Leverage Ratio of
(a) not greater than 2.50 to 1.00, beginning September 30, 1999, and
continuing through and including December 31, 2001, and (b) not greater
than 2.25 to 1.00 for the period beginning January 1, 2002, and
continuing at all times thereafter.
7. Section 8.16, "RATIO OF UNCOMMITTED LAND HOLDINGS TO CONSOLIDATED
TANGIBLE NET WORTH," of the Credit Agreement is hereby amended to recite in its
entirety as follows:
8.16 RATIO OF UNCOMMITTED LAND HOLDINGS TO CONSOLIDATED TANGIBLE
NET WORTH.
The Company and its Subsidiaries shall maintain at all times a
ratio of Uncommitted Land Holdings to Consolidated Tangible Net Worth
of (a) not greater than 2.00 to 1.00 beginning September 30, 1999, and
continuing through and including December 31, 2001, and (b) not greater
than 1.75 to 1.00 for the period beginning January 1, 2002, and
continuing at all times thereafter.
3
<PAGE> 4
8. Section 8.21, "SPECULATIVE HOMES," of the Credit Agreement is hereby
amended to recite in its entirety as follows:
8.21 SPECULATIVE HOMES.
The Company and its Subsidiaries, shall not permit at any time
its inventory of Speculative Homes and other dwellings built for
speculation, whether now owned or hereafter acquired, to exceed
$10,000,000.00 in the aggregate outstanding at any time, valued at cost
.
9. Section 8.22, "FURTHER REAL ESTATE ACQUISITION LIMITATIONS, NEW
MARKET INVESTMENT AMOUNT," of the Credit Agreement is hereby amended to recite
in its entirety as follows:
8.22 FURTHER REAL ESTATE ACQUISITION LIMITATIONS, NEW MARKET
INVESTMENT AMOUNT.
The Company and its Subsidiaries shall not permit the Maximum
New Market Investment Amount to exceed the sum of $25,000,000.00
outstanding at any time, valued at cost; provided, however the
Company's total Investment or purchase of any Uncommitted Land
Holdings, Speculative Homes, Model Homes and all other real or personal
property constituting one or more "start up operations" or other de
novo entries in any markets outside Central Ohio or the metropolitan
Louisville, Kentucky area shall not exceed the aggregate sum of
$15,000,000.00 outstanding at any time, valued at cost. In addition,
the Company shall not build homes or develop real estate in any
locations or markets other than the State of Ohio or any contiguous
state. Furthermore, the Company's total Investment or purchase of any
Uncommitted Land Holdings, Speculative Homes, Model Homes and all other
real or personal property in the metropolitan Louisville, Kentucky area
shall not exceed $20,000,000.00 in the aggregate outstanding at any
time, valued at cost.
10. The definition of "MAXIMUM NEW MARKET INVESTMENT AMOUNT," in
Section 14.3, "DEFINED TERMS," of the Credit Agreement is hereby amended to
recite as follows:
"Maximum New Market Investment Amount" means, with respect to the
Company and its Subsidiaries, the aggregate amount of (a) each Purchase
Price for an Acquisition of a Person or the assets of a Person whose
principal business is outside Central Ohio or the metropolitan
Louisville, Kentucky area, (b) the aggregate amount of Investments in
Restricted Subsidiaries or in Investments in Joint Ventures, whose
principal operations or property are outside Central Ohio or the
metropolitan Louisville, Kentucky area, and (c) the aggregate cost of
all Uncommitted Land Holdings, Speculative Homes, Model Homes and all
other real or personal property located outside Central Ohio or the
metropolitan Louisville, Kentucky area.
11. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
as of September 3, 1999, upon satisfaction of all of the following conditions
precedent:
(a) The Administrative Agent shall have received seven duly executed
copies of the First Amendment to Credit Agreement, and such other certificates,
instruments, documents,
4
<PAGE> 5
agreements, and opinions of counsel as may be required by the Administrative
Agent, each of which shall be in form and substance satisfactory to the
Administrative Agent and its counsel; and
(b) The Administrative Agent shall have received a fee in respect of
this Amendment in the amount of $156,250.00, which shall be shared according to
each Lender's Pro Rata Share, and the Borrower shall have paid all other fees
owing to the Administrative Agent; and
(c) The representations contained in paragraph 12 below shall be true
and accurate.
12. REPRESENTATIONS. The Borrower represents and warrants that after
giving effect to this Amendment (a) each and every one of the representations
and warranties made by or on behalf of the Borrower in the Credit Agreement or
the Loan Documents is true and correct in all respects on and as of the date
hereof, except to the extent that any of such representations and warranties
related, by the expressed terms thereof, solely to a date prior hereto; (b) the
Borrower has duly and properly performed, complied with and observed each of its
covenants, agreements and obligations contained in the Credit Agreement and Loan
Documents; and (c) no event has occurred or is continuing, and no condition
exists which would constitute an Event of Default or a Potential Default.
13. AMENDMENT TO CREDIT AGREEMENT. (a) Upon the effectiveness of this
Amendment, each reference in the Credit Agreement to "Credit Agreement,"
"Agreement," the prefix "herein," "hereof," or words of similar import, and each
reference in the Loan Documents to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby. (b) Except as modified
herein, all of the representations, warranties, terms, covenants and conditions
of the Credit Agreement, the Loan Documents and all other agreements executed in
connection therewith shall remain as written originally and in full force and
effect in accordance with their respective terms, and nothing herein shall
affect, modify, limit or impair any of the rights and powers which the Lenders
and the Administrative Agent may have thereunder. The amendment set forth herein
shall be limited precisely as provided for herein, and shall not be deemed to be
a waiver of, amendment of, consent to or modification of any of the rights of
the Lenders or the Administrative Agent under or of any other term or provisions
of the Credit Agreement, any Loan Document, or other agreement executed in
connection therewith, or of any term or provision of any other instrument
referred to therein or herein or of any transaction or future action on the part
of the Borrower which would require the consent of the Lenders and the
Administrative Agent, including, without limitation, waivers of Events of
Default which may exist after giving effect hereto. The Borrower ratifies and
confirms each term, provision, condition and covenant set forth in the Credit
Agreement and the Loan Documents and acknowledges that the agreement set forth
therein continue to be legal, valid and binding agreements, and enforceable in
accordance with their respective terms.
14. AUTHORITY. The Borrower hereby represents and warrants to the
Administrative Agent and the Lenders that (a) the Borrower has legal power and
authority to execute and deliver the within Amendment; (b) the officer executing
the within Amendment on behalf of the Borrower has been duly authorized to
execute and deliver the same and bind the Borrower with respect to the
provisions provided for herein; (c) the execution and delivery hereof by the
Borrower and the performance and observance by the Borrower of the provisions
hereof do not violate or conflict with the articles of incorporation,
regulations or by-laws of the Borrower or any law applicable to the Borrower or
result in the breach of any provision of or constitute a default under any
agreement, instrument or document binding upon or enforceable against the
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Borrower; and (d) this Amendment constitutes a valid and legally binding
obligation upon the Borrower in every respect.
15. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same document.
Separate counterparts may be executed with the same effect as if all parties had
executed the same counterparts.
16. COSTS AND EXPENSES. The Borrower agrees to pay on demand in
accordance with the terms of the Credit Agreement all costs and expenses of the
Administrative Agent in connection with the preparation, reproduction, execution
and delivery of this Amendment and all other loan documents entered into in
connection herewith, including the reasonable fees and out-of-pocket expenses of
the Administrative Agent's counsel with respect thereto.
17. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the law of the State of Ohio.
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IN WITNESS WHEREOF, the Borrower, the Lenders and the Administrative
Agent have hereunto set their hands as of the date first set forth above.
THE BORROWER: ADMINISTRATIVE AGENT:
DOMINION HOMES, INC. THE HUNTINGTON NATIONAL BANK
By: /s/ Jon M. Donnell By: /s/ William R. Reimas
-------------------------------------- --------------------------
Jon M. Donnell William R. Reimas
President, Chief Operating Officer Vice President
THE LENDERS:
THE HUNTINGTON NATIONAL BANK
By: /s/ William R. Reimas
-----------------------------------------------
William R. Reimas
Vice President
BANK ONE, MICHIGAN f/k/a NBD BANK
By: /s/ Steve Mahr
-----------------------------------------------
Steve Mahr
First Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ Robert L. Zelina
-----------------------------------------------
Robert L. Zelina
Vice President Commercial Real Estate Division
NATIONAL CITY BANK
By: /s/ Steven A. Smith
-----------------------------------------------
Steven A. Smith
Senior Vice President
FIRSTAR BANK, N.A. f/k/a STAR BANK, N.A.
By: /s/ Marilyn K. Miller
-----------------------------------------------
Marilyn K. Miller
Vice President
COMERICA BANK
By: /s/ Charles L. Weddell
-----------------------------------------------
Charles L. Weddell
Vice President
7
<PAGE> 1
Exhibit 10.9
LEASE AGREEMENT
---------------
This Lease, made and entered into this 29th day of September, 1999 by
and between BRC Properties Inc., an Ohio corporation, hereinafter called
"Landlord," and Dominion Homes, Inc., an Ohio Corporation, hereinafter called
"Tenant".
WITNESSETH:
In consideration of the mutual covenants and agreements set forth in
this Lease, Landlord and Tenant do hereby covenant and agree as follows:
1. DESCRIPTION OF PREMISES
Landlord does hereby lease to Tenant, and Tenant does hereby rent from
Landlord, upon and subject to the terms, conditions, covenants and agreements
set forth in this Lease, the premises, hereinafter referred to as the "Premises"
consisting of approximately 1,350 square feet of space in the shopping center
known as Karric Square at Dublin Shopping Center located in the City of
Columbus, County of Franklin, State of Ohio, hereinafter referred to as the
"Shopping Center," said Premises being highlighted in yellow on Exhibit "A"
attached hereto for the purpose of more specifically locating the Premises in
said Shopping Center and being further identified as 5793 Karric Square Drive.
The term "Shopping Center" wherever used herein shall be deemed to mean
the entire area owned by Landlord as shown on said Exhibit "A," as the same may
from time to time be increased by the addition of the other lands, and the
entire development on said area, including any and all structures, parking
facilities and common facilities built thereon, or as the same may from time to
time be reduced by eminent domain takings or dedication to public authorities.
2. TERM
(a) This Lease shall continue in force for a term of 60 months (the
"Term") commencing: UPON THE DATE THE TENANT OPENS FOR BUSINESS OR JANUARY 1,
2000, WHICHEVER IS EARLIER; and ending on DECEMBER 31, 2004, unless sooner
terminated as provided herein.
(b) Tenant shall at the request of Landlord execute a declaration
specifying the Commencement Date of the Term. Rental under this Lease shall not
commence until such Commencement Date, as specified in said declaration of
commencement.
3. RENT
(a) Fixed Base Rent - Tenant hereby covenants and agrees to pay to
Landlord as "Fixed Base Rent" for the Premises during the entire Term, without
any deductions or setoff whatsoever, the sum of (SEE RENT INDICATED BELOW)
Dollars ($ ) per year, in equal monthly installments of Dollars ($ ) in advance,
on the first day of each and every calendar month throughout the Term. All
payments required to be made by Tenant to Landlord, under this Lease shall be
made to Karric Square Shopping Center, c/o Mathews Click Bauman, Inc.,
Department L-1384, Columbus, Ohio 43260 or at such other place as Landlord may
from time to time designate in writing.
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<TABLE>
<CAPTION>
===================== ===================== ======================== ==========================
Year Rate/SF Annual Monthly
- --------------------- --------------------- ------------------------ --------------------------
<S> <C> <C> <C>
1 $10.50 $14,175.00 $1,181.25
- --------------------- --------------------- ------------------------ --------------------------
2 $11.00 $14,850.00 $1,237.50
- --------------------- --------------------- ------------------------ --------------------------
3 $11.00 $14,850.00 $1,237.50
- --------------------- --------------------- ------------------------ --------------------------
4 $11.00 $14,850.00 $1,237.50
- --------------------- --------------------- ------------------------ --------------------------
5 $11.50 $15,525.00 $1,293.75
===================== ===================== ======================== ==========================
</TABLE>
4. LANDLORD'S AND TENANT'S IMPROVEMENTS
Landlord agrees that it shall, at its own cost and expense perform the
work and make the installations in the Premises which are designated as
Landlord's Improvements in Exhibit "B" attached hereto and made a part hereof.
