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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For quarterly period ended JULY 31, 2002 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission file number 1-8551
Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1851059
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
l0 Highway 35, P.O. Box 500, Red Bank, N. J. 07701
(Address of principal executive offices)
732-747-7800
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section l3 or l5(d) of the Securities
Exchange Act of l934 during the preceding l2 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 23,159,119
Class A Common Shares and 7,444,430 Class B Common Shares were outstanding
as of September 3, 2002
HOVNANIAN ENTERPRISES, INC.
FORM 10Q
INDEX
PAGE NUMBER
PART I. Financial Information
Item l. Consolidated Financial Statements:
Consolidated Balance Sheets at July 31,
2002 (unaudited) and October 31, 2001 3
Consolidated Statements of Income for the three
and nine months ended July 31, 2002 and 2001
(unaudited) 5
Consolidated Statements of Stockholders' Equity
for the nine months ended July 31, 2002
(unaudited) 6
Consolidated Statements of Cash Flows
for the nine months ended July 31, 2002
and 2001 (unaudited) 7
Notes to Consolidated Financial
Statements (unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17
PART II. Other Information
Item 6(a). Exhibits
(i) Exhibit 10(a) Amended and Restated Credit
Agreement dated June 21, 2002.
(ii) Exhibit 10(b) $110,000,000 K. Hovnanian Mortgage,
Inc. Revolving Credit Agreement dated June 7, 2002.
(iii) Exhibit 10(c) First Amendment to K. Hovnanian
Mortgage, Inc. Revolving Credit Agreement dated
July 25, 2002.
(iv) Exhibit 99(a) Certification of Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(v) Exhibit 99(b) Certification of Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Item 6(b). No reports on Form 8K have been filed during
the quarter for which this report is filed.
Signatures 31
Certifications 32
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
July 31, October 31,
ASSETS 2002 2001
----------- -----------
(unaudited)
Homebuilding:
Cash and cash equivalents....................... $ 97,366 $ 10,173
----------- -----------
Inventories - At the lower of cost or fair
value:
Sold and unsold homes and lots under
development.................................. 890,942 593,149
Land and land options held for future
development or sale......................... 173,900 146,965
----------- -----------
Total Inventories........................... 1,064,842 740,114
----------- -----------
Receivables, deposits, and notes................ 56,675 75,802
----------- -----------
Property, plant, and equipment - net............ 17,634 30,756
----------- -----------
Senior residential rental properties - net....... 9,600 9,890
----------- -----------
Prepaid expenses and other assets............... 79,953 46,178
----------- -----------
Goodwill........................................ 82,441 32,618
----------- -----------
Total Homebuilding.......................... 1,408,511 945,531
----------- -----------
Financial Services:
Cash and cash equivalents....................... 6,271 5,976
Mortgage loans held for sale.................... 62,572 105,567
Other assets.................................... 10,162 6,465
----------- -----------
Total Financial Services.................... 79,005 118,008
----------- -----------
Income Taxes Receivable - Including deferred
tax benefits.................................. 2,327 719
----------- -----------
Total Assets...................................... $1,489,843 $1,064,258
=========== ===========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
July 31, October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
----------- -----------
(unaudited)
Homebuilding:
Nonrecourse land mortgages........................ $ 8,950 $ 10,086
Accounts payable and other liabilities............ 187,522 124,125
Customers' deposits............................... 43,542 39,114
Nonrecourse mortgages secured by operating
properties...................................... 3,299 3,404
----------- -----------
Total Homebuilding............................ 243,313 176,729
----------- -----------
Financial Services:
Accounts payable and other liabilities............ 4,998 5,264
Mortgage warehouse line of credit................. 57,238 98,305
----------- -----------
Total Financial Services...................... 62,236 103,569
----------- -----------
Notes Payable:
Term loan......................................... 115,000
Senior notes...................................... 396,270 296,797
Senior Subordinated notes......................... 150,000
Subordinated notes................................ 99,747
Accrued interest.................................. 15,388 11,770
----------- -----------
Total Notes Payable........................... 676,658 408,314
----------- -----------
Total Liabilities............................. 982,207 688,612
----------- -----------
Stockholders' Equity:
Preferred Stock,$.01 par value-authorized 100,000
shares; none issued
Common Stock,Class A,$.01 par value-authorized
87,000,000 shares; issued 27,186,408 shares at
July 31, 2002 and 24,599,379 shares at
October 31, 2001 (including 4,295,621 shares at
July 2002 and 4,195,621 in October 2001 held
in Treasury).................................... 272 246
Common Stock,Class B,$.01 par value-authorized
13,000,000 shares; issued 7,792,394 shares
at July 31, 2002 and 7,818,927 shares at
October 31, 2001 (including 345,874 shares at
July 2002 and October 2001 held in Treasury).... 78 78
Paid in Capital................................... 150,666 100,957
Retained Earnings................................. 393,364 310,106
Deferred Compensation............................. (41) (127)
Treasury Stock - at cost.......................... (36,703) (35,614)
----------- -----------
Total Stockholders' Equity.................... 507,636 375,646
----------- -----------
Total Liabilities and Stockholders' Equity.......... $1,489,843 $1,064,258
=========== ===========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------- ----------------------
2002 2001 2002 2001
--------- --------- ---------- ----------
Revenues:
Homebuilding:
Sale of homes......................$ 681,329 $ 497,291 $1,656,813 $1,173,997
Land sales and other revenues...... 12,651 2,477 34,564 9,012
--------- --------- ---------- ----------
Total Homebuilding............... 693,980 499,768 1,691,377 1,183,009
Financial Services................... 10,656 9,482 28,319 21,769
--------- --------- ---------- ----------
Total Revenues................... 704,636 509,250 1,719,696 1,204,778
--------- --------- ---------- ----------
Expenses:
Homebuilding:
Cost of sales...................... 539,676 398,601 1,327,685 938,498
Selling, general and administrative 52,882 38,808 138,177 101,908
Inventory impairment loss.......... 426 412 2,755 1,350
--------- --------- ---------- ----------
Total Homebuilding............... 592,984 437,821 1,468,617 1,041,756
Financial Services................... 5,694 6,050 16,156 14,546
Corporate General and Administrative. 12,195 10,647 33,700 29,926
Interest............................. 15,849 13,485 42,353 36,939
Other Operations..................... 3,953 4,358 12,644 6,488
Restructuring Charges/Asset Writeoff. 12,000 500 12,000 2,980
Goodwill Amortization................ 1,104 2,731
--------- --------- ---------- ----------
Total Expenses................... 642,675 473,965 1,585,470 1,135,366
--------- --------- ---------- ----------
Income Before Income Taxes and
Extraordinary Loss................... 61,961 35,285 134,226 69,412
--------- --------- ---------- ----------
State and Federal Income Taxes:
State................................ 1,679 2,246 5,086 3,673
Federal.............................. 21,095 12,027 45,300 23,744
--------- --------- ---------- ----------
Total Taxes........................ 22,774 14,273 50,386 27,417
--------- --------- ---------- ----------
Extraordinary Loss from Extinguishment
Of Debt, Net of Income Taxes......... (582)
--------- --------- ---------- ----------
Net Income.............................$ 39,187 $ 21,012 $ 83,258 $ 41,995
========= ========= ========== ==========
Per Share Data:
Basic:
Income per common share before
Extraordinary loss.................$ 1.27 $ 0.74 $ 2.78 $ 1.60
Extraordinary loss................... (.02)
--------- --------- ---------- ----------
Net Income...........................$ 1.27 $ 0.74 $ 2.76 $ 1.60
========= ========= ========== ==========
Weighted average number of common
shares outstanding................. 30,877 28,375 30,188 26,312
Assuming dilution:
Income per common share before
Extraordinary loss.................$ 1.20 $ 0.71 $ 2.63 $ 1.54
Extraordinary loss................... (.02)
--------- --------- ---------- ----------
Net Income...........................$ 1.20 $ 0.71 $ 2.61 $ 1.54
========= ========= ========== ==========
Weighted average number of common
shares outstanding................ 32,703 29,623 31,902 27,309
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars In Thousands)
A Common Stock B Common Stock
------------------- -------------------
Shares Shares
Issued and Issued and Paid-In Retained Deferred Treasury
Outstanding Amount Outstanding Amount Capital Earnings Comp Stock Total
----------- ------ ----------- ------ ------- -------- -------- -------- --------
Balance, October 31, 2001. 20,403,758 $ 246 7,473,053 $ 78 $100,957 $310,106 $ (127) $(35,614) $375,646
Shares issued in connection
with acquisitions....... 2,208,738 22 45,691 45,713
Sale of common stock under
Employee stock option
plan.................... 288,550 3 3,036 3,039
Stock bonus plan.......... 63,208 1 982 983
Conversion of Class B to
Class A Common Stock.... 26,533 (26,533)
Deferred compensation..... 86 86
Treasury stock purchases.. (100,000) (1,089) (1,089)
Net Income................ 83,258 83,258
----------- ------ ----------- ------ ------- -------- -------- -------- --------
Balance, July 31, 2002.... 22,890,787 $ 272 7,446,520 $ 78 $150,666 $393,364 $ (41) $(36,703) $507,636
(Unaudited) =========== ====== =========== ====== ======= ======== ======== ======== ========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
July 31,
---------------------
2002 2001
---------- ----------
Cash Flows From Operating Activities:
Net Income.......................................... $ 83,258 $ 41,995
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation.................................... 5,003 5,901
Amortization of goodwill........................ - 2,731
Loss (gain) on sale and retirement of property
and assets.................................... 11,858 (248)
Extraordinary loss from extinguishment of debt
net of income taxes........................... 582
Deferred income taxes........................... (5,742) (597)
Impairment losses............................... 2,755 1,350
Decrease (increase) in assets:
Mortgage notes receivable..................... 43,162 (44,163)
Receivables, prepaids and other assets........ 8,617 (7,602)
Inventories................................... (80,489) (26,482)
Increase (decrease) in liabilities:
State and Federal income taxes................ 5,521 2,932
Tax effect from exercise of stock options..... (1,074) (566)
Customers' deposits........................... 4,102 7,462
Interest and other accrued liabilities........ 17,960 2,915
Post development completion costs............. (901) 4,440
Accounts payable.............................. 7,769 7,639
---------- ----------
Net cash provided by (used in) operating
activities................................ 102,381 (2,293)
---------- ----------
Cash Flows From Investing Activities:
Net Proceeds from sale of property and assets....... 611 3,127
Purchase of property,equipment and other fixed
assets............................................ (2,730) (3,439)
Acquisition of homebuilding companies............... (140,130) (37,741)
Investment in and advances to unconsolidated
affiliates........................................ (8,679) (462)
---------- ----------
Net cash (used in) investing activities..... (150,928) (38,515)
---------- ----------
Cash Flows From Financing Activities:
Proceeds from mortgages and notes................... 1,587,017 1,153,357
Proceeds from senior debt........................... 99,152
Proceeds from senior subordinated debt.............. 150,000
Principal payments on mortgages and notes...........(1,603,320)(1,095,433)
Principal payments on subordinated debt............. (99,747)
Purchase of treasury stock.......................... (1,089) (2,267)
Proceeds from sale of stock and employee stock plan. 4,022 3,210
---------- ----------
Net cash provided by financing activities... 136,035 58,867
---------- ----------
Net Increase In Cash and Cash Equivalents............. 87,488 18,059
Cash and Cash Equivalents Balance,
Beginning Of Period................................. 16,149 43,253
---------- ----------
Cash and Cash Equivalents Balance, End Of Period...... $ 103,637 $ 61,312
========== ==========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information
and with the instructions to form 10-Q and Article 10 of Regulation S-X.
In the opinion of management, all adjustments for interim periods presented
have been made, which include only normal recurring accruals and deferrals
necessary for a fair presentation of consolidated financial position,
results of operations, and changes in cash flows. The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates and these differences could have a significant impact on the
financial statements. Results for the interim periods are not necessarily
indicative of the results which might be expected for a full year. The
balance sheet at October 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
2. Interest costs incurred, expensed and capitalized were:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
(Dollars in Thousands)
Interest Capitalized at
Beginning of Period.........$ 24,876 $ 29,749 $ 25,124 $ 25,694
Plus Acquired Entity Interest. 3,604
Plus Interest Incurred(1)(2).. 15,746 11,903 42,002 35,808
Less Interest Expensed(2)..... 15,849 13,485 42,353 36,939
-------- -------- -------- --------
Interest Capitalized at
End of Period (2).......... $ 24,773 $ 28,167 $ 24,773 $ 28,167
======== ======== ======== ========
(1) Data does not include interest incurred by our mortgage and finance
subsidiaries.
(2) Represents acquisition interest for construction, land and development
costs which is charged to interest expense when homes are delivered
and
when land is not under active development.