Tenant shall prepare and submit to Landlord, for approval, preliminary
design drawings of Tenant's Work, as provided in Exhibit "C". If Landlord shall
notify Tenant of any objections to such design drawings, Tenant shall make the
necessary revisions to Landlord's reasonable satisfaction and promptly resubmit
the same after such notice. Landlord's approval shall be evidenced by
endorsement to that effect on one (1) set of the design drawings, one (1) set to
be retained by Landlord and one (1) set by Tenant.
Tenant agrees to require his subcontractor(s) to provide for removal of
construction debris at Tenant's sole expense and in the manner consistent with
any directives provided by Landlord or Landlord's construction supervisory
personnel.
5. USE OF PREMISES
(a) The Premises shall be used and occupied by Tenant during the entire
Term hereof, subject to the conditions herein contained for: CUSTOMARY OFFICE
USE OF A HOME BUILDER.
(b) Tenant agrees that it will not use, or permit or suffer the use of
the Premises, or any part thereof, for any other business or purpose.
(c) Tenant further agrees that in the use and occupation of the
Premises and in the prosecution or conduct of its business therein, Tenant shall
comply with all requirements of all laws, ordinances, orders and regulations of
the federal, state, county and municipal authorities now in force, or which
hereinafter may be in force, and with any direction or certificate of occupancy
issued pursuant to any law by any public officer or officers. Tenant further
covenants and agrees that it will comply with and abide by all protective
covenants, restrictions, and other recorded documents pertaining to the Shopping
Center and the Premises, and the Tenant's use of the Premises is limited by all
such protective covenants,
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restrictions, and other recorded documents Tenant covenants and agrees that it
shall not use or permit to be used any part of the Premises for any dangerous,
noxious or offensive trade or business and will not cause or maintain any
nuisance in, at or on the Premises, and the land upon which it is situated.
(d) Tenant shall use and occupy the Premises in a careful, safe and
proper manner and shall keep the Premises in a clean and safe condition in
accordance with this Lease and local ordinances and the lawful directions of
proper public officers. Tenant shall use and maintain the Premises consistent
with reasonable standards of good shopping center operations, and Tenant shall
not permit solicitations, demonstrations, itinerant vending or any other
activities inconsistent with such standards. Tenant shall not use or permit the
Premises to be used for any disreputable or immoral purpose or in any way that
will injure the reputation of the Shopping Center. Tenant agrees that it will
not do or suffer to be done, or keep or suffer to be kept, anything in, upon or
about the Premises which will contravene Landlord's policies insuring against
loss or damage by fire or other hazards, or which will prevent Landlord from
procuring such policies in companies acceptable to Landlord or cause
cancellation of insurance of Landlord or any other tenant of the Shopping
Center; and if anything done, omitted to be done or suffered to be done by the
Shopping Center or any part thereof to be increased beyond the minimum rate
which would be applicable for the least hazardous use of the Premises permitted
by law, Tenant shall pay the amount of such increase to Landlord promptly upon
Landlord's demand.
(e) Tenant shall not obstruct the Common Areas (hereinafter defined)
and shall refrain from committing any act or thing upon the Premises or the
Common Areas which disturbs the quiet enjoyment of any other tenant of the
Shopping Center or inhibits or detracts from Landlord's ability to lease other
parts of the Shopping Center.
(f) Tenant shall not permit the accumulation of rubbish, trash, garbage
and other refuse in and around the Premises. Garbage and trash receptacles may
be placed only in areas designated by Landlord and Landlord shall have the right
to designate and control the type and size of such garbage and trash receptacles
that may be used by Tenant.
(g) Tenant shall be required to install an exterior sign on the
Premises which conforms to the sign criteria attached hereto as Exhibit "D", and
which sign shall be placed only in such locations as are previously approved in
writing by Landlord. Notwithstanding the specifications in Exhibit "D", attached
hereto, all signs to be installed by Tenant are subject to the prior written
approval of Landlord, and plans and specifications for each sign must be
submitted to Landlord in quadruplicate for each approval. The plans and
specifications for Tenant's canopy sign must be submitted within thirty (30)
days after execution of this Lease by Tenant. It is understood and agreed that
the approved canopy sign must be installed and operational prior to Tenant
opening to the public for business. Tenant shall not place, erect or maintain,
or suffer to be placed, erected or maintained on the doors or on any exterior
surface of the Premises, or in any vestibule, or anywhere in the Shopping Center
outside of the Premises, nor in any area inside the Premises which can be seen
from the outside of the Premises, any sign, lettering, decoration or advertising
without the prior written consent of Landlord.
(h) Tenant shall permit no waste, damage or injury to the Premises and
Tenant shall initiate and carry out a program of regular maintenance of the
Premises including the painting or refinishing of all areas of the interior and
store front so as to impede, to the extent possible, deterioration by ordinary
wear and tear and to keep the same in attractive condition.
(i) Tenant shall at all times during the Term observe and comply with
the rules, regulations and covenants as may be published and amended from time
to time by Landlord for the
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safety, care and cleanliness of the Shopping Center and the Premises and the
preservation of good order therein.
(j) Tenant shall refrain from distributing any handbills or other
advertising matter on or about any part of the Shopping Center, and shall not
use any sidewalks, walkways or areaways of the Shopping Center for the sale of
merchandise or any business, occupation or undertaking.
6. COMMON AREAS
(a) The term "Common Areas" shall be deemed to mean such areas,
improvements, space, equipment and special services in or at the Shopping Center
as determined by Landlord from time to time to be devoted to the general usage
of all the tenants of the Shopping Center and their employees, customers and
other invitees.
(b) The use by Tenant of the Premises shall include the use, in common
with the others entitled thereto, of the Common Areas as may be designated from
time to time by Landlord, subject however to the terms and conditions of this
Lease and to rules and regulations for the use thereof as prescribed from time
to time by the Landlord.
(c) In addition to the Fixed Base Rent set herein, Tenant agrees to pay
to Landlord at the times and in the manner hereinafter provided, a pro rata
share of the Net Costs (hereinafter defined) paid or incurred by Landlord or its
designated agent in the operation, direct management, maintenance and repair of
the Common Areas, including, but not limited to, parking areas, roofs, canopies,
exterior of outside walls of building(s), access roads, driveways, entrances and
exits, landscaped areas, pathways, storm water system, accommodation areas such
as sidewalks, grass plots, ornamental planting, entry monuments and signs,
directional signals, public lighting and the like; and any and all additional
maintenance costs including utilities, wages, accounting costs, management fees,
electric, security, cleaning, snow removal and trash removal. The Common Areas
shall not include the foundation or structural portions of the buildings located
within the Shopping Center.
Tenant's pro rata share of such Net Costs shall be that percentage
factor computed by dividing the total square feet of the Premises by the total
square feet of leasable space in the Shopping Center.
(d) For the purpose of this Section 6 the term "Net Costs" is hereby
defined to mean Landlord's total costs incurred in operating, managing,
equipping, lighting, repairing, insuring and maintaining the Common Areas plus a
reasonable amount for depreciation of equipment actually used and excluding (if
otherwise included therein) capital costs, interest and real property taxes or
assessments.
(e) Tenant's pro rata share of such Net Costs shall be determined on an
annual basis for each twelve (12) month period ending on December 31st,
prorating fractional years. Tenant's pro rata share of such annual Net Costs
shall be estimated by Landlord at the beginning of the Term hereof, and at the
beginning of each calendar year thereafter and a monthly rate determined, and
Tenant shall pay to Landlord such estimated charge in advance on the first day
of each month throughout the Term of this Lease; provided however that within
sixty (60) days after the end of each calendar year the Landlord or its
designated agent shall determine its costs for such calendar year (and Tenant's
share thereof), and furnish a copy of such computations in writing to the
Tenant. If the payments made by the Tenant in such calendar year exceed Tenant's
pro rata portion of such Net Costs, Tenant shall be credited the amount of any
overpayment, such credit to be applied against the
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<PAGE> 5
estimated Net Costs for the then-current year. If Tenant's pro rata portion of
such Net Costs exceeds the payments made in such calendar year by the Tenant,
then Tenant shall pay the difference to the Landlord or its designated agent.
Such payment to the Landlord or its designated agent shall be made within
fourteen (14) days after Tenant's receipt of Landlord's written statement of the
Tenant's share of Net Costs for the preceding year.
(f) Landlord shall have the right to close any or all portions of the
Common Areas to such extent as may, in the opinion of Landlord's counsel, be
legally sufficient to prevent a dedication thereof or the accrual of any rights
to any person or to the public therein and to close temporarily, if necessary,
any part of the Common Areas in order to discourage noncustomer parking.
Landlord shall have the right from time to time to establish, modify and enforce
rules and regulations with respect to all Common Areas. Tenant agrees to abide
by and conform with such rules and regulations, including, but not limited to,
rules and regulations as to parking of employees' cars, making deliveries, and
traffic control.
7. TAXES AND INSURANCE
(a) Taxes
(1) Tenant covenants and agrees to pay to Landlord its
proportionate share of all real property taxes and special assessments, which
may be levied or assessed for each calendar year during the entire Term, against
the land and buildings comprising the Shopping Center or relating to the
operation or use thereof and service and/or special payments in lieu of taxes
required to be paid by Landlord. Tenant's proportionate share shall be equal to
that portion of such taxes and assessments equal to the product obtained by
multiplying such taxes, assessments and payments by a fraction, the numerator of
which shall be the number of square feet of space in the Premises and the
denominator of which shall be the total number of square feet of leasable space
in the Shopping Center. Should the state in which the Shopping Center is located
or any political subdivision thereof or any governmental authority having
jurisdiction over the Shopping Center impose a tax or assessment (other than an
income or franchise tax) either upon or against the rentals payable by tenants
in the Shopping Center to Landlord or upon or against the business of renting
land or buildings, either by way of substitution for the taxes and assessments
levied or assessed against such land and buildings, or in addition thereto, such
tax or assessment shall be deemed to constitute a tax or assessment against such
land and buildings for the purpose of this Section 7.
(2) Tenant's proportionate share of all such taxes and
assessments during the Term shall be paid to Landlord, as additional rent, in
monthly installments on or before the first day of each calendar month, in
advance, in an amount estimated by Landlord. Upon receipt of all tax bills and
assessments attributable to any calendar year during the Term, Landlord shall
furnish Tenant with a written statement of the actual amount of Tenant's
proportionate share of taxes and assessments for such year. If the total amount
paid by Tenant under this Section 7 for any calendar year during the Term shall
be less than the actual amount due from Tenant for such year, as shown on such
statement, Tenant shall pay to Landlord the difference between the amount paid
by Tenant and the actual amount due, such deficiency to be paid within ten (10)
days after demand therefor by Landlord; and if the total amount paid by Tenant
hereunder for any calendar year shall exceed such actual amount due from Tenant
for such calendar year, Tenant shall be credited the amount of any overpayment,
such credits to be applied against the estimated taxes and assessments for the
then-current year. All amounts due hereunder shall be payable to Landlord at the
place where the Fixed Base Rent is payable. For the calendar years in which this
Lease commences and terminates the provisions of this Section 7 shall apply, and
Tenant's liability for its proportionate share of any taxes and assessments for
such years shall be subject to a pro rata adjustment based on the number of days
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of said calendar years. A copy of a tax bill or assessment bill submitted by
Landlord to Tenant shall at all times be sufficient evidence of the amount of
taxes or assessments assessed or levied against the property to which such bill
relates. At or about the Commencement Date of this Lease and from time to time
thereafter throughout the Term, Landlord shall notify Tenant in writing of
Landlord's estimate of Tenant's monthly installment due hereunder.
(b) Insurance
(1) Tenant covenants and agrees to pay to Landlord its
proportionate share of the following types of insurance:
(i) Fire, lightening, windstorm, hail, explosion,
earthquake and extended coverage insurance with such
other endorsements as Landlord shall deem appropriate
in such amounts as Landlord shall deem sufficient up
to one hundred percent (100%) of the full replacement
cost of the building(s) and service equipment in the
Shopping Center. Such policy or policies may also
include rents insurance coverage for a six (6) month
period; and
(ii) Public liability and property damage insurance
insuring Landlord against claims for personal injury,
death or property damage occurring upon, in or about
the Shopping Center in such amounts as Landlord
deemed appropriate.
(2) Tenant's proportionate share of such insurance premiums
shall be paid to Landlord, as additional rent, in monthly installments on or
before the first day of each calendar month throughout the Term, in advance, in
an amount estimated by Landlord. Such estimate shall be furnished in writing by
Landlord prior to the Commencement Date of the Term and at the beginning of each
calendar year thereafter and at a monthly rate determined. Within sixty (60)
days after the end of each calendar year, Landlord shall furnish Tenant with a
written statement of the actual amount of Tenant's proportionate share of such
insurance premiums for such calendar year. If the total amount paid by Tenant
under this Section 7 for any calendar year shall be less than the actual amount
due from Tenant for such year, as shown on such statement, Tenant shall pay
Landlord the difference between the amount paid by Tenant and the actual amount
due, such deficiency to be paid within ten (10) days after demand therefor by
Landlord; and if the total amount paid by Tenant hereunder for such calendar
year shall exceed such actual amount due from Tenant for such year, Tenant shall
be credited the amount of any overpayment, such credits to be applied against
the estimated insurance premiums for the then-current calendar year. All amounts
due hereunder shall be payable to Landlord at the place where the Fixed Base
Rent is payable. Landlord agrees to use its best efforts to obtain competitive
rates for said insurance coverage.
(3) Tenant's proportionate share of such insurance premiums
shall be equal to the product obtained by multiplying such insurance premiums by
a fraction, the numerator of which shall be the number of square feet of space
in the Premises and the denominator of which shall be the total number of square
feet of leasable space in the Shopping Center.
8. OPERATION OF BUSINESS
During the entire Term, Tenant shall keep the Premises open for
business continuously during all regular and customary hours for such type of
business and on all business days, and will conduct such business in a lawful
manner, in good faith with such business practice, and in such a manner that the
Landlord may at all times receive the maximum amount of rent from the operation
of
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such business in the Premises. Tenant shall not utilize any unethical method of
business operations. Tenant shall not use or permit the use of any equipment or
apparatus producing, reproducing, or transmitting sound which is audible beyond
the interior of the Premises.
9. BUSINESS HOURS
Notwithstanding the provisions set forth in Section 8 of this Lease,
the Tenant agrees during the entire Term to open for business not later than
10:00 a.m. and to remain open for business until 5:00 p.m. Monday through
Friday, national holidays excluded, which holidays shall not exceed eight (8) in
any Lease Year.
10. UTILITIES
Tenant shall be solely responsible for and promptly pay all charges for
heat, water, gas, electricity and other utilities used or consumed on the
Premises, and any and all tap-in or connection charges in connection therewith.
Landlord shall not be liable to Tenant for interference in or interruption of
any utility service nor shall any curtailment or interruption constitute a
constructive eviction or grounds for rental abatement in whole or in part
hereunder.
11. MAINTENANCE
(a) Subject to the provisions of Section 18, Tenant shall, at Tenant's
sole cost and expense, during the entire Term, keep and maintain in good order,
condition and repair the Premises and every part thereof, including, but not
limited to, all plumbing, sewage, fixtures, interior walls, storefront(s), all
electrical facilities and equipment, lighting fixtures, lamping, fans and
electrical motors, all other appliances and equipment of every kind and nature,
sprinkler equipment (if any), and any other mechanical systems in the Premises.
Tenant's obligations shall include, but shall not be limited to, the obligation
to replace when necessary any of the items required to be maintained by Tenant
at its sole cost and expense. Such replacement items shall be of comparable
quality to those that they are replacing. If Tenant fails to perform Tenant's
obligations under this Section 11, Landlord may, at Landlord's option enter upon
the Premises and put the same in good order, condition and repair and make such
replacements as may be necessary, and the cost thereof shall become due and
payable as additional rent by Tenant to Landlord upon demand, but nothing in
this sentence contained shall be deemed to impose a duty upon Landlord or affect
in any manner the obligations placed upon Tenant by this Section 11. Any such
entry by Landlord shall not be deemed to be an eviction of Tenant.
(b) Tenant shall provide for (at Tenant's cost and expense as
hereinafter set forth) the maintenance, repair and replacement of the heating,
ventilating and air conditioning equipment (HVAC) in the Premises.
(c) Tenant shall furnish (at Tenant's costs and expense as hereinafter
set forth) trash and garbage receptacles and the removal of trash and garbage
from said receptacles.
12. EXAMINATION OF PREMISES
The Tenant has had or will have prior to the Commencement Date hereof
full opportunity to examine the herein Premises or plans thereof, including the
sidewalks adjacent to said Premises, and the Tenant's occupancy shall be an
acknowledgment that there is in and about them nothing dangerous to life, limb,
health or property, and Tenant hereby waives any claim for damages that may
arise from defects of that character after occupancy, and the Tenant takes the
Premises as they
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will be when completed. All personal property of any kind or description
whatsoever in the Premises shall be at the Tenant's sole risk, and the Landlord
shall not be liable for any damages done to, or loss to, such personal property;
or for damage or loss suffered by the business or occupation of the Tenant
arising from any act or neglect of co-tenants or other persons, or from
bursting, overflowing, or leaking of water, sewer or steam pipes, or from the
heating, air conditioning or plumbing fixtures, or from electric wires, or from
roof, wall and floor leaks, or from gas, or odors, or caused in any other manner
whatsoever.
13. ACCEPTANCE OF PREMISES
It is agreed that by occupying said Premises as Tenant, the Tenant
formally accepts the same and acknowledges that the Landlord has complied with
all requirements imposed upon it under the terms of this Lease.
14. INDEMNIFICATION OF LANDLORD AND LIABILITY INSURANCE
(a) Tenant agrees to indemnify and save harmless Landlord, its
officers, agents, employees and servants, from and against any and all claims by
or on behalf of any persons, firms or corporations, arising from the use,
occupancy, conduct, management of, or from the use, or from any work or thing
whatsoever done in or about, the Premises during the entire Term, and will
further indemnify and save harmless Landlord, its officers, agents, servants and
employees, from and against any and all claims arising during the entire Term
from any conditions of the Premises, or arising from any breach or default on
the part of Tenant in the performance of any covenant or agreement on the part
of Tenant to be performed pursuant to the terms of this Lease, or arising from
any act or negligence of Tenant, or any of Tenant's agents, contractors,
servants, employees or licensees, or arising from any accident, injury or damage
whatsoever caused to any person, firm or corporation occurring during the entire
Term of this Lease, in or about the Premises and from and against all costs,
counsel fees, expenses and liabilities incurred in connection with any such
claim or action or proceeding brought thereon; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord covenants to resist or defend such action or proceeding by
counsel satisfactory to Landlord.
(b) Tenant agrees to carry at its own expense throughout the Term
comprehensive public liability insurance covering the Premises and Tenant's use
thereof, in companies and in form satisfactory to Landlord, in the amount of at
least Five Hundred Thousand Dollars ($500,000.00) on account of bodily injury to
or death of one person and One Million Dollars ($1,000,000.00) on account of
bodily injuries to or death of more than one person as a result of any
occurrence and with Two Hundred Fifty Thousand Dollars ($250,000.00) coverage
for property damage, and to deposit said policy or policies (or certificates
thereof) with Landlord prior to the date of any use or occupancy of the Premises
by Tenant and thereafter not less than thirty (30) days prior to the expiration
of any such policy; said policy or policies shall name Landlord and Tenant as
insured and shall bear endorsements to the effect that the insurer agrees to
notify Landlord not less than thirty (30) days in advance of any modification or
cancellation thereof. Should Tenant fail to carry such public liability
insurance, Landlord may at its option (but shall not be required so to do) cause
public liability insurance as aforesaid to be issued, and in such event Tenant
agrees to pay the premium for such insurance as additional rent promptly upon
Landlord's demand.
15. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS
Tenant covenants and agrees that if Tenant shall at any time fail to
perform any of the covenants on its part to be made or performed under this
Lease, the Landlord may, but shall not be
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obligated, and without notice or demand and without waiving or releasing the
Tenant from any obligation of the Tenant under this Lease, perform such act to
the extent that the Landlord may deem desirable. All expenses incurred by
Landlord in connection therewith shall be deemed additional rent hereunder and
be payable to the Landlord on demand and the Landlord shall have the same rights
and remedies for the nonpayment thereof as in the case of default in the payment
of any other rent or charges to be paid by Tenant hereunder. Landlord shall have
the right to enter the Premises for the purpose of performing any maintenance or
making any repairs as Landlord may elect to perform or make pursuant to this
Section 15 and such entry shall not constitute an eviction of Tenant. Nothing in
this Section 15 shall be construed to or deemed to impose any duties upon
Landlord.
16. CONDEMNATION
(a) If the whole, or any part of the Premises shall be taken by any
public, or quasi-public authority under any statute or by power or right of
eminent domain, the Term shall cease on that part of the Premises so taken or
conveyed (hereinafter referred to as the "Condemned Portion") from the day the
possession of the Condemned Portion shall be taken by the condemning authority.
Unless this Lease is cancelled as hereinafter provided, the Fixed Base Rent
provided for herein commencing with the date possession is acquired by the
condemning authority, shall be reduced in proportion to the amount of the
Premises taken. If less than the entire Premises shall be taken by such
condemning authority, and in the event, and only in the event, that the
remainder of the Premises not so taken is not, in Landlord's judgment,
reasonably fit or suited to being used by Tenant to enable Tenant to discharge
and satisfy the purposes for which the Premises are leased hereunder to Tenant
and to carry on its business therein, Tenant, provided that Tenant is not in
default under this Lease, may in such event terminate this Lease as to the
remainder of the Premises by giving written notice to Landlord not later than
fifteen (15) days after the vesting of title in the condemning authority or the
date possession of the Condemned Portion shall be taken by the condemning
authority, whichever shall first occur, specifying as the date of termination a
date not later than thirty (30) days after the giving of such notice. Upon the
date specified in such notice, the Term and all right, title, and interest of
Tenant hereunder shall cease and come to an end, provided Tenant is not in
default under this Lease on such date, and Fixed Base Rent, Percentage Rent and
other charges shall be apportioned as of the date of such termination.
(b) If less than the entire Premises shall be taken by such condemning
authority and this Lease is not terminated as hereinabove provided, Landlord
covenants and agrees at Landlord's cost and expense to restore that portion of
the Premises no so taken to a complete architectural unit, in which event (i)
the Fixed Base Rent shall be reduced by an amount based upon the proportion
which the square feet of usable floor space of the Premises, including space
occupied by interior walls and columns remaining after the taking, bears to the
total floor space of the Premises prior to the taking, and (ii) the Base Sales
Amount of Gross Sales in excess of which Percentage Rent shall be due and
payable as provided in Section 3, paragraph (c) shall be reduced by the same
percentage as the percentage of reduction in usable floor space in the Premises
after restoration thereof. In the event Landlord is obligated to restore the
Premises to a complete architectural unit as above provided, Landlord shall not
be required to spend for such work an amount in excess of the amount received by
Landlord as damages for the part of the Premises so taken, less any amount paid
to Landlord's mortgagee from such award.
(c) The entire compensation award for any taking shall belong to and be
the property of Landlord, including, but not limited to, all damages as
comprehensive for diminution in value of the leasehold, reversion, and fee,
without any deduction therefrom for any present or future estate of Tenant, and
Tenant hereby assigns such award to landlord, except that Tenant shall be
entitled to
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receive such portion thereof as may be allocated to compensation paid for
Tenant's trade fixtures and cost of removal of stock, provided that Tenant so
proves in any such condemnation proceeding.
(d) Anything in this Section 16 to the contrary notwithstanding, if a
portion of the Premises shall be taken by any public or quasi-public authority
under the power of eminent domain, the Landlord shall have the option of
terminating this Lease as of the date of vesting of title in the condemning
authority by written notice to Tenant given within fifteen (15) days after
vesting of title in the condemning authority, in which event Landlord shall make
a proportionate refund to Tenant of such rent as may have been paid in advance.
(e) For the purpose of this Section 16 a sale to such public or
quasi-public authority under threat of condemnation shall constitute a vesting
of title and shall be construed as a taking by such condemning authority.