3. Homebuilding accumulated depreciation at July 31, 2002 and
October 31, 2001 amounted to $17,278,000 and $18,367,000, respectively.
Rental property accumulated depreciation at July 31, 2002 and October 31,
2001 amounted to $2,952,000 and $2,688,000, respectively.
4. In accordance with Financial Accounting Standards No. 144 ("SFAS
144") "Accounting for the Impairment of or Disposal of Long Lived Assets",
we record impairment losses on inventories related to communities under
development when events and circumstances indicate that they may be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than their related carrying amounts. During the three
months ended July 31, 2001 we recorded a $131,000 impairment loss on land
in North Carolina. In addition, from time to time, we will write off
certain residential land options including approval, engineering and
capitalized interest costs for land management decided not to purchase.
During the three and nine months ended July 31, 2002 we wrote off costs in
New Jersey, North Carolina, Metro D. C., and Poland amounting to $426,000
and $2,755,000, respectively. Costs in the amount of $281,000 and
$1,219,000 were written off during the three and nine months ended July 31,
2001, respectively, in New Jersey, North Carolina, Metro D. C., and
California. Residential inventory SFAS 144 impairment losses and option
write offs are reported in the Consolidated Statements of Income as
"Homebuilding-Inventory Impairment Loss."
5. We are involved from time to time in litigation arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on us. As of July 31, 2002 and October 31, 2001,
respectively, we are obligated under various performance letters of credit
amounting to $81,071,000 and $51,647,000.
6. Our credit facility has been amended as of June 21, 2002.
Pursuant to the amendment, our credit line was extended through July 2005.
Interest is payable monthly and at various rates of either the prime rate
plus .40% or Libor plus 1.85%. In addition, we pay a fee equal to 0.375%
per annum on the weighted average unused portion of the line. As of July
31, 2002 and October 31, 2001, there was no outstanding balance.
Our mortgage warehouse line of credit has been amended as of June 7,
2002. Pursuant to the amendment, our credit line was extended through June
2003 and we have the option to borrow up to $150,000,000. Interest is
payable monthly at the Federal Funds Rate plus 1.375%. As of July 31, 2002
and October 31, 2001 borrowings were $57,238,000 and $98,305,000,
respectively.
7. On March 26, 2002, we issued $100,000,000 8% Senior Notes due
2012 and $150,000,000 8 7/8% Senior Subordinated Notes due 2012. On April
29, 2002, we redeemed our 9 3/4% Subordinated Notes due 2005. The early
retirement of these notes resulted in an extraordinary loss of $582,000 net
of income taxes of $313,000. The remaining proceeds were used to repay a
portion of our Term Loan Facility, repay the current outstanding
indebtedness under our Revolving Credit Facility, and the remainder for
general corporate purposes.
8. On January 22, 2002 we entered into a $165,000,000 Term Loan with
a group of banks which is due January 22, 2007. Interest is payable
monthly at either the prime rate plus 1.25% or LIBOR plus 2.5%. The
proceeds from the issuance of the Term Loan were primarily used to
partially fund the acquisition of the California operations of The Forecast
Group, L.P. ("Forecast"). See Note 11 below. On March 27, 2002 we paid
down the Term Loan by $50,000,000.
9. Per Share Calculations - Statement of Financial Accounting
Standards (FSAS) No. 128 "Earnings Per Share" requires the presentation of
basic earnings per share and diluted earnings per share. Basic earnings
per share is computed using the weighted average number of shares
outstanding. Diluted earnings per common share is computed using the basic
weighted average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options to purchase common stock.
10. Recent Accounting Pronouncements - In May 2002, the Financial
Accounting Standards Board issued (SFAS) No. 145, "Reporting Gains and
Losses from Extinguishment of Debt", which rescinded SFAS No. 4, No. 44,
and No. 64 and amended SFAS No. 13. The new standard addresses the income
statement classification of gains or losses from the extinguishment of debt
and criteria for classification as extraordinary items. We will adopt SFAS
No. 145 effective for our fiscal year beginning November 1, 2002. We do
not anticipate that the adoption of the new statement will have a material
effect on the financial position or results of operations of our Company.
11. On January 23, 2001 we merged with Washington Homes, Inc. for a
total purchase price of $87.4 million, of which $38.5 million was paid in
cash and 6,352,900 shares of our Class A Common Stock were issued. At the
date of acquisition we loaned Washington Homes, Inc. approximately $57.0
million to pay off their third party debt.
On January 10, 2002 we acquired the California homebuilding
operations of The Forecast Group, LP ("Forecast") for an estimated total
purchase price of $196.5 million, of which $151.6 million was paid in cash
and 2,208,738 shares of Class A Common Stock were issued. We acquired
Forecast to expand our California homebuilding operations. In addition, we
have an option to purchase additional land parcels owned by Forecast for a
price of $49.0 million. At the date of the acquisition we also paid off
approximately $88.0 million of Forecast's third party debt. The total
purchase price amounted to $90.4 million over Forecast's book value, of
which $22.8 million was added to inventory to reflect fair value, $18.5
million was paid for two option agreements, a two year consultant's
agreement, and a three year right of first refusal agreement, and the
balance recorded as goodwill.
A Forecast condensed balance sheet (including the effects of purchase
accounting adjustments) as of the acquisition date is as follows (in
thousands):
January 10,
2002
-----------
Cash and cash equivalents........ $ 10,209
Inventories...................... 220,110
Goodwill......................... 49,107
Prepaids and other assets........ 20,676
-----------
Total Assets $ 300,102
===========
Accounts payable and other
liabilities.................... $ 35,028
Revolving credit agreement....... 219,574
Stockholders' equity............. 45,500
-----------
Total Liabilities and
Stockholders' Equity...... $ 300,102
===========
The merger with Washington Homes, Inc. and acquisition of Forecast
were accounted for as purchases with the results of operations of these
entities included in our consolidated financial statements as of the date
of the merger and acquisition. The purchase price was allocated based on
estimated fair value at the date of the merger and acquisition. An
intangible asset equal to the excess purchase price over the fair value of
the net assets of $12.8 million and $49.8 for Washington Homes and
Forecast, respectively, were recorded as goodwill on the consolidated
balance sheet. The Washington Homes amount was being amortized on a
straight line basis over a period of ten years during fiscal 2001. On
November 1, 2001 we adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). As a result
of adopting SFAS No. 142, goodwill is no longer amortized, but reviewed for
impairment.The following unaudited pro forma financial data for the three
and nine months ended July 31, 2002 and 2001 has been prepared as if the
merger with Washington Homes, Inc. on January 23, 2001 and the acquisition
of Forecast on January 10, 2002 had occurred on November 1, 2000.
Unaudited pro forma financial data is presented for information purposes
only and may not be indicative of the actual amounts had the events
occurred on the dates listed above, nor does it purport to represent future
periods (in thousands).
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------------------
2002 2001 2002 2001
-------- -------- ---------- ----------
Revenues.........................$704,636 $636,958 $1,784,045 $1,606,745
Expenses......................... 642,675 585,109 1,644,455 1,502,298
Income Taxes..................... 22,774 20,915 52,484 40,722
Extraordinary Loss from
Extinguishment Of Debt, Net
of Taxes...................... (582)
-------- -------- --------- --------
Net Income.......................$ 39,187 $ 30,934 $ 86,524 $ 63,725
======== ======== ========= ========
Diluted Net Income Per Common
Share $ 1.20 $ 0.97 $ 2.66 $ 2.03
======== ======== ========= ========
12. Restructuring Charges - Restructuring charges are estimated
expenses associated with the merger of our operations with those of
Washington Homes, Inc. as a result of the merger on January 23, 2001.
Under our merger plan, administration offices in Maryland, Virginia, and
North Carolina were either closed, relocated, or combined. The merger of
administration offices was completed by July 31, 2001. At January 31,
2001, expenses were accrued for salaries, severance and outplacement costs
for the involuntary termination of associates, costs to close and/or
relocate existing administrative offices, and lost rent and leasehold
improvements. During the year ended October 31, 2001 our estimate for
restructuring charges was increased to a total of $3.2 million. We have
provided for the termination of 65 associates. We accrued approximately
$2.0 million to cover termination and related costs. Associates being
terminated were primarily administrative. In addition, we accrued
approximately $1.2 million to cover closing and/or relocation of various
administrative offices in these three states. Such amounts are included in
accounts payable and other liabilities in the accompanying financial
statements. $94,000 and $671,000 was charged against the reserve during
the three and nine months ended July 31, 2002. At July 31, 2002 $1.8
million has been charged against termination costs relating to the
termination of 63 associates and $0.9 million has been charged against
closing and relocation costs.
13. Asset Write Off - We wrote off costs during the three months
ended July 31, 2002 associated with SAP, our enterprise-wide operating
software, totaling $12.0 million pretax included in Restructuring
Charges/Asset Write Off in the accompanying Consolidated Statements of
Income or $7.6 million after taxes equal to $0.23 per fully diluted share.
These unamortized costs are those associated with the development of the
SAP system. We were not successful implementing SAP, due to the
complexities and limitations in the software program. We have $2.5 million
initiative costs remaining, all of which will be amortized over the
remaining life of the communities using SAP software, which are scheduled
to be substantially complete by the end of 2003.
14. Intangible Assets - As reported on the balance sheet we have
goodwill totaling $82.4 million. We have no other intangible assets.
During the nine months ended July 31, 2002 we added $49.8 million of
goodwill as a result of the Forecast acquisition. Goodwill amortization
deductible for income tax purposes is approximately $1,426,000 and
$3,383,000 for the three and nine months ended July 31, 2002, respectively.
After income taxes the goodwill amortization for the three and nine months
ended July 31, 2001, amounted to approximately $679,000 and $1,680,000,
which if eliminated from net income would have increased earnings per share
approximately $0.02 and $0.06, respectively.
In accordance with SFAS No. 142 we no longer amortize goodwill but
instead we review goodwill for impairment. The impairment test uses a fair
value approach rather than the undiscounted cash flows approach. We have
determined that goodwill was not impaired as of July 31, 2002.
15. Hovnanian Enterprises, Inc., the parent company (the "Parent")
is the issuer of publicly traded common stock. One of its wholly owned
subsidiaries, K. Hovnanian Enterprises, Inc., (the "Subsidiary Issuer") was
the issuer of certain Senior Notes on May 4, 1999, October 2, 2000, and
March 26, 2002 and Senior Subordinated Notes on March 26, 2002.
The Subsidiary Issuer acts as a finance and management entity that as
of July 31, 2002 had issued and outstanding $400,000,000 face value senior
notes, $150,000,000 senior subordinated notes, a revolving credit agreement
with an outstanding balance of zero, and a term loan with an outstanding
balance of $115,000,000. The senior subordinated notes, senior notes, the
revolving credit agreement, and term loan are fully and unconditionally
guaranteed by the Parent.
Each of the wholly owned subsidiaries of the Parent (collectively the
"Guarantor Subsidiaries"), with the exception of various subsidiaries
formerly engaged in the issuance of collateralized mortgage obligations, a
mortgage lending subsidiary, a subsidiary holding and licensing the "K.
Hovnanian" trade name, a subsidiary engaged in homebuilding activity in
Poland, our title subsidiaries, and joint ventures (collectively the "Non-
guarantor Subsidiaries"), have guaranteed fully and unconditionally, on a
joint and several basis, the obligation to pay principal and interest under
the senior notes, the senior subordinated notes, the term loan, and the
revolving credit agreement of the Subsidiary Issuer.
In lieu of providing separate audited financial statements for the
Guarantor Subsidiaries we have included the accompanying consolidating
condensed financial statements. Management does not believe that separate
financial statements of the Guarantor Subsidiaries are material to
investors. Therefore, separate financial statements and other disclosures
concerning the Guarantor Subsidiaries are not presented.
The following consolidating condensed financial information present
the results of operations, financial position, and cash flows of (i) the
Parent, (ii) the Subsidiary Issuer, (iii) the Guarantor Subsidiaries of the
Parent, (iv) the Non-guarantor Subsidiaries of the Parent, and (v) the
eliminations to arrive at the information for Hovnanian Enterprises, Inc.
on a consolidated basis.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED BALANCE SHEET
JULY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
-------- ---------- ---------- ------------ -----
- ----- ----------
ASSETS
Homebuilding......................$ 13 $ 124,067 $1,276,891 $ 7,540 $
$1,408,511
Financial Services................ (583) 79,588
79,005
Income Taxes (Payables)Receivables (6,613) 3,494 7,666 (2,220)
2,327
Investments in and amounts due to
and from consolidated
subsidiaries.................... 514,236 563,917 (784,438) 866
(294,581)
-------- ---------- ---------- ------------ ----
- ------ ----------
Total Assets...................... $507,636 $ 691,478 $ 499,536 $ 85,774
$(294,581) $1,489,843
======== ========== ========== ============
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding...................... $ $ 30,991 $ 212,266 $ 56 $
$ 243,313
Financial Services................ 62,236
62,236
Notes Payable..................... 661,270 15,388
676,658
Income Taxes Payable..............