17. QUIET ENJOYMENT
Landlord covenants and agrees that the Tenant upon paying the Fixed
Base Rent, additional rent and all other charges herein provided for and
performing and fulfilling the covenants, agreements, and conditions of this
Lease on the Tenant's part to be performed and fulfilled, shall peaceably and
quietly hold, occupy and enjoy the Premises during the Term without hindrance or
molestation by the Landlord or any person (s) claiming under the Landlord,
subject, however, to the terms and conditions of this Lease.
18. DAMAGE OR DESTRUCTION
(a) If the Premises are damaged by fire or other casualty, the damage
shall be repaired by and at the expense of Landlord, provided such repairs can
be made within ninety (90) days after the occurrence of such damage without the
payment of overtime or other premiums, and until such repairs are completed, the
rent shall be abated in proportion to the part of the Premises which is unusable
by Tenant in the conduct of its business (but there shall be no abatement of
rent by reason of any portion of Premises being unusable if the damage is due to
the act or negligence of the Tenant, its employees, agents or invitees or if the
Premises are unusable for a period equal to one day or less).
(b) If such repairs cannot be made within ninety (90) days, Landlord
may, at its option, make such repairs within a reasonable time, and in such
event this Lease shall continue in effect and the rent shall be abated in the
manner provided above. Landlord's election to make repairs must be evidenced by
written notice to Tenant within thirty (30) days after the occurrence of the
damage. If Landlord does not so elect to make such repairs which cannot be made
within ninety (90) days, then either party may, by written notice to the other,
cancel this Lease.
(c) Anything in this Section 18 to the contrary notwithstanding, if the
Premises or the Shopping Center shall be substantially damaged or destroyed by
fire or otherwise, Landlord shall have the option to terminate this Lease as of
the date of such damage or destruction by written notice to Tenant within thirty
(30) days after such damage or destruction.
19. EXTERIOR AND WINDOW LIGHTING
The Tenant agrees to keep the display windows in the Premises and
Tenant's exterior canopy sign well lighted from dusk until 10:00 p.m. (local
time) Monday through Saturday and from dusk until 6:00 p.m. (local time) on
Sunday during the Term.
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20. SUBORDINATION TO MORTGAGE
This Lease is and shall be subject and subordinate to any and all
mortgages, deeds of trust and land leases now existing upon or that may be
hereafter placed upon the Premises and the real estate upon which they are
situated, and to all advances made or to be made thereon, and all renewals,
modifications, consolidations, replacement, or extensions thereof, and the lien
of any such mortgages, deeds of trust and land leases shall be superior to all
rights hereby or hereunder vested in Tenant, to the full extent of all sums
secured thereby; provided however, that each such mortgage or deed of trust now
or hereafter encumbering the Premises and real estate upon which they are
situated shall provide by its terms, or the holder of such mortgage or deed of
trust shall, by a separate agreement, agree that in the event of foreclosure of
such mortgage or deed of trust, Tenant shall remain undisturbed under this Lease
so long as Tenant complies with all of the terms, obligations and conditions
hereunder. This provision shall be self-operative and no further instrument of
subordination shall be necessary to effectuate such subordination, and the
recording of any such mortgage or deed of trust shall have preference and
precedence and be superior and prior in lien to this Lease, irrespective of the
date of recording. In confirmation of such subordination, Tenant shall on
request of Landlord or the holder of any such mortgage or deed of trust execute
and deliver to Landlord within ten (10) days any instrument that Landlord or
such holder may reasonably request.
21. SURRENDER OF PREMISES
At the expiration of the Term, whether by forfeiture or expiration of
time, Tenant shall surrender the Premises to Landlord in as good condition as
when received by Tenant from Landlord except for reasonable use, wear and damage
by fire or the elements.
22. DEFAULT BY TENANT
(a) This Lease is made upon the condition that the Tenant shall
punctually and faithfully perform all of the covenants and agreements by it to
be performed as herein set forth. If any of the following events shall occur,
to-wit: (i) if any installment of Fixed Base Rent, Percentage Rent, or any other
sums required to be paid by Tenant hereunder, or any part thereof, shall at any
time be in arrears and unpaid for ten (10) days after the date due, or (ii) if
there be any default on the part of the Tenant in the observance or performance
of any of the other covenants, agreements or conditions of said Lease on the
part of Tenant to be kept and performed and said default shall continue for a
period of fifteen (15) days after written notice thereof from Landlord to Tenant
(unless such default cannot reasonably be cured within fifteen (15) days and in
such case, Tenant shall have commenced to cure said default within said fifteen
(15) days and thereafter continues diligently to pursue to completion the curing
of same) or (iii) if Tenant shall file a petition in bankruptcy or be
adjudicated a bankrupt, or file any petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief for itself under any present or future federal, state or other
statute, law or regulation, or make an assignment for the benefit of creditors,
or (iv) if any trustee, receiver or liquidator of Tenant or of all or any
substantial part of its properties shall be appointed in any action, suit or
proceeding by or against Tenant and such proceeding or action shall not have
been dismissed within thirty (30) days after such appointment, or (v) if the
leasehold estate hereby created shall be taken by execution or by other process
of law, or (vi) if Tenant shall fail to operate and conduct business as required
in Section 8 hereinabove, then, in any such event, Landlord, at Landlord's
option and without limiting Landlord in the exercise of any other right or
remedy Landlord may have on account of any default by Tenant, may either:
(1) re-enter the Premises, take possession of all buildings,
improvements, additions, alterations, equipment and fixtures thereon, and eject
all parties in possession therefrom,
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using such force for that purpose as may be necessary, without being liable to
any prosecution for said re-entry or the use of such force, and, without
terminating this Lease, at anytime and from time to time relet the Premises or
any part or parts thereof for the account of Tenant or otherwise, receive and
collect the rents therefor, applying the same first to payment of such expenses
as Landlord may have paid, assumed or incurred in recovering possession of the
Premises, including costs, expenses and reasonable attorney's fees and
brokerage, paid, assumed or incurred by Landlord in connection with reletting
the Premises, and then to the fulfillment of the covenants of Tenant. Any such
reletting as provided for herein may be for the remainder of the Term as
originally granted or for a longer or shorter period. Landlord may execute any
Lease made pursuant to the terms hereof in Landlord's own name, and Tenant shall
have no right or authority whatever to collect any rent from such subtenant. In
any case and whether or not the Premises or any part thereof be relet, Tenant
shall pay to Landlord all sums required to be paid by Tenant up to the time of
re-entry by Landlord, and thereafter Tenant shall, if required by Landlord, pay
to Landlord until the end of the Term the equivalent amount of all rent and
other charges required to be paid by Tenant under the terms of this lease, less
the avails of such reletting during the Term, if any, after payment of the
expenses of Landlord as aforesaid, and the same shall be due and payable on the
several rent days herein specified. No such re-entry by Landlord shall
constitute an election to terminate this Lease unless and until Landlord
thereafter gives Tenant notice of Landlord's election to terminate; or
(2) terminate this Lease, and with or without process of law,
expel and remove Tenant, or any other person or persons in occupancy from the
Premises, together with their goods and chattels, using such force as may be
necessary in the judgment of Landlord or his agents in so doing, and repossess
and enjoy said Premises together with all improvements, additions, alterations,
equipment and fixtures thereon, and in addition to any other remedy it may have,
Landlord may recover from Tenant all damages it may incur by reason of such
breach by Tenant.
(b) All rights and remedies of Landlord herein enumerated shall be
cumulative, and none shall exclude any other remedies allowed at law or in
equity.
23. TENANT'S PROPERTY
If for any reason Landlord obtains possession of the Premises, Tenant's
property not removed shall be deemed to have been abandoned and shall become the
property of the Landlord and may be used or disposed of by Landlord as it sees
fit.
24. HOLDING OVER
No receipt of money by the Landlord from the Tenant after termination
of this Lease, or after the service of any notice, or after the commencement of
any suit, or after final judgment for possession of the Premises shall
reinstate, continue or extend the Term or affect any such notice, demand or
suit, or imply consent for any action for which Landlord's consent is required.
In the event Tenant remains in possession of the Premises after termination of
this Lease, and without the execution of a new lease, Tenant, at the option of
Landlord shall be deemed to be occupying the Premises as a tenant from month to
month, at twice the Fixed Base Rent subject to all the other conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
month-to-month tenancy.
25. ACCESS FOR RE-LETTING
The Landlord may at any time within one hundred eighty (180) days
before the expiration date of this Lease enter the Premises at all reasonable
hours for the purpose of offering the same for
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rent and may place and keep on the windows and doors of said Premises signs
advertising the Premises for rent.
26. DEFAULT OF LANDLORD - CURE PERIOD
Landlord shall not be deemed to be in default in the observance or
performance of any of the covenants, conditions, agreements or provisions of
this Lease on its part to be observed or performed unless Landlord shall fail to
remedy such default within thirty (30) days after written notice from Tenant
specifying the nature of such default, or, if default cannot be reasonably
remedied within the said thirty (30) day period, Landlord shall not be deemed to
be in default unless Landlord shall fail to initiate action to remedy such
default within thirty (30) days after such written notice and to prosecute the
same to completion with due diligence.
27. FORCE MAJEURE
In the event Landlord shall be delayed or hindered in or prevented from
the performance of any obligation required under this Lease by reason of
strikes, lockouts, inability to procure labor or materials, failure of power,
fire or other casualty, acts of God, restrictive governmental laws or
regulations, riots, insurrection, war or any other reason not within the
reasonable control of Landlord, then the performance of such obligation shall be
excused for a period of such delay, and the period for the performance of any
such act shall be extended for a period equivalent to the period of such delay.
28. RELEASE AND WAIVER OF SUBROGATION
Landlord shall not be liable for any damage or loss to fixtures,
equipment, merchandise or other personal property of Tenant located anywhere in
or upon the Premises caused by fire, water, explosion, sewer backup or any other
insurable hazards, regardless of the cause thereof, and Tenant does hereby
expressly release Landlord of and from any and all liability for such damage or
loss. Landlord shall not be liable for any damage or loss resulting from
business interruption at the Premises arising out of or incident to the
occurrence of any of the perils which can be covered by a business interruption
policy, and Tenant does hereby expressly release Landlord of and from any
liability for such damage or loss. Tenant shall not be liable for any damages to
the Premises or any part thereof caused by fire or other insurable hazards,
regardless of the cause thereof, and Landlord does hereby expressly release
Tenant of and from any and all liability for such damages or loss. To the extent
that any of the risks or perils described in this Section 28 are in fact covered
by insurance, each party shall cause its insurance carriers to waive all rights
of subrogation against the other party.
29. ESTOPPEL CERTIFICATES
The Tenant shall, within ten (10) days after written request of
Landlord, execute, acknowledge, and deliver to the Landlord or to Landlord's
mortgagee, proposed mortgagee land lessor or proposed purchaser of the Shopping
Center or any part thereof, any estoppel certificates requested by Landlord,
from time to time, which estoppel certificates shall show whether the Lease is
in full force and effect and whether any changes may have been made to the
original Lease; whether the Term of the Lease has commenced and full rental is
accruing; whether there are any defaults by Landlord and, if so, the nature of
such defaults; whether possession has been assumed and all improvements to be
provided by Landlord have been completed; whether rent has been paid more than
thirty (30) days in advance; that there are no liens, charges, or offsets
against rental due or to become due; and that the address shown on such estoppel
is accurate.
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30. LIMITATION OF LANDLORD'S LIABILITY
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owners at the time in question of an interest in this Lease,
and in the event of transfer of said interest in this Lease, then the party
conveying said interest in this Lease shall be automatically relieved after the
date of such transfer, of all personal liability with respect to the performance
of any obligations on the part of Landlord contained in this Lease, arising out
of acts thereafter occurring or covenants thereafter to be performed, it being
intended hereby that all the obligations contained in this Lease on the part of
Landlord shall be binding upon Landlord, its successors and assigns, only during
and in respect of their respective periods of ownership of an interest in this
Lease.
31. ALTERATIONS OR IMPROVEMENTS BY TENANT
Tenant covenants and agrees that it will not alter or change the
Premises or any part thereof without the written consent of Landlord, and Tenant
agrees to indemnify and save harmless Landlord from all liens, claims or demands
arising out of any work performed, materials furnished, or obligations incurred
by or for Tenant upon said Premises during the Term of this Lease. Tenant hereby
waives any right to make repairs at Landlord's expense. Tenant shall not make
changes to locks on doors or add, disturb or in any way change any plumbing or
wiring without first obtaining written consent of Landlord. At the termination
of this Lease, whether by expiration of time or forfeiture, Tenant shall, if
requested by Landlord in writing, restore the Premises at Tenant's sole cost and
expense, to the condition that the Premises were in prior to the making of any
alterations or improvements, normal wear and tear, fire and acts of God
excepted. At the termination of this Lease, whether by expiration of time or
forfeiture, Tenant shall remove all of its personal property from the Premises
and upon failure to do so, such property shall be deemed to be abandoned and of
no value to Tenant and shall become the sole property of Landlord for disposal
as it sees fit. Tenant further agrees to pay to Landlord the cost of removal of
any such property so abandoned by Tenant.
32. ACCESS TO PREMISES
The Landlord shall have the right if it so elects to enter upon the
Premises at all reasonable hours for the purpose of inspecting the same and for
the purpose of maintenance, repair, and for making additions to any running
pipes, conduits and ducts through the Premises, and Tenant hereby waives any
claim against Landlord for damage or inconvenience caused by any of the above.
Nothing in this Section 32 shall be construed to or deemed to impose any duties
upon Landlord.
33. EXCEPTIONS TO DEMISE
Notwithstanding anything to the contrary herein contained, this Lease
is subject to utility easements, both recorded and unrecorded, all protective
and restrictive covenants and all other recorded documents pertaining to or
affecting the Premises, the Shopping Center of which the Premises are a part, or
the real estate upon which the Shopping Center and Premises are situated; this
Lease is also subject to all governmental laws, ordinances, orders, regulations,
codes, directives, variances, permits, and all orders, permits, rules and
regulations issued by or at the direction of any such governmental agency or
authority or any board or instrumentality thereof.
34. OPERATIONS OF TENANT'S HEATING AND AIR CONDITIONING SYSTEM
Tenant agrees to provide at Tenant's cost its heating or air
conditioning in the Premises so as to adequately heat and cool the same, as the
case may be, during the hours that Tenant's store is open
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for business; and to maintain at all times sufficient heat in the Premises to
prevent pipes from freezing.
35. ATTORNMENT
In the event any proceedings are brought for the foreclosure of, or in
the event of the exercise of the power of sale under any mortgage covering the
Premises, or in the event of any other transfer or sale of Landlord's title to
the Premises, Tenant shall attorn to the purchaser under any such sale, transfer
or foreclosure and recognize such purchaser or transferee at the Landlord under
this Lease.
36. PARTIAL INVALIDITY
If any term, covenant or condition of this Lease, or the application
thereof, to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Lease or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby and each term,
covenant and condition of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
37. WAIVER OF JURY TRIAL
So far as permitted by law, Landlord and Tenant waive and will waive
any and all right to a trial by jury in the event that summary dispossession
proceedings shall be instituted by Landlord.
38. LEASE BINDING UPON ASSIGNEES
Except at provided in Section 30, this Lease and all covenants,
provisions and conditions herein contained shall inure to the benefit of and be
binding upon the heirs, executors, administrators, personal representatives,
successors and assigns, respectively of the parties thereto, provided however,
that no sublease, assignment or transfer by, from, through or under Tenant in
violation of the provisions hereof shall vest in the sublessee, assignee or
transferee any right, title or interest whatever.
39. ALTERATIONS, ADDITIONS AND CONSTRUCTION OF NEW BUILDING
Landlord hereby reserves the right at any time to make alterations or
additions to the building in which the Premises are located. Landlord also
reserves the right to construct other buildings or improvements in the Shopping
Center from time to time and to make alterations thereof or additions thereto.
40. LANDLORD'S OPTION TO EXPAND SHOPPING CENTER
Landlord shall have the right, but not the obligation, to expand the
Shopping Center.
41. PARTNERSHIP
Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating a relationship between the parties
hereto other than the relationship of Landlord and Tenant.
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42. WAIVER
The failure of Landlord to insist in any one or more cases upon the
strict performance of observance of any of the covenants, agreements or
conditions of this Lease or to exercise any option herein contained shall not be
construed as a waiver or relinquishment for the future performance, observance
or exercise of such covenant, agreement, condition or option. No waiver of any
default hereunder shall be implied from any omission by Landlord to take any
action on account of such default or to declare a forfeiture if such default
persists or is repeated, and no condition or covenant shall be deemed waived by
Landlord unless such waiver be in writing signed by Landlord. The acceptance by
Landlord of rent with knowledge of the breach of any of the covenants or
conditions of this Lease by Tenant shall not be deemed a waiver of any such
breach. One or more waivers of any breach of any covenant, term or condition of
this Lease by Landlord shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition.
43. PARKING OF CARS
The Tenant and his employees shall not park cars on the street or
internal drives in the Shopping Center of which the herein Premises are a part,
or in any alley or court in the center of which the herein Premises are a part.
When there is a rear entrance, all loading and unloading of goods shall be made
at the rear entrance. The Tenant and his employees shall park their cars in
areas as designated by the Landlord from time to time. The Landlord does not
agree to reserve or permanently maintain any parking stations which are now
built or may hereafter be built in said Shopping Center. Failure of the Tenant
and his employees to park cars in such designated areas shall be an event of
default by Tenant. The Tenant further agrees that upon written notice from the
Landlord he will, within five (5) days, furnish the state automobile license
numbers assigned to his car and the cars of all his employees.
44. NO ACCORD AND SATISFACTION
No acceptance by Landlord of a lesser sum than the Fixed Base Rent,
Percentage Rent, additional rent or any other charge then due shall be deemed to
be other than on account of the earliest installment of such rent or charge due,
nor shall any endorsement or statement on any check or any letter accompanying
any check or payment as rent or other charge be deemed in accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or charge or any
other monies owing by Tenant or pursue any other remedy in this Lease provided.
45. BANKRUPTCY
Neither this Lease, nor any interest therein, nor any estate hereby
created shall pass to any trustee or receiver in bankruptcy, or to any other
receiver or assignee for the benefit of creditors or otherwise by operation of
law.
46. CORPORATE OWNERSHIP
If the Tenant herein is a corporation and if, by sale or other
disposition, the control thereof changes at any time during the Term hereof,
then, at the option of the Landlord, this Lease may be cancelled by the Landlord
upon giving sixty (60) days prior written notice of its intention so to do.
Written notice of any such intended sale must be given to Landlord at least
twenty (20) days prior to the effective date thereof.
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47. ADVERTISING
During each Lease Year Tenant agrees to spend a minimum of Fifty Cents
($.50) per square foot of gross area of the Premises or One Thousand Dollars
($1,000.00), whichever is greater, to advertise and promote the Tenant's
business in the Shopping Center. Only expenditures for advertising which
specifically features Tenant's location in the Shopping Center and which
contains the name "Karric Square at Dublin Shopping Center" prominently featured
therein shall be credited to satisfy the foregoing requirement. Tenant agrees,
upon the Landlord's request, to furnish invoices, copies of advertisements or
such other documents or information as Landlord shall reasonably request to
verify that Tenant has complied with this Section 47.
48. ASSIGNMENT AND SUBLETTING
Tenant shall not assign this Lease in whole or in part, nor sublet all
or part of the Premises, without the prior written consent of Landlord in each
instance. It is the intention of the parties that Landlord shall have the
absolute right to withhold its consent to an assignment or subletting for any
reason, and no standard of "reasonableness" shall be applicable or implied in
construing this Section 48. The consent by Landlord to any assignment or
subletting shall not constitute a waiver of the necessity for such consent to
any subsequent assignment or subletting. Notwithstanding any assignment or
sublease, Tenant shall remain fully liable on this Lease and shall not be
released from performing any of the terms, covenants and conditions of this
Lease.
49. SECURITY DEPOSIT
Tenant has deposited with Landlord the sum of ZERO DOLLARS as security
for the full and faithful performance of every provision of this Lease to be
performed by Tenant. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to the provisions relating to the payment of
Fixed Base Rent, additional rent and other charges, Landlord may use, apply or
retain all or any part of this security deposit for payment of any such rent or
other sum in default, or for the payments of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant's default. If any portion
of said deposit is so used or applied, Tenant shall, within five (5) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the security deposit to its original amount, and Tenant's failure to do
so shall be a breach of this Lease. Landlord shall not be required to keep this
security deposit separate from its general funds, and Tenant shall not be
entitled to interest on such deposit. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the security
deposit or any balance thereof shall be returned to Tenant without interest at
the expiration of the Lease Term and upon Tenant's vacation of the Premises.
50. ENTIRE AGREEMENT AND MODIFICATIONS
This Lease and the covenants and agreements set forth herein are and
shall constitute the entire agreement between the parties. Each party to this
Lease hereby acknowledges and agrees that the other party has made no
warranties, representations, covenants or agreements, expressed or implied, to
such party other than those expressly set forth herein and that each party, in
entering into and executing this Lease, has relied upon no warranties,
representations, covenants or agreements, express or implied, to such party
other than those expressly set forth herein. None of the terms, covenants and
agreements of this Lease shall in any manner be altered, waived or changed,
except by written instrument signed and delivered by the parties hereto.
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51. SURVIVAL OF TENANT'S OBLIGATIONS
All obligations of Tenant which by their nature involve performance, in
any particular, after the end of the Term of which cannot be ascertained to have
been fully performed until after the end of the Term, shall survive the
expiration or sooner termination of the Term.
52. BROKER'S COMMISSION
Tenant warrants that there are no claims for broker's commissions or
finder's fees in connection with Tenant's execution of this Lease. Tenant agrees
to indemnify and save Landlord harmless from any liability that may arise from
the claim of any other person, including, but not limited to, reasonable
attorney's fees.
53. ATTORNEY'S FEES AND COSTS
In the event Landlord shall have to file any proceeding, whether at law
or in equity, to enforce collection of any rent, charge or other payment to be
borne, kept or paid by Tenant hereunder, or in the event Tenant shall be in
default hereunder and Landlord employs counsel to enforce performance of any of
the obligations of Tenant hereunder, Landlord shall be entitled to recover from
Tenant, and Tenant agrees to pay to Landlord an amount of money equal to all
reasonable expenses including reasonable attorney's fees incurred by Landlord in
enforcing the covenants hereof and securing to it the performance of obligations
of Tenant hereunder, in addition to all sums to which Tenant shall otherwise be
obligated hereunder. Said fees and costs shall be additional rent hereunder.
54. NOTICES
All notices provided for in this Lease shall be in writing and shall be
delivered personally or deposited in the United States mail, registered or
certified, return receipt requested, postage prepaid, addressed to Landlord c/o
C.B. Richard Ellis, 200 E. Campusview - Suite 100, Columbus, Ohio 43235, or at
such other address as the Landlord may from time to time designate by notice in
writing to Tenant and to Tenant at 5501 Frantz Road, Dublin, Ohio 43017, or at
such other address as the Tenant may from time to time designate by notice in
writing. Notice shall be deemed given when deposited in the United States mail
as aforesaid. Notice need be sent to only one person where the Tenant is more
than one person.
55. RECORDING
Neither party shall record this Lease in its entirety. However, upon the
request of either party, the other party shall join in the execution of a
memorandum or so called "short form" of this Lease for the purpose of
recordation.
56. NO OPTION
The submission of this Lease for examination does not constitute a
reservation of or option for the Premises or any other space within the Shopping
Center and shall vest no right in either party. This Lease shall become
effective as a lease only upon execution and delivery thereof by the parties
hereto, and upon Landlord's receipt of the Security Deposit.
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57. HEADINGS AND INTERPRETATIONS
The paragraph headings used throughout this instrument are for
convenience and reference only, and the words contained therein shall in no way
be held to explain, modify, amplify or aid in the interpretation, construction
or meaning of the provisions of this Lease.
Whenever herein the masculine gender is used, the same shall include
the feminine and neuter genders.
58. NON-DISCRIMINATION
Neither Tenant nor anyone claiming under Tenant shall discriminate upon
the basis of race, color, creed or national origin in the use or occupancy of
the Premises or any part thereof.