Stockholders' Equity.............. 507,636 (783) 271,882 23,482
(294,581) 507,636
-------- ---------- ---------- ------------ ----
- ------ ----------
Total Liabilities and Stockholders'
Equity.......................... $507,636 $ 691,478 $ 499,536 $ 85,774
$(294,581) $1,489,843
======== ========== ========== ============
========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
OCTOBER 31, 2001
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
-------- ---------- ---------- ------------ ----
- ------ ----------
Assets
Homebuilding.......................$ 2,022 $ 50,565 $ 882,715 $ 10,229 $
$ 945,531
Financial Services................. 205 117,803
118,008
Income Taxes (Payables)Receivables. (5,067) (3,658) 11,893 (2,449)
719
Investments in and amounts due to
and from consolidated
subsidiaries..................... 378,691 375,514 (668,285) 14,513
(100,433)
-------- ---------- ---------- ------------ ----
- ------ ----------
Total Assets.......................$375,646 $ 422,421 $ 226,528 $ 140,096
$(100,433) $1,064,258
======== ========== ========== ============
========== ==========
Liabilities
Homebuilding.......................$ $ 14,679 $ 161,759 $ 291 $
$ 176,729
Financial Services................. 103,569
103,569
Notes Payable...................... 408,206 108
408,314
Stockholders' Equity............... 375,646 (464) 64,661 36,236
(100,433) 375,646
-------- ---------- ---------- ------------ ----
- ------ ----------
Total Liabilities and Stockholders'
Equity...........................$375,646 $ 422,421 $ 226,528 $ 140,096
$(100,433) $1,064,258
======== ========== ========== ============
========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
------- ---------- ---------- ------------ -----
- ----- ----------
Revenues:
Homebuilding.....................$ $ 295 $ 693,357 $ 7,807 $
(7,479) $ 693,980
Financial Services............... 2,270 8,386
10,656
Intercompany Charges............. 54,869 (10,326)
(44,543)
Equity In Pretax Income of
Consolidated Subsidiaries...... 61,961
(61,961)
------- ---------- ---------- ------------ -----
- ----- ----------
Total Revenues................ $61,961 $ 55,164 $ 685,301 $ 16,193
$(113,983) $ 704,646
------- ---------- ---------- ------------ -----
- ----- ----------
Expenses:
Homebuilding..................... 55,164 644,464 322
(62,969) 636,981
Financial Services............... 683 5,266
(255) 5,694
------- ---------- ---------- ------------ -----
- ----- ----------
Total Expenses................. 55,164 645,147 5,588
(63,224) 642,675
------- ---------- ---------- ------------ -----
- ----- ----------
Income Before Income Taxes......... 61,961 - 40,154 10,605
(50,759) 61,961
State and Federal Income Taxes..... 22,774 (26) 14,971 3,908
(18,853) 22,774
Extraordinary Loss from
Extinguishment of Debt, Net of
Income Taxes....................
------- ---------- ---------- ------------ -----
- ----- ----------
Net Income ....................... $39,187 $ 26 $ 25,183 $ 6,697 $
(31,906) $ 39,187
======= ========== ========== ============
========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2001
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
------- ---------- ---------- ------------ -----
- ----- ----------
Revenues:
Homebuilding.....................$ $ 17 $ 498,857 $ 9,837 $
(8,943) $ 499,768
Financial Services............... 4,175 5,307
9,482
Intercompany Charges............. 31,456 2,665
(34,121)
Equity In Pretax Income of
Consolidated Subsidiaries...... 35,285
(35,285)
------- ---------- ---------- ------------ -----
- ----- ----------
Total Revenues................ $35,285 $ 31,473 $ 505,697 $ 15,144 $
(78,349) $ 509,250
------- ---------- ---------- ------------ -----
- ----- ----------
Expenses:
Homebuilding.................... 30,857 476,021 1,033
(39,996) 467,915
Financial Services............... 2,574 4,280
(804) 6,050
------- ---------- ---------- ------------ -----
- ----- ----------
Total Expenses................. 30,857 478,595 5,313
(40,800) 473,965
------- ---------- ---------- ------------ -----
- ----- ----------
Income Before Income Taxes......... 35,285 616 27,102 9,831
(37,549) 35,285
State and Federal Income Taxes..... 14,273 257 11,139 3,699
(15,095) 14,273
------- ---------- ---------- ------------ -----
- ----- ----------
Net Income ....................... $21,012 $ 359 $ 15,963 $ 6,132 $
(22,454) $ 21,012
======= ========== ========== ============
========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
------- ---------- ---------- ------------ -----
- ----- ----------
Revenues:
Homebuilding....................$ $ 565 $1,689,257 $ 20,475 $
(18,920) $1,691,377
Financial Services............... 4,956 23,363
28,319
Intercompany Charges............. 119,275 (3,663)
(115,612)
Equity In Pretax Income of
Consolidated Subsidiaries......134,226
(134,226)
------- ---------- ---------- ------------ -----
- ----- ----------
Total Revenues................$134,226 $119,840 $1,690,550 $ 43,838
$(268,758) $1,719,696
------- ---------- ---------- ------------ -----
- ----- ----------
Expenses:
Homebuilding..................... 119,840 1,587,610 1,981
(140,117) 1,569,314
Financial Services............... 1,768 15,437
(1,049) 16,156
------- ---------- ---------- ------------ -----
- ----- ----------
Total Expenses................. 119,840 1,589,378 17,418
(141,166) 1,585,470
------- ---------- ---------- ------------ -----
- ----- ----------
Income Before Income Taxes.........134,226 101,172 26,420
(127,592) 134,226
State and Federal Income Taxes..... 50,386 (180) 37,982 10,058
(47,860) 50,386
Extraordinary Loss From
Extinguishment of Debt, Net of
Income Taxes..................... (582) (582)
582 (582)
------- ---------- ---------- ------------ -----
- ----- ----------
Net Income.........................$83,258 $ (402) $ 63,190 $ 16,362 $
(79,150) $ 83,258
======= ========== ========== ============
========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 31, 2001
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
------- ---------- ---------- ------------ -----
- ----- ----------
Revenues:
Homebuilding.....................$ $ 446 $1,178,977 $ 20,369 $
(16,783) $1,183,009
Financial Services................ 9,410 12,359
21,769
Intercompany Charges............. 91,675 3,098
(94,773)
Equity In Pretax Income of
Consolidated Subsidiaries...... 69,412
(69,412)
------- ---------- ---------- ------------ -----
- ----- ----------
Total Revenues................ $69,412 $ 92,121 $1,191,485 $ 32,728
$(180,968) $1,204,778
------- ---------- ---------- ------------ -----
- ----- ----------
Expenses:
Homebuilding..................... 90,354 1,135,160 3,422
(108,116) 1,120,820
Financial Services............... 5,962 9,582
(998) 14,546
------- ---------- ---------- ------------ -----
- ----- ----------
Total Expenses................. 90,354 1,141,122 13,004
(109,114) 1,135,366
------- ---------- ---------- ------------ -----
- ----- ----------
Income Before Income Taxes......... 69,412 1,767 50,363 19,724
(71,854) 69,412
State and Federal Income Taxes..... 27,417 774 20,020 7,510
(28,304) 27,417
------- ---------- ---------- ------------ -----
- ----- ----------
Net Income.........................$41,995 $ 993 $ 30,343 $ 12,214 $
(43,550) $ 41,995
======= ========== ========== ============
========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
-------- --------- ---------- ------------ ---
- ------- ----------
Cash Flows From Operating Activities:
Net Income.........................$ 83,258 $ (402) $ 63,190 $ 16,362 $
(79,150) $ 83,258
Adjustments to reconcile net income
to net cash (Used In) Provided
By operating activities.......... 99,463 11,817 (182,793) 11,486
79,150 19,123
-------- --------- ---------- ------------ ---
- ------- ----------
Net Cash (Used In) Provided By
Operating Activities........... 182,721 11,415 (119,603) 27,848
102,381
Net Cash (Used In)
Investing Activities............... (46,087) (1,929) (103,096) 184
(150,928)
Net Cash (Used In) Provided By
Financing Activities............... (1,089) 264,726 (85,867) (41,735)
136,035
Intercompany Investing and Financing
Activities - Net...................(135,545) (188,403) 310,301 13,647
-------- --------- ---------- ------------ ---
- ------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents................... 85,809 1,735 (56)
87,488
Cash and Cash Equivalents Balance,
Beginning of Period................ 10 (5,840) 15,616 6,363
16,149
-------- --------- ---------- ------------ ---
- ------- ----------
Cash and Cash Equivalents Balance,
End of Period......................$ 10 $ 79,969 $ 17,351 $ 6,307 $
$ 103,637
======== ========= ========== ============
========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 2001
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor
Elimin- Consol-
Parent Issuer iaries Subsidiaries
ations idated
-------- --------- ---------- ------------ ---
- ------- ----------
Cash Flows From Operating Activities:
Net Income.........................$ 41,995 $ 993 $ 30,343 $ 12,214 $
(43,550) $ 41,995
Adjustments to reconcile net income
to net cash (Used In) Provided
By operating activities.......... 95,870 88,304 (224,079) (47,933)
43,550 (44,288)
-------- --------- ---------- ------------ ---
- ------- ----------
Net Cash (Used In) Provided By
Operating Activities........... 137,865 89,297 (193,736) (35,719)
(2,293)
Net Cash (Used In)
Investing Activities............... (48,453) (2,657) 11,697 898
(38,515)
Net Cash Provided By(Used In)
Financing Activities............... (1,667) 78,943 (59,409) 41,000
58,867
Intercompany Investing and Financing
Activities - Net................... (87,672) (190,125) 278,852 (1,055)
-------- --------- ---------- ------------ ---
- ------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents................... 73 (24,542) 37,404 5,124
18,059
Cash and Cash Equivalents Balance,
Beginning of Period................ (63) 17,629 22,506 3,181
43,253
-------- --------- ---------- ------------ ---
- ------- ----------
Cash and Cash Equivalents Balance,
End of Period......................$ 10 $ (6,913) $ 59,910 $ 8,305 $
$ 61,312
======== ========= ========== ============
========== ==========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and these differences
could have a significant impact on the financial statements.
Business Combinations - When we make an acquisition of another
company, we use the purchase method of accounting in accordance with
Financial Accounting Standards No. 141 ("SFAS 141") "Business
Combinations". Under SFAS No. 141 we record as our cost the acquired
assets less liabilities assumed. Any difference between the cost of an
acquired company and the sum of the fair values of tangible and identified
intangible assets less liabilities is recorded as goodwill. The reported
income of an acquired company includes the operations of the acquired
company after acquisition, based on the acquisition costs.
Income Recognition from Home Sales - Income from home sales is
recorded when each home is closed, title is conveyed to the buyer, and the
sales price has been paid.
Income Recognition from Mortgage Loans - Profits and losses relating
to the sale of mortgage loans are recognized when all indications of legal
control pass to the buyer and the sales price is collected.
Inventories - For inventories of communities under development, a
loss is recorded when events and circumstances indicate impairment and the
undiscounted future cash flows generated are less than the related carrying
amounts. The impairment loss is based on expected revenue, cost to
complete including interest, and selling costs. Inventories and long-lived
assets held for sale are recorded at the lower of cost or fair value less
selling costs. Fair value is defined in Statement of Financial Accounting
Standard (SFAS)No. 144 "Accounting for the Impairment of or Disposal of
Long-Lived Assets" as the amount at which an asset could be bought or sold
in a current transaction between willing parties, that is, other than in a
forced or liquidation sale. SFAS No. 144 provides accounting guidance for
financial accounting and reporting for impairment or disposal of long-lived
assets. Construction costs are accumulated during the period of
construction and charged to cost of sales under specific identification
methods. Land, land development, and common facility costs are allocated
based on buildable acres to product types within each community, then
amortized equally based upon the number of homes to be constructed in the
community.
Interest costs related to properties under development are
capitalized during the land development and home construction period and
expensed along with the associated cost of sales as the related inventories
are sold.
The cost of land options is capitalized when incurred and either
included as part of the purchase price when the land is acquired or charged
to operations when we determine we will not exercise the option.
Intangible Assets - The intangible asset recorded on our balance
sheet is goodwill resulting from company acquisitions. In accordance with
the Financial Accounting Standards No. 142 ("SFAS No. 142") " Goodwill and
Other Intangible Assets", we no longer amortize goodwill, but instead
review goodwill for impairment. The impairment test uses a fair value
approach rather than the undiscounted cash flows approach.