59. INTEREST AND PAST-DUE OBLIGATION
Other remedies for default in this Lease notwithstanding, any sum
accruing to Landlord or Tenant under the terms and provisions of this Lease
which is not paid when due shall bear interest at the rate of one and one-half
percent (1-1/2%) per month, but in no event more than the maximum amount allowed
by law, from the date when any such sum becomes due and payable under the terms
and provisions of this Lease until paid. In addition, and not by way of
limitation to the preceding sentence, if any Base Rent, Percentage Rent and/or
additional rent payment is not received by Landlord on or before the ninth day
of the month for which such payment is due, a service charge of five percent
(5%) of such past-due amount shall become due and payable in addition to such
amounts owed under this Lease.
60. MISCELLANEOUS
This Lease has been negotiated by Landlord and Tenant, and this Lease,
together with all of the terms and provisions hereof, shall not be deemed to
have been prepared by either Landlord or Tenant, but by both equally. Wherever
in this Lease any printed portion or part thereof has been stricken, whether or
not any relative provisions have been added, this Lease shall be read and
construed as if the material stricken was never included herein, and no
implication shall be drawn from the text of the material so stricken which would
be inconsistent in any way with the construction or interpretation which would
be appropriate if such material were never contained herein.
61. RIDER
Exhibits A, B, C and D are attached hereto and made a part hereof.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
day and year first above written.
Signed and acknowledged in
the presence of: BRC PROPERTIES INC., LANDLORD
By: /s/ Randolph B. Robert
- ------------------------------- ---------------------------
Randolph B. Robert
Vice President
- -------------------------------
DOMINION HOMES, INC., TENANT
By: /s/ Denis G. Connor
- ------------------------------- ---------------------------
Denis G. Connor
Senior Vice President
- -------------------------------
STATE OF OHIO
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 29th day of
September, 1999, by Randolph B. Robert, the Vice President of BRC Properties
Inc., an Ohio corporation, on behalf of the corporation.
-------------------------------
Notary Public
STATE OF OHIO
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 29th day of
September, 1999, by Denis G. Connor, the Senior Vice President of Dominion Home,
Inc., an Ohio Corporation, on behalf of the corporation.
---------------------------------
Notary Public
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EXHIBIT B
---------
LANDLORD'S IMPROVEMENTS
-----------------------
Tenant accepts Premises in "as is" condition.
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EXHIBIT C
---------
TENANT'S WORK
-------------
In accordance with the terms of this Lease, Tenant shall perform any and all
additional tenant finish work for the Leased Premises over and above the items
of Landlord's Work listed in Exhibit B at Tenant's sole cost and expense, unless
Landlord and Tenant agree that Landlord is to perform certain of said items at
Tenant's expense. Any such agreement shall be in writing and shall specify the
items to be completed by Landlord on behalf of Tenant and the cost to be paid by
Tenant for said tenant finish work. It is understood and agreed that the cost
for any such tenant finish work completed by Landlord on behalf of Tenant shall
be paid for in full prior to the time Tenant opens the Leased Premises to the
public for business.
Any and all alterations and improvements made by Tenant shall be made in
accordance with applicable laws and building codes, and in a good and
workmanlike manner. All plans and specifications for any such tenant finish
work, and the name of the contractor who is to perform same, must be submitted
to Landlord for its written approval prior to commencement of any such tenant
finish work. Tenant shall fully and completely indemnify, defend and hold
Landlord harmless from and against any and all mechanic's lien or other liens or
claims in connection with any tenant finish work performed by Tenant or a third
party, or for which Tenant has not yet paid. All tenant finish work to be
performed by Tenant shall be completed within forty-five (45) days from the date
Landlord substantially completes Landlord's Work and notifies Tenant of such
substantial completion. Tenant shall provide Landlord with full and complete
mechanic's lien waivers from all persons furnishing labor and material for
completion of Tenant's Work.
Failure to perform any of the covenants contained herein shall constitute a
default under the terms of this Lease, and if such default is not cured within
ten (10) days after written notice thereof to Tenant, Landlord shall have all of
the rights and remedies provided under this Lease, as well as any other rights
afforded to landlord at law or in equity.
All utility charges for the Leased Premises accruing during the period in which
Tenant is performing its tenant finish work prior to the commencement of the
term of this Lease shall be borne by Tenant.
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EXHIBIT D
---------
SIGN STANDARDS
--------------
Landlord will provide a sign casing with appropriate electrical service
permanently mounted on the canopy of the building facing the parking lot
immediately adjacent to and in front of Tenant's storeroom.
Tenant is responsible for design and cost of the insert and light bulbs and
design cost. Maintenance of the sign and mechanical equipment after the
storeroom is delivered to Tenant shall be Tenant's responsibility and expense.
Tenant agrees to repair any damaged or malfunctioning sign in as timely a manner
as possible. Signage will be provided only by Landlord's approved subcontractor.
Landlord reserves the right to approve all sign designs prior to installation.
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Exhibit 10.10
AGREEMENT FOR SERVICES
THIS AGREEMENT FOR SERVICES, dated as of the 5th day of October, 1999,
between HOMEBUILDERS FINANCIAL NETWORK, INC., a Florida corporation
(`HOMEBUILDERS FINANCIAL") and DOMINION HOMES, INC., an Ohio corporation
("BUILDER").
W I T N E S S E T H
WHEREAS, HOMEBUILDERS FINANCIAL is in the business of creating and
managing an in-house mortgage loan origination operation for large-volume
homebuilders in an effort to enable such homebuilders to exercise more control
over, and create income from, the process of obtaining and closing
purchase-money financing for their home buyers; and
WHEREAS, BUILDER is a large-volume homebuilder and is desirous of
employing HOMEBUILDERS FINANCIAL to establish and manage an in-house mortgage
loan origination operation, wholly-owned by BUILDER, to originate, process,
close and sell to investors permanent purchase-money first and/or second
mortgage loans made to the home buyers of BUILDER and others ("IN-HOUSE MORTGAGE
COMPANY"); and
WHEREAS, HOMEBUILDERS FINANCIAL is willing to perform services for
BUILDER necessary to establish and manage an IN-HOUSE MORTGAGE COMPANY for
BUILDER and BUILDER is willing to retain HOMEBUILDERS FINANCIAL on the terms and
conditions set forth in this Agreement for Services.
NOW, THEREFORE, HOMEBUILDERS FINANCIAL and BUILDER, for good and
valuable consideration, the receipt and adequacy of which hereby are
acknowledged, agree as follows:
1. SERVICES. HOMEBUILDERS FINANCIAL will perform all services necessary
to establish for and on behalf of BUILDER an IN-HOUSE MORTGAGE COMPANY, and will
perform such other services as may mutually be agreed upon by the parties hereto
to manage the IN-HOUSE MORTGAGE COMPANY, including without limitation, the
following:
(a) BUSINESS ESTABLISHMENT PHASE. From the date
hereof to the date on which the IN-HOUSE MORTGAGE COMPANY obtains all
requisite licenses, permits and approvals and commences operations as a
mortgage company ("Business Establishment Phase"), such services shall
include assisting in the development of PRO FORMA financial plans, cash
flows and budgets, developing job descriptions for all management and
staff positions in the IN-HOUSE MORTGAGE COMPANY and recruiting,
interviewing, recommending for employment by BUILDER all management and
staff positions; conducting intensive initial class room training for
all initial and subsequent employees of the IN-HOUSE MORTGAGE COMPANY
at HOMEBUILDERS FINANCIAL'S headquarters in Miami Lakes, Florida at no
additional charge (IN HOUSE MORTGAGE COMPANY shall be responsible to
pay for all trainer, room and board expenses of such personnel who
travel to Florida for such training); supervising and managing the
IN-HOUSE MORTGAGE COMPANY operations and staff; cooperating with the
accountants for BUILDER in establishing
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the accounting system for the IN-HOUSE MORTGAGE COMPANY; preparing the
necessary mortgage loan application and processing forms and
disclosures, programs and systems (the "Application Processing
Documents"); and identifying and recommending for purchase, lease or
license by BUILDER the necessary equipment, computers, software
programs, forms and collateral material; and
(b) BUSINESS MANAGEMENT PHASE. From and after the Business
Establishment Phase ("Business Management Phase"), such services shall
include, in addition to continuing the services described in Paragraph
1(a) above, as required by the IN-HOUSE MORTGAGE COMPANY, assisting in
the development of financial plans, cash flows and budgets;
establishing and maintaining relationships between the IN-HOUSE
MORTGAGE COMPANY and institutional mortgage loan purchasers
("Investors"), who will offer mortgage programs, loan rates and rate
locks which HOMEBUILDERS FINANCIAL reasonably believes will be
attractive to BUILDER'S home buyers; preparing monthly management
reports for BUILDER containing relevant operations and loan production
data; periodically, as necessary, revising the mortgage loan disclosure
and processing documents; overseeing the staff and managing the
operations of the IN-HOUSE MORTGAGE COMPANY; performing quality-control
reviews of a random sample of the loans produced by the IN-HOUSE
MORTGAGE COMPANY to test compliance with Investor requirements, and
applicable state and federal mortgage lending regulatory requirements,
including those promulgated by the Real Estate Settlement Procedures
Act ("RESPA"); and remaining available to consult with BUILDER
regarding the operations of the IN-HOUSE MORTGAGE COMPANY.
(c) COMPLIANCE WITH LAWS; INDEMNITY. HOMEBUILDERS FINANCIAL
shall supply IN-HOUSE MORTGAGE COMPANY with all necessary Application
Processing Documents. HOMEBUILDERS FINANCIAL hereby represents and
warrants to BUILDER and to IN-HOUSE MORTGAGE COMPANY that, provided
IN-HOUSE MORTGAGE COMPANY completes and processes the Application
Processing Documents in accordance with any written instructions that
are given to it by HOMEBUILDERS FINANCIAL, such Application Processing
Documents and IN-HOUSE MORTGAGE COMPANY'S activities in respect thereof
will comply in all material respects with all applicable federal and
state statutes and regulations, including without limitation, the Equal
Credit Opportunity Act (the "ECOA") and the Fair Credit Reporting Act
("FCRA"). In addition, HOMEBUILDERS FINANCIAL represents and warrants
to BUILDER and to IN-HOUSE MORTGAGE COMPANY that HOMEBUILDERS FINANCIAL
will coordinate with all Investors and with all closing agents and will
otherwise take such actions as are necessary to ensure that each loan
that is the subject of a loan application package processed by IN-HOUSE
MORTGAGE COMPANY (each an "In-House Mortgage Company Loan") will be
handled, processed and have closing instructions and documents provided
in accordance with all applicable federal and state statutes and
regulations, including without limitation, the ECOA, the FCRA, the
Truth in Lending Act, the Real Estate Settlement Procedures Act, the
Home Mortgage Disclosure Act, and all applicable regulations of the
Federal Housing Administration and the Veteran's Administration
(collectively the "Laws"). AS A SPECIFICALLY BARGAINED FOR INDUCEMENT
FOR BUILDER TO ENTER INTO THIS AGREEMENT, HOMEBUILDERS FINANCIAL hereby
agrees to indemnify, defend and hold harmless BUILDER, IN-HOUSE
MORTGAGE COMPANY and their respective officers, directors and employees
from any and all claims, losses, damages, costs, expenses (including
attorney fees) and liabilities arising out of the noncompliance with
any Laws applicable to any In-House Mortgage Company Loan;
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provided, however, that HOMEBUILDERS FINANCIAL'S indemnity shall not
extend to any noncompliance that results from IN-HOUSE MORTGAGE
COMPANY'S (i) willful misconduct, (ii) failure to utilize Application
Processing Documents supplied by HOMEBUILDERS FINANCIAL or to complete
and process such Application Processing Documents in accordance with
HOMEBUILDERS FINANCIAL'S written instructions, or (iii) negligent use
of Application Processing Documents supplied by HOMEBUILDERS FINANCIAL
or its negligence in failing to complete or process such Application
Processing Documents in accordance with HOMEBUILDERS FINANCIAL'S
written instructions; and PROVIDED FURTHER, that HOMEBUILDERS
FINANCIAL'S indemnity shall not extend to any claim, loss, damage,
cost, expense or liability which is covered by insurance or which
should have been covered by insurance provided for in Section 8 of the
Addendum 1 hereto.
2. TERM. This Agreement shall commence on the date hereof and shall continue for
a period ending five (5) years from the date on which the first mortgage loan is
closed by the IN-HOUSE MORTGAGE COMPANY ("Initial Term"), unless sooner
terminated as provided herein.
3. EMPLOYEES OF IN-HOUSE MORTGAGE COMPANY. The employees of the IN-HOUSE
MORTGAGE COMPANY shall not be employees or agents of HOMEBUILDERS FINANCIAL.
Such employees shall be the employees of BUILDER or its subsidiary or affiliated
company. HOMEBUILDERS FINANCIAL shall have no responsibility or liability for
salaries, payroll and withholding taxes, workman's compensation claims, or other
employee benefits to which such employees may be entitled or for any claims of
discrimination, sexual harassment, wrongful termination or for any other
employment-related claim. BUILDER agrees to defend, indemnify and hold
HOMEBUILDERS FINANCIAL harmless from and against any and all liability, loss,
claim, cause of action and damage relating to or arising out of the employment
relationship between the IN-HOUSE MORTGAGE COMPANY and its employees so long as
any liability, loss, claim, cause of action, and damage does not result from any
wrongful act of HOMEBUILDERS FINANCIAL or its employees.
4. LICENSING OF THE IN-HOUSE MORTGAGE COMPANY. HOMEBUILDERS FINANCIAL will mange
and monitor the process of applying for and maintaining all required local,
state, federal and regulatory licenses, permits, consents and approvals for any
location where operations of the IN-HOUSE MORTGAGE COMPANY are established.
BUILDER represents and warrants to HOMEBUILDERS FINANCIAL that it shall
cooperate with and use its best efforts to assist HOMEBUILDERS FINANCIAL in the
process of obtaining such licenses, permits, consents and approvals. BUILDER
shall be responsible for the direct payment, or reimbursement to HOMEBUILDERS
FINANCIAL, of any and all fees and out-of-pocket costs and expenses, incurred
and paid by HOMEBUILDERS FINANCIAL, related to or required for the issuance of
all such licenses, permits, consents and approvals.
5. BUILDER TO COOPERATE; BUILDER NOT TO COMPETE.
(a) As long as this Agreement shall remain in effect, BUILDER
shall not directly or indirectly, own more than a 10% interest in or
operate another residential mortgage lender unless gained through
acquisition of another builder. To the extent not violative of
applicable laws, BUILDER will use its best efforts to assure the
financial success of the IN-HOUSE MORTGAGE COMPANY by promoting its use
by its home buyers as the primary source for permanent, purchase-money
financing.
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HOMEBUILDERS FINANCIAL shall not be restricted in any way from
providing the same or similar services to other residential builders.
(b) Inasmuch as the IN-HOUSE MORTGAGE COMPANY may be
considered to be an "Affiliated Business Arrangement" under RESPA,
BUILDER shall comply with the requirements of RESPA, including, but not
limited to, providing its prospective home buyers with the applicable
disclosures and notices regarding its interest in the IN-HOUSE MORTGAGE
COMPANY, all in accordance with instruction and documents provided by
HOMEBUILDERS FINANCIAL under Section 1(c), above.
6. MANAGEMENT FEES TO HOMEBUILDERS FINANCIAL. BUILDER shall pay to
HOMEBUILDERS FINANCIAL, in consideration of the services to be performed
hereunder by HOMEBUILDERS FINANCIAL, the following fees, costs and expenses:
(a) BUSINESS ESTABLISHMENT FEE. Forty Thousand Dollars
($40,000.00), as the fee due HOMEBUILDERS FINANCIAL for the services to
be performed necessary to establish the IN-HOUSE MORTGAGE COMPANY
("Business Establishment Fee"), payable as follows:
(i) the sum of Fifteen Thousand Dollars ($15,000.00)
upon the execution and delivery of this Agreement which shall
be deemed earned when received by HOMEBUILDERS FINANCIAL and
shall not be refundable for any reason;
(ii) the sum of Five Thousand Dollars ($5,000.00)
upon the formation of the IN-HOUSE MORTGAGE COMPANY;
(iii) the sum of Five Thousand Dollars ($5,000.00)
upon the issuance of all state licenses required to be
obtained by IN-HOUSE MORTGAGE COMPANY;
(iv) the sum of Five Thousand Dollars ($5,000.00)
upon the hiring of the IN-HOUSE MORTGAGE COMPANY'S initial
staff as determined by HOMEBUILDERS FINANCIAL;
(v) the sum of Five Thousand Dollars ($5,000.00)
upon commencement of IN-HOUSE MORTGAGE COMPANY'S operations;
and
(vi) the sum of Five Thousand Dollars ($5,000.00)
upon the issuance of FHA licensing of the IN-HOUSE MORTGAGE
COMPANY.
BUILDER acknowledges and agrees that (a) the Business Establishment Fee
is deemed to have been earned by HOMEBUILDERS FINANCIAL as of the date
of this Agreement and that the monthly payments described in
subparagraph (ii) above are solely for the convenience of BUILDER and
(b) if BUILDER breaches this Agreement by failing to make any of such
monthly payments when due or by terminating this Agreement during the
Business Establishment Phase, the entire unpaid balance of the Business
Establishment Fee shall immediately become due and payable to
HOMEBUILDERS FINANCIAL.
(b) BUSINESS MANAGEMENT FEE. An amount equal to the sum of:
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(i) The Loan Administration Fee (hereinafter defined)
for the immediately preceding calendar month ("Prior Month"),
payable monthly commencing with the calendar month immediately
following the month in which the first mortgage loan is closed
by the IN-HOUSE MORTGAGE COMPANY ("First Loan Closing"), and
continuing monthly thereafter during the Initial Term (and
thereafter, with respect to the subsequent closing of those
mortgage loans which, at the expiration of the Initial Term,
were at some stage of the loan origination process, but had
not closed ["Pipeline Loans"]), on the fifteenth day of such
following calendar month and on the fifteenth day of each and
every calendar month thereafter. The "Loan Administration
Fee," payable hereunder by BUILDER to HOMEBUILDERS FINANCIAL,
shall be based upon the total aggregate original principal
amount of all mortgage loans closed by the IN-HOUSE MORTGAGE
COMPANY during the Prior Month ("Prior Month's Loan
Production") and shall be calculated by multiplying the Prior
Month's Loan Production (expressed in dollars) by twenty (20)
basis points (expressed as a percentage, whereby 1 basis point
= 1/100 of 1 percent) based upon the cumulative total
aggregate original principal amount of all loans closed by the
IN-HOUSE MORTGAGE COMPANY to and including the last day of the
Prior Month, and;
(ii) The Monthly Management Fee (hereinafter defined)
for the immediately preceding calendar month ("Prior Month"),
payable monthly commencing with the calendar month of the
First Loan Closing, and continuing monthly thereafter during
the Initial Term, an amount equal to twenty-five percent (25%)
of the pre-tax "net operating income" (as defined on Exhibit
"A" hereto) (if positive) of the IN-HOUSE MORTGAGE COMPANY.
The fee is calculated on a cumulative basis such that no fee
is due unless cumulative net operating income is positive.
Once IN HOUSE MORTGAGE COMPANY reflects inception to date
positive net operating income, the cumulative calculation will
be adjusted quarterly.
(c) REIMBURSABLE EXPENSES. During the Business Management
Phase, BUILDER shall reimburse HOMEBUILDERS FINANCIAL for the costs of
air fares, car rentals, meals and lodging for personnel of HOMEBUILDERS
FINANCIAL for on-site visits in excess of twelve (12) on-site visits
per year.
(d) MONTHLY STATEMENTS. HOMEBUILDERS FINANCIAL shall provide
BUILDER with a detailed monthly statement of the fees and reimbursable
expenses due to HOMEBUILDERS FINANCIAL for the Prior Month.
7. RELATIONSHIPS WITH INVESTORS. BUILDER and HOMEBUILDERS FINANCIAL acknowledge
that an important element in the success of the IN-HOUSE MORTGAGE COMPANY, not
only as a stand-alone business, but also as a synergistic component of the core
business of BUILDER, is the establishment and maintenance of relationships with
existing and potential Investors, whose mortgage programs, loan rates and rate
locks may be attractive to BUILDER'S home buyers. BUILDER acknowledges and
agrees that, during the term of this Agreement, HOMEBUILDERS FINANCIAL shall be
responsible to select and determine the Investors who shall provide the loan
products to be offered by the IN-HOUSE MORTGAGE COMPANY. Anything to the
contrary herein notwithstanding, nothing in this Agreement shall be deemed to be
a guarantee or a commitment by HOMEBUILDERS
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FINANCIAL that (a) any or every individual prospective buyer of BUILDER will be
eligible or qualify for purchase-money mortgage financing through the loan
programs offered at any time or from time-to-time by the IN-HOUSE MORTGAGE
COMPANY or (b) fraud or material misrepresentation on the part of a prospective
borrower or an employee of the IN-HOUSE MORTGAGE COMPANY or both will not occur
in connection with the origination of a loan, notwithstanding the efforts of
HOMEBUILDERS FINANCIAL to establish for the IN-HOUSE MORTGAGE COMPANY prudent
mortgage lending practices, procedures and controls. HOMEBUILDERS FINANCIAL
recommends that BUILDER obtain for the IN-HOUSE MORTGAGE COMPANY all appropriate
insurance policies to cover all or a portion of these potential risks.
8. HOMEBUILDERS FINANCIAL represents and warrants to BUILDER that its selection
from time to time of potential Investors for the IN-HOUSE MORTGAGE COMPANY shall
be determined by the good faith belief by HOMEBUILDERS FINANCIAL that the
products and service offered by, and the reputation and financial condition of,
such Investors are in the best interests of the IN-HOUSE MORTGAGE COMPANY, that,
during the term of this Agreement, HOMEBUILDERS FINANCIAL shall NOT receive any
origination fees or servicing release premiums from any Investor in connection
with the purchase-money loans originated by the IN-HOUSE MORTGAGE COMPANY and
funded by an Investor, but HOMEBUILDERS FINANCIAL may receive customary fees for
loan underwriting or loan closing services, or both, performed by HOMEBUILDERS
FINANCIAL on behalf of such Investor.
9. INSPECTION OF BOOKS AND RECORDS. At any time and from time to time during the
Initial Term and the Extended Term, HOMEBUILDERS FINANCIAL shall have the right,
without prior notice to or consent of the BUILDER, to inspect the books and
records of the IN-HOUSE MORTGAGE COMPANY for the purpose of verifying compliance
with the terms of this Agreement.
10. COOPERATION BY BUILDER. BUILDER acknowledges that the success of the
IN-HOUSE MORTGAGE COMPANY is, in major part, dependent upon the IN-HOUSE
MORTGAGE COMPANY processing and closing a significant share of the
purchase-money loans obtained by the home buyers of BUILDER ("Capture Rate").
BUILDER further agrees that it shall be responsible for assuring that the
employees of the IN-HOUSE MORTGAGE COMPANY adhere to and carry out the policies,
procedures and programs established by HOMEBUILDERS FINANCIAL for the IN-HOUSE
MORTGAGE COMPANY by HOMEBUILDERS FINANCIAL.
11. TERMINATION.
(a) FOR CAUSE. Either party hereto may terminate this Agreement if
it ("Notifying Party") determines that the other party ("Breaching Party")
has committed a material breach of its obligations hereunder; PROVIDED,
HOWEVER, that the Notifying Party gives the Breaching Party written notice
of such alleged breach and such breach shall be continued without remedy or
cure for a period of thirty (30) days after such notice; and PROVIDED,
FURTHER, that (except for breaches involving the failure to make timely
payment hereunder) the Breaching Party shall have such additional time
beyond such initial thirty (30) days within which to cure or remedy such
breach as may be reasonably necessary, if such breach can not reasonably be
cured or remedied within such period and the Breaching Party commences to
cure or remedy within such thirty (30) days and thereafter diligently and
continuously pursues such cure or remedy. In the event of termination for
cause, BUILDER shall pay to HOMEBUILDERS FINANCIAL any and all fees, costs
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and expenses due hereunder, including, but not limited to, the fees
described in paragraph 6(b)(i) with respect to the subsequent closing
of any and all loans, if closed by the IN-HOUSE MORTGAGE COMPANY,
which, at the time this Agreement is terminated, are Pipeline Loans.