Post Development Completion Costs - In those instances where a
development is substantially completed and sold and we have additional
construction work to be incurred, an estimated liability is provided to
cover the cost of such work.
CAPITAL RESOURCES AND LIQUIDITY
Our cash uses during the nine months ended July 31, 2002 were for
operating expenses, seasonal increases in housing inventories,
construction, income taxes, interest, the repurchase of common stock, the
acquisition of the California operations of the Forecast Group, L.P.
("Forecast"), and the acquisition of a land portfolio from another building
company. We provided for our cash requirements from housing and land
sales, the revolving credit facility, the issuance of a term loan, the
issuance of $150,000,000 Senior Subordinated Notes, the issuance of
$100,000,000 Senior Notes, financial service revenues, and other revenues.
We believe that these sources of cash are sufficient to finance our working
capital requirements and other needs.
At July 31, 2002 we had approximately $90.0 million of excess cash.
Management anticipates using the excess cash to pay down long term debt,
grow existing operations, and fund future acquisitions.
On December 31, 2000, our stock repurchase program to purchase up to
4 million shares of Class A Common Stock expired. As of December 31, 2000,
3,391,047 shares had been purchased under this program. On July 3, 2001,
our Board of Directors authorized a revision to our stock repurchase
program to purchase up to an additional 2 million shares of Class A Common
Stock. As of July 31, 2002, 558,700 have been purchased under this program
of which 100,000 were repurchased during the nine months ended July 31,
2002.
Our homebuilding bank borrowings are made pursuant to a revolving
credit agreement (the "Agreement") that provides a revolving credit line
and letter of credit line of up to $440,000,000 through July 2005.
Interest is payable monthly and at various rates of either the prime rate
plus .40% or Libor plus 1.85%. We believe that we will be able either to
extend the Agreement beyond July 2005 or negotiate a replacement facility,
but there can be no assurance of such extension or replacement facility.
We currently are in compliance and intend to maintain compliance with the
covenants under the Agreement. As of July 31, 2002, there were no
borrowings under the Agreement.
On March 26, 2002, we issued $100,000,000 8% Senior Notes due 2012
and $150,000,000 8 7/8% Senior Subordinated Notes due 2012. On April 29,
2002, we redeemed our 9 3/4% Subordinated Notes due 2005. The early
retirement of these notes resulted in an extraordinary loss of $582,000 net
of income taxes of $313,000. The remaining proceeds were used to repay a
portion of our Term Loan Facility, repay the current outstanding
indebtedness under our Revolving Credit Facility, and the remainder for
general corporate purposes. Other senior indebtedness issued by us and
outstanding as of July 31, 2002 was $150,000,000 10 1/2% Senior Notes due
2007 and $150,000,000 9 1/8% Senior Notes due 2009.
On January 22, 2002 we issued a $165,000,000 Term Loan to a group of
banks which is due January 22, 2007. Interest is payable monthly at either
the prime rate plus 1.25% or LIBOR plus 2.5%. The proceeds from the
issuance of the Term Loan were primarily used to partially fund the
acquisition of the California operations of Forecast. As of July 31, 2002
borrowings under the Term Loan were $115,000,000.
Our mortgage banking subsidiary borrows up to $150,000,000 under a
bank warehousing arrangement that expires in June 2003. Interest is
payable monthly at the Federal Funds Rate plus 1.375%. We believe that we
will be able either to extend this agreement beyond June 2003 or negotiate
a replacement facility, but there can be no assurance of such extension or
replacement facility. As of July 31, 2002 borrowings under the greement
were $57,238,000.
Total inventory increased $324,728,000 during the nine months ended
July 31, 2002. The increase in inventory was primarily due to the
acquisition of Forecast and the purchase of a land portfolio from a builder
in our Northeast Region. In addition, inventory levels increased slightly
in most of our housing markets except in the Mid-South where we are
liquidating our operations. Substantially all homes under construction or
completed and included in inventory at July 31, 2002 are expected to be
closed during the next twelve months. Most inventory completed or under
development is financed through our line of credit, subordinated
indebtedness, and cash flow generated from operations.
The following table summarizes housing lots included in our total
residential real estate. The July 31, 2002 numbers excluded lots owned and
options in locations that we have ceased development.
Active Contracted Active Proposed
Total
Active Selling Not Lots Developable
Lots
Communities Lots Delivered Available Lots
Controlled
----------- ------- ---------- --------- -----------
- -----------
July 31, 2002:
Northeast Region.. 28 5,972 1,548 4,424 12,196
18,168
North Carolina.... 64 5,785 564 5,221 1,943
7,728
Metro D.C......... 28 3,301 920 2,381 6,915
10,216
California........ 41 5,660 1,007 4,653 2,798
8,458
Texas............. 37 2,415 295 2,120 734
3,149
Mid South......... 1 393 39 354 --
393
----------- ------- ---------- ---------- ----------
- -----------
199 23,526 4,373 19,153 24,586
48,112
=========== ======= ========== ========== ==========
===========
Owned.......... 11,308 3,512 7,796 2,504
13,812
Optioned....... 12,218 861 11,357 22,082
34,300
------- ---------- ---------- ----------
- -----------
Total........ 23,526 4,373 19,153 24,586
48,112
======= ========== ========== ==========
===========
Active Contracted Active Proposed
Total
Active Selling Not Lots Developable
Lots
Communities Lots Delivered Available Lots
Controlled
----------- ------- ---------- --------- -----------
- -----------
October 31, 2001:
Northeast Region.. 23 5,561 1,136 4,425 10,314
15,875
North Carolina.... 54 4,264 534 3,730 2,312
6,576
Metro D.C......... 34 2,622 779 1,843 4,946
7,568
California........ 8 1,499 172 1,327 171
1,670
Texas............. 35 1,788 263 1,525 1,040
2,828
Mid South......... 18 1,279 122 1,157 --
1,279
Other............. -- 17 3 14 992
1,009
----------- ------- ---------- ---------- ----------
- -----------
172 17,030 3,009 14,021 19,775
36,805
=========== ======= ========== ========== ==========
===========
Owned.......... 6,918 2,525 4,393 4,035
10,953
Optioned....... 10,112 484 9,628 15,740
25,852
------- ---------- ---------- ----------
- -----------
Total........ 17,030 3,009 14,021 19,775
36,805
======= ========== ========== ==========
===========
The following table summarizes our started or completed unsold homes
and models:
July 31, October 31,
2002 2001
----------------------- -----------------------
Unsold Unsold
Homes Models Total Homes Models Total
------ ------ ----- ------ ------ -----
Northeast Region.... 39 48 87 69 48 117
North Carolina...... 173 20 193 205 41 246
Metro D.C........... 32 25 57 27 27 54
California.......... 181 54 235 60 11 71
Texas............... 252 10 262 215 15 230
Mid South........... 21 2 23 54 22 76
Other............... -- -- -- 7 -- 7
------ ------ ----- ------ ------ -----
Total 698 159 857 637 164 801
====== ====== ===== ====== ====== =====
Financial Services - Mortgage loans held for sale consist of
residential mortgages receivable of which $62,457,000 and $105,174,000 at
July 31, 2002 and October 31, 2001, respectively, are being temporarily
warehoused and awaiting sale in the secondary mortgage market. The balance
of such mortgages is being held as an investment by us. We may incur risk
with respect to mortgages that are delinquent, but only to the extent the
losses are not covered by mortgage insurance or resale value of the house.
Historically, we have incurred minimal credit losses.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002
COMPARED TO THE THREE AND NINE MONTHS ENDED JULY 31, 2001
Our operations consist primarily of residential housing development
and sales in our Northeast Region (New Jersey, southern New York State and
eastern Pennsylvania), North Carolina, Metro D. C. (northern Virginia and
Maryland), California, Texas, and the Mid South (Tennessee, Alabama, and
Mississippi). Currently we are liquidating our operations in the Mid South
and will be substantially out of this market by fiscal year end. In
addition, we provide financial services to our homebuilding customers.
Total Revenues:
Compared to the same prior period, revenues increased as follows:
Three Months Ended
------------------------------------------
July 31, July 31, Dollar Percentage
2002 2001 Change Change
------------------------------------------
(Dollars In Thousands)
Homebuilding:
Sale of homes........ $ 681,329 $ 497,291 $184,038 37.0%
Land sales and other
revenues........... 12,651 2,477 10,174 410.7%
Financial Services... 10,656 9,482 1,174 12.4%
---------- ---------- -------- --------
Total Revenues... $ 704,636 $ 509,250 $195,386 38.4%
========== ========== ======== ========
Nine Months Ended
------------------------------------------
July 31, July 31, Dollar Percentage
2002 2001 Change Change
------------------------------------------
(Dollars In Thousands)
Homebuilding:
Sale of homes........ $1,656,813 $1,173,997 $482,816 41.1%
Land sales and other
revenues........... 34,564 9,012 25,552 283.5%
Financial Services... 28,319 21,769 6,550 30.1%
---------- --------- -------- --------
Total Revenues... $1,719,696 $1,204,778 $514,918 42.7%
========== ========= ======== ========
Homebuilding:
Revenues from the sale of homes increased $184.0 million or 37.0%
during the three months ended July 31, 2002, and increased $482.8 million
or 41.1% during the nine months ended July 31, 2002 compared to the same
periods last year. Revenues from the sale of homes are recorded at the
time each home is delivered and title and possession have been transferred
to the buyer.
Information on homes delivered by market area is set forth below:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- ---------------------
2002 2001 2002 2001
--------- -------- ---------- --------
(Dollars in Thousands)
Northeast Region:
Housing Revenues..... $177,153 $156,366 $ 455,171 $ 406,692
Homes Delivered...... 570 499 1,469 1,346
North Carolina(2):
Housing Revenues..... $ 72,437 $ 85,887 $ 193,902 $ 178,142
Homes Delivered...... 393 487 1,044 1,022
Metro D. C.(2):
Housing Revenues..... $110,030 $109,535 $ 258,755 $ 221,343
Homes Delivered...... 386 439 944 938
California(1):
Housing Revenues..... $242,631 $ 61,830 $ 535,961 $ 171,483
Homes Delivered...... 926 168 2,094 460
Texas:
Housing Revenues..... $ 65,432 $ 62,360 $ 172,778 $ 146,604
Homes Delivered...... 286 286 746 691
Mid South(2):
Housing Revenues..... $ 13,646 $ 18,774 $ 39,793 $ 33,697
Homes Delivered...... 86 123 252 226
Other:
Housing Revenues..... $ -- $ 2,539 $ 453 $ 16,036
Homes Delivered...... -- 19 6 112
Totals:
Housing Revenues..... $681,329 $497,291 $1,656,813 $1,173,997
Homes Delivered...... 2,647 2,021 6,555 4,795
(1) July 31, 2002 includes Forecast deliveries beginning
on January 10, 2002.
(2) July 31, 2001 includes Washington Homes deliveries beginning
on January 24, 2001.
The increase in housing revenues was primarily due to the acquisition
of Forecast for the third quarter 2002 and the acquisition of Forecast and
a full nine months of operations from Washington Homes for the nine months
ended July 31, 2002. In addition, these increases were due to increased
deliveries in the Northeast Region resulting from a land portfolio
acquisition in late March 2002 and increased average sales prices in all
our markets except California. California's average sales price is down
due to the Forecast Group product being mostly lower priced, first time
buyer homes.
Important indicators of our future results are recently signed
contracts and home contract backlog for future deliveries. Our sales
contracts and homes in contract (using base sales prices) by market area is
set forth below:
Sales Contracts for the
Nine Months Ended Contract Backlog
July 31, as of July 31,
------------------------- ---------------------
2002 2001 2002 2001
----------- --------- --------- ---------
(Dollars in Thousands)
Northeast Region:
Dollars.............$ 423,227 $ 400,199 $ 442,037 $354,132
Homes............... 1,478 1,483 1,578 1,286
North Carolina:
Dollars.............$ 198,848 $ 211,007 $ 108,502 $125,823
Homes............... 1,074 1,174 564 669
Metro D.C.:
Dollars.............$ 341,919 $ 248,219 $ 292,044 $224,171
Homes............... 1,085 984 920 866
California:
Dollars.............$ 634,009 $ 220,961 $ 286,876 $118,981
Homes............... 2,394 658 1,007 349
Texas:
Dollars.............$ 171,409 $ 165,160 $ 69,556 $ 85,693
Homes............... 778 781 295 372
Mid South:
Dollars.............$ 26,521 $ 36,499 $ 6,456 $ 18,725
Homes............... 169 239 39 112
Other:
Dollars.............$ 340 $ 1,578 $ -- $ 1,009
Homes............... 3 46 -- 18
Totals:
Dollars.............$1,796,273 $1,283,623 $1,205,471 $928,534
Homes............... 6,981 5,365 4,403 3,672
The following pro forma information for the nine months ended July
31, 2002 and 2001 has been prepared as if the merger with Washington Homes,
Inc. on January 23, 2001 and the acquisition of Forecast on January 10,
2002 had occurred on November 1, 2000. Total sales contracts were
$1,882,706 and $1,688,912 and total homes were 7,379 and 7,303 for the nine
months ended July 31, 2002 and 2001, respectively. Total contract backlog
was $1,205,471 and $1,050,432 and total homes in backlog were 4,403 and
4,215 as of July 31, 2002 and 2001, respectively.
During August 2002 we signed an additional 782 contracts compared to 414 in
the same month last year.
Cost of sales includes expenses for housing and land and lot sales.
A breakout of such expenses for housing sales and housing gross margin is
set forth below:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- ---------------------
2002 2001 2002 2001
-------- -------- ---------- ---------
(Dollars in Thousands)
Sale of Homes................ $681,329 $497,291 $1,656,813 $1,173,997
Cost of Sales................ 530,154 397,622 1,303,637 933,690
-------- -------- ---------- ---------
Housing Gross Margin......... $151,175 $ 99,669 $ 353,176 $ 240,307
======== ======== ========== ==========
Gross Margin Percentage...... 22.2% 20.0% 21.3% 20.5%
Cost of Sales expenses as a percentage of home sales revenues are
presented below:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Sale of Homes................ 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of Sales:
Housing, land &
development costs.... 70.7% 72.3% 71.0% 71.6%
Commissions............ 2.2% 2.3% 2.2% 2.3%
Financing concessions.. 0.9% 1.1% 1.0% 0.9%
Overheads.............. 4.0% 4.3% 4.5% 4.7%
-------- -------- -------- --------
Total Cost of Sales.......... 77.8% 80.0% 78.7% 79.5%
-------- -------- -------- --------
Gross Margin................. 22.2% 20.0% 21.3% 20.5%
======== ======== ======== ========
We sell a variety of home types in various local communities, each
yielding a different gross margin. As a result, depending on the mix of
both communities and of home types delivered, consolidated quarterly gross
margin will fluctuate up or down and may not be representative of the
consolidated gross margin for the year. We achieved higher gross margins
during the three and nine months ended July 31, 2002 compared to the same
period last year. The consolidated gross margin increased 2.2% and 0.8%
for the three and nine months ended July 31, 2002. Gross margins increased
in our Metro D. C. market, California markets (excluding Forecast
communities), and in our highest margin market, the Northeast Region.
These increased margins are primarily the result of higher sales prices and
increased national contract rebates, while housing costs remained
relatively stable.
Selling, general, and administrative costs as a percentage of total
homebuilding revenues decreased to 7.6% for the three months ended July 31,
2002 from 7.8% for the prior year's three months, and decreased to 8.2% for
the nine months ended July 31, 2002 from 8.6% for the prior year's nine
months. Such expenses increased during the three and nine months ended
July 31, 2002 by $14.1 million and $36.3 million, repsectively, compared to
the same periods last year. The percentage decline for the three and nine
months ended July 31, 2002 was due to the increased deliveries. The dollar
increase in selling, general, and administrataive was primarily due to a
full nine months of expenses from Washington Homes, Inc., increased
administrataive staff in the Northeast Region, and the addition of Forecast
Homes.
Land Sales and Other Revenues:
Land sales and other revenues consist primarily of land and lot
sales. A breakout of land and lot sales is set forth below:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Land and Lot Sales................ $ 10,587 $ 1,160 $29,127 $ 5,398
Cost of Sales..................... 9,522 979 24,048 4,808
-------- -------- -------- --------
Land and Lot Sales Gross Margin... 1,065 181 5,079 590
Interest Expense.................. 112 58 760 347
-------- -------- -------- --------
Land and Lot Sales Profit
Before Tax...................... $ 953 $ 123 $ 4,319 $ 243
======== ======== ======== ========
Land and lot sales are incidental to our residential housing
operations and are expected to continue in the future but may significantly
fluctuate up or down.
Financial Services
Financial services consist primarily of originating mortgages from
our homebuyers, selling such mortgages in the secondary market, and title
insurance activities. For the three and nine months ended July 31, 2002
financial services provided a $5.0 million and $12.2 million profit before
income taxes compared to a profit of $3.4 million and $7.2 million for the
same period in 2001. These increases are primarily due to reduced costs,
increased mortgage loan amounts, and the addition of mortgage operations
from the merger with Washington Homes for a full nine months and the
acquisition of Forecast Homes. In addition to our wholly-owned mortgage
subsidiaries, customers obtained mortgages from our mortgage joint ventures
in our Texas division in 2001 and our Forecast division in 2002.
Corporate General and Administrative
Corporate general and administrative expenses include the operations
at our headquarters in Red Bank, New Jersey. Such expenses include our
executive offices, information services, human resources, corporate
accounting, training, treasury, process redesign, internal audit,
construction services, and administration of insurance, quality, and
safety. As a percentage of total revenues, such expenses decreased to 1.7%
for the three months ended July 31, 2002 from 2.1% for the prior year's
three months and decreased to 2.0% for the nine months ended July 31, 2002
from 2.5% for the prior year's nine months. Corporate general and
administrative expenses increased $1.5 million and $3.8 million during the
three and nine months ended July 31, 2002, respectively, compared to the
same periods last year. The percentage decline is primarily attributed to
the increase in housing operations. Increases in corporate general and
administrative dollar expenses are primarily attributed to higher employee
incentives due to a higher return on equity.
Interest
Interest expense includes housing and land and lot interest.
Interest expense is broken down as follows:
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------
Sale of Homes.............. $ 15,737 $13,427 $41,593 $36,592
Land and Lot Sales......... 112 58 760 347
-------- -------- -------- --------
Total...................... $ 15,849 $13,485 $42,353 $36,939
======== ======== ======== ========
Housing interest as a percentage of sale of homes revenues decreased
to 2.3% and 2.5% for the three and nine months ended July 31, 2002,
respectively, compared to 2.7% and 3.1% for the three and nine months ended
July 31, 2001, respectively. These decreases are primarily the result of
quicker inventory turnover. Inventory turnover is up as a result of the
acquisition of Forecast and the merger with Washington Homes where a larger
portion of their purchases are finished lots requiring shorter holding
periods until homes are delivered.
Other Operations
Other operations consist primarily of miscellaneous residential
housing operations expenses, senior residential property operations,
amortization of senior and senior subordinated note issuance expenses,
earnout payments from homebuilding company acquisitions, employee stock
bonus program, amortization of the Forecast consultant's agreements and the
right of first refusal agreement, expenses related to exiting our Mid South
market, and corporate owned life insurance loan interest. For the nine
months ended July 31, 2002, other operations increased primarily due to the
amortization of the Forecast consulting and right of first refusal
agreements (starting in 2002), increased amortization of senior and
subordinated note issuance expenses, and increased expenses from the
employee stock bonus program.
Restructuring Charges
Restructuring charges are estimated expenses associated with
the merger of our operations with those of Washington Homes, Inc. as a
result of the merger on January 23, 2001. Under our merger plan,
administration offices in Maryland, Virginia, and North Carolina were
either closed, relocated, or combined. The merger of administration
offices was completed by July 31, 2001. At January 31, 2001, expenses were
accrued for salaries, severance and outplacement costs for the involuntary
termination of associates, costs to close and/or relocate existing
administrative offices, and lost rent and leasehold improvements. During
the year ended October 31, 2001 our estimate for restructuring charges was
increased to a total of $3.2 million. We have provided for the termination
of 65 associates. We accrued approximately $2.0 million to cover
termination and related costs. Associates being terminated were primarily
administrative. In addition, we accrued approximately $1.2 million to
cover closing and/or relocation of various administrative offices in these
three states. Such amounts are included in accounts payable and other
liabilities in the accompanying financial statements. $94,000 and $671,000
was charged against the reserve during the three and nine months ended
July 31, 2002, respectively. At July 31, 2002 $1.8 million has been
charged against termination costs relating to the termination of 63
associates and $0.9 million has been charged against closing and relocation
costs.
Asset Write Off
We wrote off costs during the three months ended July 31, 2002
associated with SAP, our enterprise-wide operating software, totaling $12.0
million pretax included in Restructuring Charges/Asset Write Off in the
accompanying Consolidated Statements of Income or $7.6 million after taxes
equal to $0.23 per fully diluted share. These unamortized costs are those
associated with the development of the SAP system. We were not successful
in implementing SAP, due to the complexities and limitations in the
software program. We have $2.5 million initiative costs remaining, all of
which will be amortized over the remaining life of the communities using
SAP software, which are scheduled to be substantially complete by the end
of 2003. We have recently identified an alternative software package that
will offer us the information system functionality we need. We are
planning to have our first pilot community on line by the end of this
calendar year, which will utilize this alternative software package.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 no longer permits the amortization
of goodwill and indefinite-lived intangible assets. Instead, these assets
must be reviewed annually (or more frequently under certain conditions) for
impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flows approach. We
adopted SFAS 142 on November 1, 2001. As a result, goodwill amortization
of $1,104,000 and $2,731,000 which was incurred in the three and nine
months ended July 31, 2001, respectively, is no longer incurred in fiscal
2002.
In May 2002, the Financial Accounting Standards Board issued (SFAS)
No. 145, "Reporting Gains and Losses from Extinguishment of Debt", which
rescinded SFAS No. 4, No. 44, and No. 64 and amended SFAS No. 13. The new
standard addresses the income statement classification of gains or losses
from the extinguishment of debt and criteria for classification as
extraordinary items. We will adopt SFAS No. 145 effective for our fiscal
year beginning November 1, 2002. We do not anticipate that the adoption of
the new standard will have a material effect on the financial position or
results of operations of our Company.
Total Taxes
Total taxes as a percentage of income before taxes amounted to
approximately 37.6% and 39.5% for the nine months ended July 31, 2002 and
2001, respectively. The decrease in this percentage from 2001 to 2002 is
primarily attributed to a lower state income tax percentage and a decrease
in the effective federal income tax rate. The decrease in the state tax
percentage was primarily the result of reduced taxes in New Jersey and
Maryland which were partially offset by increases in California and
Virginia. The decreased federal effective rate is due primarily to a
reserve set up in 2001 for potential adjustments. Deferred federal and
state income tax assets primarily represent the deferred tax benefits
arising from temporary differences between book and tax income which will
be recognized in future years as an offset against future taxable income.
If for some reason the combination of future years income (or loss)
combined with the reversal of the timing differences results in a loss,
such losses can be carried back to prior years to recover the deferred tax
assets. As a result, management is confident such deferred tax assets are
recoverable regardless of future income.
Inflation
Inflation has a long-term effect on us because increasing costs of
land, materials, and labor result in increasing sale prices of our homes.
In general, these price increases have been commensurate with the general
rate of inflation in our housing markets and have not had a significant
adverse effect on the sale of our homes. A significant risk faced by the
housing industry generally is that rising house costs, including land and
interest costs, will substantially outpace increases in the income of
potential purchasers. In recent years, in the price ranges in which our
homes sell, we have not found this risk to be a significant problem.
Inflation has a lesser short-term effect on us because we generally
negotiate fixed price contracts with our subcontractors and material
suppliers for the construction of our homes. These prices usually are
applicable for a specified number of residential buildings or for a time
period of between four to twelve months. Construction costs for
residential buildings represent approximately 58% of our homebuilding cost
of sales.
Mergers and Acquisitions
On January 23, 2001 we merged with Washington Homes, Inc. for a total
purchase price of $87.4 million, of which $38.5 was paid in cash and
6,352,900 shares of our Class A common stock were issued. On January 10,
2002 we acquired The Forecast Group, L.P. for an estimated purchase price
of $196.5 million, of which $151.6 million was paid in cash and 2,208,738
shares of our Class A common stock were issued. The addition of Forecast
operations for slightly more than three full quarters is expected to
increase revenues approximately 30% in fiscal 2002 from fiscal 2001.
Safe Harbor Statement
All statements in this Form 10-Q that are not historical facts should
be considered as "Forward-Looking Statements" within the meaning of the
Private Securities Litigation Act of 1995. Such statements involve known
and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements expressed or implied by the forward
looking statements. Such risks, uncertainties and other factors include,
but are not limited to:
. Changes in general and local economic and business conditions
. Weather conditions
. Changes in market conditions
. Changes in home prices and sales activity in the markets where the
Company builds homes
. Government regulation, including regulations concerning
development of
land, the homebuilding process, and the environment
. Fluctuations in interest rates and the availability of mortgage
financing
. Increases in raw materials and labor costs
. The availability and cost of suitable land and improved lots
. Levels of competition
. Availability of financing to the Company
. Terrorist acts and other acts of war
These risks, uncertainties, and other factors are described in detail
in Item 1 and 2 Business and Properties in our Form 10-K for the year ended
October 31, 2001.
Quantitative and Qualitative Disclosures About Market Risk.
The primary market risk facing us is interest rate risk on our long
term debt. In connection with our mortgage operations, mortgage loans held
for sale and the associated mortgage warehouse line of credit are subject
to interest rate risk; however, such obligations reprice frequently and are
short-term in duration. In addition, we hedge the interest rate risk on
mortgage loans by obtaining forward commitments from FNMA, FHLMC, GNMA
securities and private investors. Accordingly the risk from mortgage loans
is not material. We do not hedge interest rate risk other than on mortgage
loans using financial instruments. We are also subject to foreign currency
risk but this risk is not material. The following table sets forth as of
July 31, 2002, our long term debt obligations, principal cash flows by
scheduled maturity, weighted average interest rates and estimated fair
market value ("FMV").
As of July 31, 2002 for the
Nine Months Ended July 31,
--------------------------------------
FMV @
2003 2004 2005 2006 2007 Thereafter Total
7/31/02
------- ------ ------ ------ ------ ---------- -------- --
- -----
(Dollars in Thousands)
Long Term Debt(1):
Fixed Rate...... $11,549 $ 75 $ 81 $ 88 $ 96 $ 550,360 $562,249
$552,749
Average interest
rate.......... 6.71% 8.38% 8.38% 8.38% 8.38% 9.23% 9.17%
- --
Variable rate... -- -- -- -- $115,000 -- $115,000
$115,000
Average interest
rate.......... -- -- -- -- (2) -- --
- --
(1) Does not include bonds collateralized by mortgages receivable.
(2) Libor plus 2.5%
Part II. Other Information
Item 6(a). Exhibits
(i) Exhibit 10(a) Amended and Restated Credit
Agreement dated June 21, 2002.
(ii) Exhibit 10(b) $110,000,000 K. Hovnanian Mortgage,
Inc. Revolving Credit Agreement dated June 7, 2002.
(iii) Exhibit 10(c) First Amendment to K. Hovnanian
Mortgage Inc. Revolving Credit Agreement dated
July 25, 2002.
(iv) Exhibit 99(a) Certification of Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(v) Exhibit 99(b) Certification of Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Item 6(b). No reports on Form 8K have been filed during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
l934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HOVNANIAN ENTERPRISES, INC.
(Registrant)
DATE: September 13, 2002 /S/J. LARRY SORSBY
J. Larry Sorsby,
Executive Vice President and
Chief Financial Officer
DATE: September 13, 2002 /S/PAUL W. BUCHANAN
Paul W. Buchanan,
Senior Vice President
Corporate Controller
CERTIFICATION
I, Ara K. Hovnanian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hovnanian
Enterprises, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
/S/ARA K. HOVNANIAN
Ara K. Hovnanian
President and Chief Executive
Officer
Date: September 13, 2002
CERTIFICATION
I, J. Larry Sorsby, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hovnanian
Enterprises, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
/S/J. LARRY SORSBY
J. Larry Sorsby
Executive Vice-President
And Chief Financial Officer
Date: September 13, 2002
$440,000,000 REVOLVING CREDIT FACILITY
AMENDED AND RESTATED CREDIT AGREEMENT
by and among
K. HOVNANIAN ENTERPRISES, INC.
(as the Borrower)
HOVNANIAN ENTERPRISES, INC.
(as a Guarantor)
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent
Bank of America, N.A., as
Syndication Agent
Fleet National Bank, as
Documentation Agent
PNC Capital Markets, LLC
Banc of America Securities, LLC
as
Joint Lead Arrangers and Joint Book Runners
Amended and Restated June 21, 2002
1. CERTAIN DEFINITIONS 1
1.1 Certain Definitions. 1
1.2 Construction. 21
1.2.1. Number; Inclusion. 21
1.2.2. Determination. 21
1.2.3. Agent's Discretion and Consent. 21
1.2.4. Documents Taken as a Whole. 21
1.2.5. Headings. 22
1.2.6. Implied References to this Agreement. 22
1.2.7. Persons. 22
1.2.8. Modifications to Documents. 22
1.2.9. From, To and Through. 22
1.2.10. Shall; Will. 22
1.3 Accounting Principles. 22
2. REVOLVING CREDIT AND SWING LOAN FACILITIES 23
2.1 Revolving Credit Commitments. 23
2.1.1. Revolving Credit Loans. 23
2.1.2. Swing Loan Commitment. 23
2.1.3. Increase in Commitments After Closing Date. 23
2.1.4. Voluntary Reduction of Commitment. 24
2.2 Nature of Banks' Obligations with Respect to Revolving
Credit Loans. 24
2.3 Commitment Fees. 24
2.4 Revolving Credit Loan Requests; Swing Loan Requests. 25
2.4.1. Revolving Credit Loan Requests. 25
2.4.2. Swing Loan Requests. 25
2.5 Making Revolving Credit Loans and Swing Loans. 25
2.5.1. Generally. 25
2.5.2. Making Swing Loans. 26
2.6 Swing Loan Note. 26
2.7 Use of Proceeds. 26
2.8 Borrowings to Repay Swing Loans. 26
2.9 Letter of Credit Subfacility. 27
2.9.1. Issuance of Letters of Credit. 27
2.9.2. Letter of Credit Fees. 27
2.9.3. Disbursements, Reimbursement. 28
2.9.4. Repayment of Participation Advances. 29
2.9.5. Documentation. 29
2.9.6. Determinations to Honor Drawing Requests. 29
2.9.7. Nature of Participation and Reimbursement
Obligations. 30
2.9.8. Indemnity. 31
2.9.9. Liability for Acts and Omissions. 31
2.9.10. Sharing Letter of Credit Documentation. 32
2.10 Extension by Banks of the Expiration Date. 32
2.10.1. Requests; Approval by All Banks. 32
2.10.2. Approval by 80% Banks. 33
2.11 Designation of Subsidiaries and Release of Guarantors. 33
2.11.1. Release of Guarantors. 33
2.11.2. Designation of Non-Restricted Person. 34
2.11.3. Automatic Designation of Non-Restricted
Person. 34
2.11.4. Designation of Restricted Subsidiary. 35
3. INTEREST RATES 35
3.1 Interest Rate Options. 35
3.1.1. Revolving Credit Interest Rate Options. 35
3.1.2. Rate Quotations. 35
3.2 Interest Periods. 36
3.3 Interest After Default. 36
3.3.1. Default Rate. 36
3.3.2. Acknowledgment. 36
3.4 LIBO-Rate Unascertainable; Illegality; Increased
Costs; Deposits Not Available. 36
3.4.1. Unascertainable. 36
3.4.2. Illegality; Increased Costs; Deposits Not Available. 37
3.4.3. Agent's and Bank's Rights. 37
3.5 Selection of Interest Rate Options. 38
4. PAYMENTS 38
4.1 Payments. 38
4.2 Pro Rata Treatment of Banks. 38
4.3 Interest Payment Dates. 39
4.4 Voluntary Prepayments. 39
4.4.1. Right to Prepay. 39
4.4.2. Replacement of a Bank. 40
4.4.3. Change of Lending Office. 40
4.5 Mandatory Payments. 40
4.6 Additional Compensation in Certain Circumstances. 41
4.6.1. Increased Costs or Reduced Return Resulting from Taxes,
Reserves, Capital Adequacy Requirements, Expenses,
Etc. 41
4.6.2. Indemnity. 41
4.7 Notes. 42
4.8 Settlement Date Procedures. 42
5. REPRESENTATIONS AND WARRANTIES 43
5.1 Representations and Warranties. 43
5.1.1. Organization and Qualification. 43
5.1.2. Subsidiaries. 43
5.1.3. Power and Authority. 44
5.1.4. Validity and Binding Effect. 44
5.1.5. No Conflict. 44
5.1.6. Litigation. 44
5.1.7. Title to Properties. 45
5.1.8. Financial Statements. 45
5.1.9. Use of Proceeds; Margin Stock. 46
5.1.10. Full Disclosure. 46
5.1.11. Taxes. 46
5.1.12. Consents and Approvals. 47
5.1.13. No Event of Default; Compliance with
Instruments. 47
5.1.14. Patents, Trademarks, Copyrights, Licenses,
Etc. 47
5.1.15. Insurance. 47
5.1.16. Compliance with Laws. 47
5.1.17. Burdensome Restrictions. 47
5.1.18. Investment Companies; Regulated Entities. 48
5.1.19. Plans and Benefit Arrangements. 48
5.1.20. Employment Matters. 49
5.1.21. Environmental Matters. 49
5.1.22. Senior Debt Status. 49
5.2 Continuation of Representations. 50
6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT 50
6.1 First Loans and Letters of Credit. 50
6.1.1. Officer's Certificate. 50
6.1.2. Incumbency Certificate. 50
6.1.3. Delivery of Loan Documents . 51
6.1.4. Opinion of Counsel. 51
6.1.5. Legal Details. 51
6.1.6. Payment of Fees. 51
6.1.7. Consents. 51
6.1.8. Officer's Certificate Regarding MACs. 52
6.1.9. No Actions or Proceedings. 52
6.2 Each Additional Loan or Letter of Credit. 52
7. COVENANTS 52
7.1 Affirmative Covenants. 52
7.1.1. Preservation of Existence, Etc. 52
7.1.2. Payment of Liabilities, Including Taxes, Etc. 53
7.1.3. Maintenance of Insurance. 53
7.1.4. Maintenance of Properties and Leases. 53
7.1.5. Maintenance of Patents, Trademarks, Etc. 53
7.1.6. Visitation Rights. 53
7.1.7. Keeping of Records and Books of Account. 54
7.1.8. Plans and Benefit Arrangements. 54
7.1.9. Compliance with Laws. 54
7.1.10. Use of Proceeds. 54
7.1.11. Required Dividends of KHL. 55
7.2 Negative Covenants. 55
7.2.1. Indebtedness. 55
7.2.2. Liens. 55
7.2.3. Loans and Investments. 55
7.2.4. Liquidations, Mergers, Consolidations, Acquisitions. 55
7.2.5. Dispositions of Assets or Subsidiaries; Sale and Leaseback. 57
7.2.6. Restricted Payments; Restricted Investments. 57
7.2.7. Subsidiaries, Partnerships and Joint Ventures. 58
7.2.8. Continuation of or Change in Business. 58
7.2.9. Plans and Benefit Arrangements. 58
7.2.10. Borrowing Base. 58
7.2.11. Minimum ATNW. 59
7.2.12. Leverage Ratio. 59
7.2.13. Inventory and Land Purchase Limits. 59
7.2.14. Fiscal Year. 60
7.2.15. Changes in Subordinated Debt Documents. 60
7.3 Reporting Requirements. 60
7.3.1. Quarterly Financial Statements. 60
7.3.2. Annual Financial Statements. 61
7.3.3. Certificates of the Borrower. 61
7.3.4. Notice of Default. 62
7.3.5. Notice of Litigation. 62
7.3.6. Notice of Change in Debt Rating. 62
7.3.7. Budgets, Forecasts, Other Reports and Information. 62
7.3.8. Notices Regarding Plans and Benefit Arrangements. 63
8. DEFAULT 64
8.1 Events of Default. 64
8.1.1. Payments Under Loan Documents. 64
8.1.2. Breach of Warranty. 64
8.1.3. Breach of Certain Negative Covenants. 64
8.1.4. Breach of Other Covenants. 65
8.1.5. Defaults in Other Agreements or Indebtedness. 65
8.1.6. Final Judgments or Orders. 65
8.1.7. Loan Document Unenforceable. 65
8.1.8. Uninsured Losses; Proceedings Against Assets. 65
8.1.9. Notice of Lien or Assessment. 65
8.1.10. Insolvency. 66
8.1.11. Events Relating to Plans and Benefit
Arrangements. 66
8.1.12. Cessation of Business. 66
8.1.13. Change of Control. 67
8.1.14. Involuntary Proceedings. 67
8.1.15. Voluntary Proceedings. 67
8.2 Consequences of Event of Default. 67
8.2.1. Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings. 67
8.2.2. Bankruptcy, Insolvency or Reorganization Proceedings. 68
8.2.3. Set-off. 68
8.2.4. Suits, Actions, Proceedings. 68
8.2.5. Application of Proceeds. 69
8.2.6. Other Rights and Remedies. 69
9. THE AGENT 69
9.1 Appointment. 69
9.2 Delegation of Duties. 70
9.3 Nature of Duties; Independent Credit Investigation. 70
9.4 Actions in Discretion of Agent; Instructions From the
Banks. 70
9.5 Reimbursement and Indemnification of Agent by the
Borrower. 71
9.6 Exculpatory Provisions; Limitation of Liability. 71
9.7 Reimbursement and Indemnification of Agent by Banks. 72
9.8 Reliance by Agent. 72
9.9 Notice of Default. 73
9.10 Notices. 73
9.11 Banks in Their Individual Capacities; Agents in its
Individual Capacity. 73
9.12 Holders of Notes. 73
9.13 Equalization of Banks. 74
9.14 Successor Agent. 74
9.15 Agent's Fee. 75
9.16 Availability of Funds. 75
9.17 Calculations. 75
9.18 Beneficiaries. 75
10. MISCELLANEOUS 76
10.1 Modifications, Amendments or Waivers. 76
10.1.1. Increase of Commitment. 76
10.1.2. Extension of Payment; Reduction of Principal,
Interest or Fees; Modification of Terms of
Payment. 76
10.1.3. Miscellaneous 76
10.2 No Implied Waivers; Cumulative Remedies; Writing
Required. 77
10.3 Reimbursement and Indemnification of Banks by the
Borrower; Taxes. 77
10.4 Holidays. 78
10.5 Funding by Branch, Subsidiary or Affiliate. 78
10.5.1. Notional Funding. 78
10.5.2. Actual Funding. 78
10.6 Notices. 79
10.7 Severability. 79
10.8 Governing Law. 80
10.9 Prior Understanding. 80
10.10 Duration; Survival. 80
10.11 Successors and Assigns. 80
10.12 Confidentiality. 82
10.12.1. General. 82
10.12.2. Sharing Information With Affiliates of the
Banks. 82
10.13 Counterparts. 83
10.14 Agent's or Bank's Consent. 83
10.15 Exceptions. 83
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. 83
10.17 Tax Withholding Clause. 84
10.18 Joinder of Guarantors. 84
10.19 Concerning Agent Terms. 85
10.20 Ratification of Notes and Loan Documents and Existing
Obligations. 85
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1(A) - APPLICABLE MARGIN
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS AND ADDRESSES FOR
NOTICES
SCHEDULE 1.1(C) - LISTING OF RESTRICTED SUBSIDIARIES,
JOINT VENTURES, MORTGAGE SUBSIDIARIES
AND NON-RESTRICTED PERSONS
SCHEDULE 1.1(E) - INCOME PRODUCING PROPERTIES
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 2.9.1 - EXISTING LETTERS OF CREDIT
SCHEDULE 5.1.2 - SUBSIDIARIES
SCHEDULE 5.1.12 - CONSENTS AND APPROVALS
SCHEDULE 7.2.1 - PERMITTED INDEBTEDNESS
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1.(B)(1) - BANK JOINDER
EXHIBIT 1.1(G) - GUARANTOR JOINDER
EXHIBIT 1.1(R) - REVOLVING CREDIT NOTE
EXHIBIT 1.1(S) - SWING LOAN NOTE
EXHIBIT 2.4.1 - LOAN REQUEST
EXHIBIT 2.4.2 - SWING LOAN REQUEST
EXHIBIT 7.3.3.1 - QUARTERLY COMPLIANCE CERTIFICATE
EXHIBIT 7.3.3.2 - BORROWING BASE CERTIFICATE
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated June 21,
2002 and is made by and among K. HOVNANIAN ENTERPRISES, INC., a
New Jersey corporation (the "Borrower"), HOVNANIAN ENTERPRISES,
INC., a Delaware corporation ("Hovnanian" and a "Guarantor"), the
BANKS (as hereinafter defined), and PNC BANK, NATIONAL
ASSOCIATION, in its capacity as administrative agent for the Banks
under this Agreement (hereinafter referred to in such capacity as
the "Agent").
WITNESSETH:
WHEREAS, the Banks provided a $440,000,000 revolving credit
facility to the Borrower pursuant to a Credit Agreement dated
August 28, 2001 among the parties hereto (the "Original Credit
Agreement");
WHEREAS, the revolving credit shall be used to refinance
existing indebtedness, provide for letters of credit and provide
working capital and funds for general corporate purposes; WHEREAS,
the Borrower and the Banks have agreed that the Original Credit
Agreement be amended and restated as provided herein;
WHEREAS, the parties hereto intend that the Notes and other
Loan Documents delivered in connection with the Original Credit
Agreement be the "Loan Documents" hereunder and be of continued
force and effect.
NOW, THEREFORE, the parties hereto, in consideration of
their mutual covenants and agreements hereinafter set forth and
intending to be legally bound hereby, covenant and agree as
follows:
1. CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in
this Agreement, the following words and terms shall have the
following meanings, respectively, unless the context hereof
clearly requires otherwise:
Actual Leverage shall mean the ratio of (x)(i)
Homebuilding Indebtedness minus (ii) Excess Cash to (y) Adjusted
Tangible Net Worth.
Additional Bank shall have the meaning assigned
to that term in Section 10.11(b) (Successors and Assigns).
Adjusted Operating Income shall mean for any
period the sum of (x) consolidated net income of Hovnanian for
such period, (y) to the extent deducted in arriving at such net
income, consolidated income taxes, consolidated interest expense,
Letter of Credit Fees, depreciation, amortization, non-cash
valuation charges or adjustments and (z) cash distributions
received by any Loan Party from Non-Restricted Persons during such
period. Adjusted Operating Income shall exclude net income or
loss of Non-Restricted Persons.
Adjusted Tangible Net Worth (or ATNW) shall
mean (x) consolidated shareholders equity of Hovnanian minus,
without duplication (y) (i) Intangibles, (ii) the Dollar amount of
Restricted Investments and (iii) equity (comprising "cost"
according to GAAP minus the amount of debt secured by applicable
mortgages) in residential inventory properties with Purchase Money
Mortgages, all as calculated and consolidated in accordance with
GAAP.
Affiliate as to any Person shall mean any other
Person (i)which directly or indirectly controls, is controlled by,
or is under common control with such Person, (ii)which
beneficially owns or holds 10% or more of any class of the voting
or other equity interests of such Person, or (iii)10% or more of
any class of voting interests or other equity interests of which
is beneficially owned or held, directly or indirectly, by such
Person. Control, as used in this definition, shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise, including the power to elect a majority of the
directors or trustees of a corporation or trust, as the case may
be.
Agent shall mean PNC Bank, National Association,
and its successors and assigns.
Agent's Fee shall have the meaning assigned to
that term in Section 9.15 (Agent's Fee).
Agent's Letter shall have the meaning assigned
to that term in Section 9.15 (Agent's Fee).
Agreement shall mean this Credit Agreement, as
the same may be supplemented or amended from time to time,
including all schedules and exhibits.
Annual Statements shall have the meaning
assigned to that term in Section 5.1.8((i) (Historical
Statements)).
Applicable Commitment Fee Rate shall mean the
percentage rate per annum at the indicated level of Debt Rating in
the pricing grid on Schedule 1.1(A) below the heading "Commitment
Fee." The Applicable Commitment Fee Rate shall be computed in
accordance with the parameters set forth on Schedule 1.1(A).
Applicable Letter of Credit Fee Rate shall mean
the percentage rate per annum at the indicated level of Debt
Rating in the pricing grid on Schedule 1.1(A) below the heading
"LOC Fee." The Applicable Letter of Credit Fee Rate shall be
computed in accordance with the parameters set forth on Schedule
1.1(A).
Applicable Margin shall mean, as applicable:
(A) the percentage spread to be added to Base
Rate under the Revolving Credit Base Rate Option at the indicated
level of Debt Rating in the pricing grid on Schedule 1.1(A) below
the heading "Base Rate Margin,"
(B) the percentage spread to be added to LIBO-
Rate under the Revolving Credit LIBO-Rate Option at the indicated
level of Debt Rating in the pricing grid on Schedule 1.1(A) below
the heading "Libor Margin".
The Applicable Margin shall be computed in accordance with the
parameters set forth on Schedule 1.1(A).
Assignee Bank shall have the meaning assigned to
such term in Section 2.10.2 (Approval by 80% Banks).
Assignment and Assumption Agreement shall mean
an Assignment and Assumption Agreement by and among a Purchasing
Bank, a Transferor Bank and the Agent, as Agent and on behalf of
the remaining Banks, substantially in the form of Exhibit 1.1(A).
Authorized Officer shall mean those individuals,
designated by written notice to the Agent from the Borrower,
authorized to execute notices, reports and other documents on
behalf of the Loan Parties required hereunder. The Borrower may
amend such list of individuals from time to time by giving written
notice of such amendment to the Agent.
Banks shall mean the financial institutions
named on Schedule 1.1(B) and their respective successors and
assigns as permitted hereunder, each of which is referred to
herein as a Bank.
Base Rate shall mean the greater of (i)the
interest rate per annum announced from time to time by the Agent
at its Principal Office as its then prime rate, which rate may not
be the lowest rate then being charged commercial borrowers by the
Agent, or (ii)the Federal Funds Effective Rate plus 1/2% per
annum.
Base Rate Option shall mean the Revolving Credit
Base Rate Option.
Benefit Arrangement shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of
ERISA, which is neither a Plan nor a Multiemployer Plan and which
is maintained, sponsored or otherwise contributed to by the
Borrower.
Borrower shall mean K. Hovnanian Enterprises,
Inc., a corporation organized and existing under the laws of the
State of New Jersey and wholly-owned by Hovnanian.
Borrowing Base shall mean at any time, the
Dollar amount equal to the sum of the following items, each owned
free and clear of all Liens (except Permitted Liens of the type
described in items (i), (ii), (iii), (iv), (v) and (vi) of the
definition of "Permitted Liens") by the Borrower, Hovnanian or a
Restricted Subsidiary:
(i) 100% of Excess Cash;
(ii) 95% of Sold Homes;
(iii) 70% of Unsold Homes; and
(iv) 55% of Finished Lots and Land
Under Development;
provided however that the Borrowing Base shall exclude in all
events the Dollar amount of
(i) p
roperty located outside of the
United States of America in
excess of $10,000,000;
(ii) U
nimproved Land;
(iii) any residential or commercial
property owned by Hovnanian or any Subsidiary which is leased or
held for purposes of leasing primarily to unaffiliated third
parties; and
(iv) properties subject to any
Purchase Money Mortgage.
The determination of the Agent in respect of the Borrowing Base
shall be conclusive absent manifest error.
Borrowing Base Certificate shall mean the
Borrowing Base Certificate in the form of Exhibit 7.3.3.2 duly
completed and delivered by the Borrower pursuant to Section
7.3.3.2 (Borrowing Base Certificate).
Borrowing Date shall mean, with respect to any
Loan, the date for the making thereof or the renewal or conversion
thereof at or to the same or a different Interest Rate Option,
which shall be a Business Day.
Borrowing Tranche shall mean specified portions
of Loans outstanding as follows: (i)any Loans to which a LIBO-
Rate Option applies which become subject to the same Interest Rate
Option under the same Loan Request by the Borrower and which have
the same Interest Period shall constitute one Borrowing Tranche,
and (ii)all Loans to which a Base Rate Option applies shall
constitute one Borrowing Tranche.
Business Day shall mean any day other than a
Saturday or Sunday or a legal holiday on which commercial banks
are authorized or required to be closed for business at the
Principal Office and if the applicable Business Day relates to any
Loan to which the LIBO-Rate Option applies, such day must also be
a day on which dealings are carried on in the London interbank
market.
Capital Stock Retirement shall mean any
repurchase, redemption, acquisition or retirement of any capital
stock or other ownership interest of Hovnanian or of any warrants,
options or other rights to purchase such capital stock or other
ownership interest; provided that "Capital Stock Retirement" shall
not include the conversion or exchange of any of the foregoing
into shares of capital stock of Hovnanian.
Cash Flow shall mean Adjusted Operating Income
plus any decrease in any Sold Homes, Unsold Homes, Unimproved Land
or Finished Lots and Land Under Development which is not the
result of a valuation charge or adjustment (or minus any increase
in any of the foregoing categories).
Cash Flow Coverage Ratio shall mean the ratio,
as of any date of determination, of (x) Cash Flow for the prior
twelve (12) months to (y) four (4) multiplied by Fixed Charges for
the most-recently ended fiscal quarter.
Closing Date shall mean the Business Day on
which the first Loan shall be made, which shall be June 21 2002.
The closing shall take place at 11:00 a.m., Eastern time, on the
Closing Date at the offices of Buchanan Ingersoll Professional
Corporation, Philadelphia, Pennsylvania, or at such other time and
place as the parties agree.
Commitment shall mean as to any Bank its
Revolving Credit Commitment and, in the case of the Agent, its
Revolving Credit Commitment and its Swing Loan Commitment; and
Commitments shall mean the aggregate of the Revolving Credit
Commitments of all of the Banks, including the Swing Loan
Commitment of the Agent.
Commitment Fee shall have the meaning assigned
to that term in Section 2.3 (Commitment Fees).
Compliance Certificate shall have the meaning
assigned to such term in Section 7.3.3 (Certificates of the
Borrower).
Contamination shall mean the presence or release
or threat of release of Regulated Substances in, on, under or
emanating to or from any of the Property, which pursuant to
Environmental Laws requires notification or reporting to an
Official Body, or which pursuant to Environmental Laws requires
the investigation, cleanup, removal, remediation, containment,
abatement of or other response action or which otherwise
constitutes a violation of Environmental Laws.
Debt Rating shall mean the rating of Hovnanian's
senior unsecured long-term debt by each of Standard & Poor's and
Moody's.
Default Rate shall have the meaning assigned to
that term in Section 3.3.l (Default Rate).
Dividends shall mean any dividend or
distribution by a Person in respect of its capital stock or
ownership interests, whether in cash, property or securities.
Dollar, Dollars, U.S. Dollars and the symbol $
shall mean lawful money of the United States of America.
Drawing Date shall mean each date that an amount
is paid by the Letter of Credit Bank under any Letter of Credit.
Dwelling Unit shall mean a residential housing
unit held for sale by a Loan Party.
Environmental Complaint shall mean any written
complaint by any Person or Official Body setting forth a cause of
action for personal injury or property damage, natural resource
damage, contribution or indemnity for response costs, civil or
administrative penalties, criminal fines or penalties, or
declaratory or equitable relief arising under any Environmental
Laws or under any order, notice of violation, citation, subpoena,
request for information or other written notice or demand of any
type issued by an Official Body pursuant to any Environmental
Laws.
Environmental Laws shall mean all federal,
state, local and foreign Laws and any consent decrees, settlement
agreements, judgments, orders, directives, policies or programs
issued by or entered into with an Official Body pertaining or
relating to: (i)pollution or pollution control; (ii)protection of
human health or the environment; (iii)employee safety in the
workplace; (iv)the presence, use, management, generation,
manufacture, processing, extraction, treatment, recycling,
refining, reclamation, labeling, transport, storage, collection,
distribution, disposal or release or threat of release of
Regulated Substances; (v)the presence of Contamination; (vi)the
protection of endangered or threatened species; and (vii)the
protection of Environmentally Sensitive Areas.
Environmentally Sensitive Area shall mean (i)
any wetland as defined by applicable Environmental Laws; (ii) any
area designated as a coastal zone pursuant to applicable Laws,
including Environmental Laws; (iii) any area of historic or
archeological significance or scenic area as defined or designated
by applicable Laws, including Environmental Laws; (iv)habitats of
endangered species or threatened species as designated by
applicable Laws, including Environmental Laws; or (v) a floodplain
or other flood hazard area as defined pursuant to any applicable
Laws.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented
from time to time, and any successor statute of similar import,
and the rules and regulations thereunder, as from time to time in
effect.
ERISA Group shall mean, at any time, the
Borrower and any entity (whether or not incorporated) that is
under common control with the Borrower within the meaning of
Section 4001 of ERISA, or the Borrower l and all other entities
which, together with the Borrower, are treated as a single
employer under Sections 414 (b) or (c) of the Internal Revenue
Code.
Event of Default shall mean any of the events
described in Section 8.1 (Events of Default) and referred to
therein as an "Event of Default."
Excess Cash shall mean cash that would appear on
a consolidated balance sheet of Hovnanian (to the extent not
pledged or encumbered in any way) in excess of $10,000,000.
Existing Related Business shall mean any
mortgage services, income property management and title insurance
businesses as such businesses are operated as of the Closing Date.
Expiration Date shall mean, with respect to the
Revolving Credit Commitments, July 30, 2005 as such may be
extended pursuant to Section 2.10 (Extension by Banks of the
Expiration Date).
Extending Bank shall have the meaning assigned
to such term in Section 2.10.2 (Approval by 80% Bank).
Federal Funds Effective Rate for any day shall
mean the rate per annum (based on a year of 360 days and actual
days elapsed and rounded upward to the nearest 1/100 of 1%)
announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates
on overnight federal funds transactions arranged by federal funds
brokers on the previous trading day, as computed and announced by
such Federal Reserve Bank (or any successor) in substantially the
same manner as such Federal Reserve Bank computes and announces
the weighted average it refers to as the "Federal Funds Effective
Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any
day, the "Federal Funds Effective Rate" for such day shall be the
Federal Funds Effective Rate for the last day on which such rate
was announced.
Financial Projections shall have the meaning
assigned to that term in Section 5.1.8((ii)) (Financial
Projections).
Finished Lots and Land Under Development shall
mean the Dollar amount of the lower of (x) actual cost (including
land costs and capitalized expenses relating thereto) or (y) the
market value (determined in accordance with GAAP) of any land that
has been granted Preliminary Approvals until a time which is the
earlier of when (x) it is "Unsold Homes" and (y) it is "Sold
Homes".
Fixed Charge Coverage Ratio shall mean the
ratio, as of any date of determination, of (x) Adjusted Operating
Income for the prior twelve (12) months to (y) four (4) multiplied
by Fixed Charges for the most-recently ended fiscal quarter.
Fixed Charges shall mean the sum of (i) interest
cost incurred on all Senior Homebuilding Indebtedness over the
past fiscal quarter; (ii) interest cost incurred on the
Subordinated Debt over the past fiscal quarter; (iii) 50% of the
interest cost incurred on all Purchase Money Mortgages over the
past fiscal quarter; (iv) Letter of Credit Fees accrued over the
past fiscal quarter; and (v) the interest component of capitalized
leases over the past fiscal quarter.
GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the
provisions of Section 1.3 [Accounting Principles], and applied on
a consistent basis both as to classification of items and amounts.
Governmental Acts shall have the meaning
assigned to that term in Section 2.9.8 (Indemnity).
Guarantor shall mean each of the parties to the
Guaranty Agreement (and designated as a "Guarantor" on Schedule
1.1(C)) and each other Person which joins the Guaranty Agreement
as a Guarantor after the date hereof pursuant to Section 10.18
(Joinder of Guarantors). As of the Closing Date, KHL shall not be
a Guarantor and Hovnanian shall be a Guarantor and all Restricted
Subsidiaries other than the Borrower and KHL shall be Guarantors.
Guarantor Joinder shall mean a joinder by a
Person as a Guarantor under the Guaranty Agreement in the form of
Exhibit 1.1(G).
Guaranty of any Person shall mean any obligation
of such Person guaranteeing or in effect guaranteeing any
Indebtedness of any other Person in any manner, whether directly
or indirectly.
Guaranty Agreement shall mean the Amended and
Restated Guaranty and Suretyship Agreement dated the Closing Date
and executed and delivered by each of the Guarantors to the Agent
for the benefit of the Banks.
Historical Statements shall have the meaning
assigned to that term in Section 5.1.8((i)) (Historical
Statements).
Homebuilding Indebtedness shall mean the sum of
(x) Senior Homebuilding Indebtedness and (y) Subordinated Debt.
Hovnanian shall mean Hovnanian Enterprises,
Inc., a Delaware corporation, shares of whose Class A Common Stock
are registered pursuant to the Securities Exchange Act of 1934.
Indebtedness shall mean, as to any Person at any
time, any and all indebtedness, obligations or liabilities
(whether matured or unmatured, liquidated or unliquidated, direct
or indirect, absolute or contingent, or joint or several) of such
Person for or in respect of: (i)borrowed money, (ii)amounts
raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii)reimbursement obligations
(contingent or otherwise) under any letter of credit, (iv)any
other transaction (including forward sale or purchase agreements,
capitalized leases and conditional sales agreements) having the
commercial effect of a borrowing of money entered into by such
Person to finance its operations or capital requirements (but not
including trade payables and accrued expenses incurred in the
ordinary course of business which are not more than ninety (90)
days past due or that are being contested in good faith by
appropriate proceedings), if and to the extent any of any of the
foregoing in this item (iv) would appear as a liability on the
balance sheet of such Person prepared on a consolidated basis in
accordance with GAAP, or (v)any Guaranty of Indebtedness for
borrowed money.
Ineligible Security shall mean any security
which may not be underwritten or dealt in by member banks of the
Federal Reserve System under Section 16 of the Banking Act of 1933
(12 U.S.C. Section 24, Seventh), as amended.
Insolvency Proceeding shall mean, with respect
to any Person, (a)a case, action or proceeding with respect to
such Person (i)before any court or any other Official Body under
any bankruptcy, insolvency, reorganization or other similar Law
now or hereafter in effect, or (ii)for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator,
conservator (or similar official) of any Loan Party or otherwise
relating to the liquidation, dissolution, winding-up or relief of
such Person, or (b)any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors, or
other, similar arrangement in respect of such Person's creditors
generally or any substantial portion of its creditors undertaken
under any Law.
Intangibles shall mean all patents, patent
applications, copyrights, trademarks, tradenames, goodwill,
organization expenses and other like items of Hovnanian and its
Subsidiaries which are treated as intangibles under GAAP.
Interest Period shall mean the period of time
selected by the Borrower in connection with (and to apply to) any
election permitted hereunder by the Borrower to have Revolving
Credit Loans bear interest under the LIBO-Rate Option. Subject to
the last sentence of this definition, such period shall be one,
two, three or six Months if Borrower selects the LIBO-Rate Option.
Such Interest Period shall commence on the effective date of such
Interest Rate Option, which shall be (i) the Borrowing Date if the
Borrower is requesting new Loans, or (ii) the date of renewal of
or conversion to the LIBO-Rate Option if the Borrower is renewing
or converting to the LIBO-Rate Option applicable to outstanding
Loans. Notwithstanding the second sentence hereof: (A) any
Interest Period which would otherwise end on a date which is not a
Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in the next calendar month, in
which case such Interest Period shall end on the next preceding
Business Day, and (B) the Borrower shall not select, convert to or
renew an Interest Period for any portion of the Loans that would
end after the Expiration Date.
Interest Rate Option shall mean any LIBO-Rate
Option or Base Rate Option.
Interim Statements shall have the meaning
assigned to that term in Section 5.1.8((i)) [Historical
Statements].
Internal Revenue Code shall mean the Internal
Revenue Code of 1986, as the same may be amended or supplemented
from time to time, and any successor statute of similar import,
and the rules and regulations thereunder, as from time to time in
effect.
Investment shall mean any loan or advance to or
on behalf of, or purchase, acquisition or ownership of any stock,
bonds, notes or securities of, or any partnership interest
(whether general or limited) or limited liability company interest
in, or any other similar investment or interest in, or any capital
contribution made to, any other Person, or any agreement to become
or remain liable to do any of the foregoing.
Investment in Related Business shall mean the
Investments by any of Hovnanian and the Restricted Subsidiaries
in (i)income-producing properties other than those listed on
Schedule 1.1E; or (ii )Existing Related Businesses.
Joint Ventures shall mean any Person in whom a
Loan Party has an ownership interest and which is not a
"Subsidiary". Each of the Joint Ventures as of the Closing Date
is listed on Schedule 1.1(C).
KHL shall mean KHL, Inc., a Delaware
corporation.
KHL Agreement shall mean KHL Agreement dated the
Closing Date and executed and delivered by KHL in respect of its
obligations to the Agent and the Banks.
Labor Contracts shall mean all employment
agreements, employment contracts, collective bargaining agreements
and other agreements among any Loan Party or Subsidiary of a Loan
Party and its employees.
Law shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance,
opinion, release, ruling, order, injunction, writ, decree, bond,
judgment, authorization or approval, lien or award of or
settlement agreement with any Official Body.
Letter of Credit shall have the meaning assigned
to that term in Section 2.9.1 (Issuance of Letters of Credit).
Letter of Credit Bank shall have the meaning
assigned to that term in Section 2.9.1 (Issuance of Letters of
Credit).
Letter of Credit Borrowing shall have the
meaning assigned to such term in Section 2.9.3.4 (Disbursements,
Reimbursement).
Letter of Credit Fee shall have the meaning
assigned to that term in Section 2.9.2 (Letter of Credit Fees).
Letter of Credit Outstandings shall mean at any
time the sum of (i)the aggregate undrawn face amount of
outstanding Letters of Credit and (ii)the aggregate amount of all
unpaid and outstanding Reimbursement Obligations and Letter of
Credit Borrowings.
LIBO-Rate shall mean, with respect to the Loans
comprising any Borrowing Tranche to which the LIBO-Rate Option
applies for any Interest Period, the interest rate per annum
determined by the Agent by dividing (the resulting quotient
rounded upwards, if necessary, to the nearest 1/100th of 1% per
annum) (i)the rate of interest determined by the Agent in
accordance with its usual procedures (which determination shall be
conclusive absent manifest error) to be the average of the London
interbank offered rates for U.S. Dollars quoted by the British
Bankers' Association as set forth on Dow Jones Markets Service
(formerly known as Telerate) (or appropriate successor or, if the
British