(b) WITHOUT CAUSE. BUILDER may terminate this Agreement at any
time during the Initial term, upon ninety (90) days prior written
notice to HOMEBUILDERS FINANCIAL, PROVIDED, HOWEVER, that BUILDER shall
pay to HOMEBUILDERS FINANCIAL any and all fees, costs and expenses due
hereunder, including but not limited to, the Loan Administration Fee of
twenty (20) basis points described in paragraph 6(b)(i) with respect to
the subsequent closing of any and all loans, if closed or assigned for
closing to another lender by IN-HOUSE MORTGAGE COMPANY, which, at the
time this Agreement is terminated, are Pipeline Loans.
11. CONFIDENTIALITY. Each of the parties hereto agree to keep confidential and
not disclose to any other person or entity any non-public information which it
obtains regarding the business, operations or financial condition of the other
party.
12. PROPRIETARY MATERIALS AND INFORMATION. BUILDER acknowledges and agrees that
certain information, materials, procedures, systems, forms, manuals, programs,
as updated and enhanced from time-to-time by HOMEBUILDERS FINANCIAL, which are
provided to the IN-HOUSE MORTGAGE COMPANY ("Proprietary Materials"), are the
proprietary, non-public property of HOMEBUILDERS FINANCIAL and BUILDER agrees
(a) to treat such Proprietary Materials in strict confidence, (b) to not
disclose or disseminate such Propriety Materials to any person or entity other
than the officers, directors and employees of BUILDER and the IN-HOUSE MORTGAGE
COMPANY, (c) to not use or employ the Proprietary Materials, except pursuant to
the terms and conditions of this Agreement, without the prior written consent of
HOMEBUILDERS FINANCIAL and (d) to return all such Propriety Materials to
HOMEBUILDERS FINANCIAL upon the termination of this Agreement.
13. NOTICES. All notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given, made and received when delivered against receipt or upon actual
receipt of facsimile telephonic transmittal or registered or certified mail,
postage pre-paid, return receipt requested, delivered or dispatched to the
addresses or facsimile telephone numbers for the parties set forth below:
(a) IF TO HOMEBUILDERS FINANCIAL:
HOMEBUILDERS FINANCIAL NETWORK, INC.
7900 Miami Lakes Drive West
Miami Lakes, Florida 33016
Attention: Thomas H. Meyer
Facsimile: (305) 826-2664
7
<PAGE> 8
(b) IF TO BUILDER:
DOMINION HOMES, INC.
5501 Frantz Road
Dublin, Ohio 43017
Attention: Peter J. O'Hanlon
Facsimile: (614) 761-6879
Either party may amend the address or facsimile telephone number to which
communications or copies are to be sent by giving notice of such change in
conformity with the provisions of this paragraph for the giving of notice.
14. SURVIVAL. All of the covenants, obligations and agreements of the parties
hereto shall (a) survive the termination of this Agreement and inure to and be
binding upon the parties hereto and their respective successor and permitted
assigns.
15. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous written or oral agreements,
express or implied, understandings, inducements and conditions of any nature
whatsoever with respect to the establishment and management by HOMEBUILDERS
FINANCIAL of an IN-HOUSE MORTGAGE COMPANY for BUILDER. This Agreement may not be
modified or amended except by a written document executed and delivered by both
parties hereto.
16. CONTROLLING LAW; FORUM. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by,
construed under and enforced in accordance with the laws of the State of
Florida, exclusive of its conflicts of laws, rules. Any and all actions brought
to enforce this Agreement shall be brought in the federal or state courts
situated in Dade County, Florida.
17. ATTORNEYS' FEES. If either party hereto shall bring suit or request
arbitration against the other as a result of an alleged breach or failure by the
other party to fulfill or perform any covenants or obligations under this
Agreement, or to seek declaratory relief as to the rights or obligations of
either party hereto, then in such event, the prevailing party in such action, in
addition to other relief granted or awarded by the court, shall be entitled to
judgment against such other party for reasonable costs of suit, at both the
trial and all appellate levels, incurred by such prevailing party by reason of
such action.
18. ARBITRATION. Any claim or controversy arising in connection with this
Agreement shall be resolved by binding arbitration in Dade County, Florida
before a panel of three (3) arbitrators, one appointed by each of the parties
hereto and the third appointed by the first two arbitrators so appointed. The
arbitration shall be conducted pursuant to the rules of the American Arbitration
Association, PROVIDED, HOWEVER, that the arbitrators shall apply the substantive
law of the State of Florida and shall make and deliver to the parties hereto
findings of fact and conclusions of law prior to the issuance of the award. The
decision of the arbitrators made in accordance herewith shall be binding upon
the parties hereto and non-appealable.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement for
Services as of the day and year first above written.
(SEAL) HOMEBUILDERS FINANCIAL NETWORK,
ATTEST: INC.
By: /s/ Thomas H. Meyer
- ---------------------------------- ----------------------------------
Secretary Thomas H. Meyer
President
(SEAL) DOMINION HOMES, INC.
ATTEST:
By: /s/ Jon M. Donnell
- ---------------------------------- ----------------------------------
Secretary Jon M. Donnell
President, Chief Operating Officer
9
<PAGE> 10
EXHIBIT "A"
"Net Operating Income" shall mean operating revenues of the IN-HOUSE MORTGAGE
COMPANY only from the sources listed below LESS operating expenses of the
IN-HOUSE MORTGAGE COMPANY only from the sources listed below:
OPERATING REVENUES:
Origination Fees
Service Release Premiums
Application Fees (For credit report and appraisal)
Courier Fees
Overnight Mail Fees
Processing Fees, etc.
OPERATING EXPENSES:
Salaries
Bonuses
Payroll Taxes/Benefits
Travel/Entertainment
Rent
Utilities
Copier/Fax Leases
Telephone/Pagers
Office Supplies
Postage
Credit Reports
Courier Fees
Overnight Mail Fees
Insurance
Appraisals & Inspections
Subscription Fees
Depreciation of office equipment
10
<PAGE> 11
ADDENDUM 1
TO
AGREEMENT FOR SERVICES
----------------------
This ADDENDUM 1 dated as of the 5th day of November, 1999, (this
"ADDENDUM") supplements, modifies and amends that certain Agreement for Services
(the "Agreement") of even date by and between HOMEBUILDERS FINANCIAL NETWORK,
INC. ("HFN") and DOMINION HOMES, INC. ("Builder").
RECITALS
A. HFN and Builder wish to supplement, modify and amend the Agreement
in the manner hereinafter stated.
B. Capitalized terms used but not defined herein have the meanings
specified in the Agreement.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, HFN and Builder agree as follows:
1. In the event of conflict or inconsistency between the terms of the
Agreement and the terms of this ADDENDUM, the terms of this ADDENDUM shall
control.
2. HOMEBUILDERS FINANCIAL represents and warrants to BUILDER and to
IN-HOUSE MORTGAGE COMPANY that:
(i) any Investor's loan interest rate that is communicated to
IN-HOUSE MORTGAGE COMPANY as being available as of a particular date will apply
to any loan application taken on that date unless, on or prior to that date, HFN
advises IN-HOUSE MORTGAGE COMPANY to the contrary in writing;
(ii) until HFN advises IN-HOUSE MORTGAGE COMPANY to the
contrary in writing, each time a rate lock is established on behalf of an
applicant for an In-House Mortgage Company Loan, by giving notice prior to the
expiration of the rate lock period, IN-HOUSE MORTGAGE COMPANY or the loan
applicant can extend the rate lock period for 30 days by paying a fee of 25
basis points, or for 60 days by paying a fee of 50 basis points; and
(iii) until HFN advises IN-HOUSE MORTGAGE COMPANY to the
contrary in writing, for all Investor loan products, there will be no discount
points, closing costs or other fees of any kind that will be payable prior to
closing, unless such points, costs or fees are fully refundable in the event the
loan is cancelled prior to closing.
3. HFN acknowledges that, prior to the date hereof, it has supplied
price sheets (the "Prior Pricing Sheets") to BUILDER which contained information
with respect to fees, expenses and other potential Investor loan pricing
arrangements. HFN warrants to BUILDER and to IN-HOUSE MORTGAGE COMPANY that, so
long as BUILDER continues to make the same type of "seller contributions" that
it is currently making to its customers, the pricing arrangements for Investor
loan products that HFN makes available to IN-HOUSE MORTGAGE COMPANY
11
<PAGE> 12
under the Agreement will be consistent with those contained in the Prior Pricing
Sheets, subject only to fluctuating market conditions.
4. Notwithstanding anything to the contrary contained in the Agreement,
IN-HOUSE MORTGAGE COMPANY will be entitled to receive and retain all volume
discounts created by its business operations.
5. For purposes of determining Net Operating Income under the
Agreement, the term "Operating Revenues" shall include (i) amounts from volume
discounts referred to in Section 4 above, (ii) market overages and (iii) fees
earned by IN-HOUSE MORTGAGE COMPANY on loans funded by investors not provided by
HFN under the Agreement.
6. For purposes of determining Net Operating Income under the
Agreement, the term "Operating Expenses" shall include, without limitation, (i)
all of the items listed in Exhibit A to the Agreement that are incurred or
accrued with respect to any loan application processed by IN-HOUSE MORTGAGE
COMPANY, whether or not the application is approved or the loan is closed; and
(ii) all costs and expenses, if any, that IN-HOUSE MORTGAGE COMPANY is required
to incur to "buy back" from an Investor a loan that does not satisfy the
Investor's requirements for sale.
7. HFN warrants to BUILDER and IN-HOUSE MORTGAGE COMPANY that:
(i) at all times, it will provide at least one (1) full time
experienced employee as an account representative working solely with IN-HOUSE
MORTGAGE COMPANY;
(ii) at all times, it will make available to BUILDER and
IN-HOUSE MORTGAGE COMPANY no less than four (4) Investors for FHA loans;
(iii) at all times, it will be fully operational on Desktop
Underwriting or L.P.;
(iv) it will make all reasonable technological advances that
are necessary for it to remain compatible with the mortgage operations systems
of IN-HOUSE MORTGAGE COMPANY; and
(v) IN-HOUSE MORTGAGE COMPANY will be permitted to audit any
transactions that relate to its business.
8. BUILDER represents and warrants to HFN that, at all times during the
term of the Agreement, IN-HOUSE MORTGAGE COMPANY will maintain in full force and
effect errors and omissions insurance in an amount not less than One Million
Dollars ($1,000,000), with a per claim deductible not in excess of Five Thousand
Dollars ($5,000), to cover the acts and omissions of its officers and employees.
9. HFN acknowledges that IN-HOUSE MORTGAGE COMPANY is an intended
third-party beneficiary of the Agreement and this ADDENDUM and that it shall be
entitled to enforce its rights arising thereunder and hereunder to the same
extent as if it were a signatory thereof and hereof.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this ADDENDUM as
of the day and year first above written.
Attest: HOMEBUILDERS FINANCIAL NETWORK,
INC.
By: /s/ Thomas H. Meyer
- ------------------------------------ ----------------------------------
Secretary Thomas H. Meyer
President
ATTEST: DOMINION HOMES, INC.
By: /s/ Jon M. Donnell
- ------------------------------------ ----------------------------------
Secretary Jon M. Donnell
President, Chief Operating Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1999 AND STATEMENTS OF INCOME FOR THE NINE MONTHS
ENDING SEPTEMBER 30, 1999, OF DOMINION HOMES, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 694
<SECURITIES> 0
<RECEIVABLES> 896
<ALLOWANCES> (6)
<INVENTORY> 156,215
<CURRENT-ASSETS> 0
<PP&E> 8,538
<DEPRECIATION> 3,710
<TOTAL-ASSETS> 168,188
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 31,134
<OTHER-SE> 24,700
<TOTAL-LIABILITY-AND-EQUITY> 168,188
<SALES> 198,636
<TOTAL-REVENUES> 198,636
<CGS> 160,970
<TOTAL-COSTS> 185,677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,948
<INCOME-PRETAX> 9,011
<INCOME-TAX> 3,737
<INCOME-CONTINUING> 5,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,274
<EPS-BASIC> .84
<EPS-DILUTED> .81
</TABLE>
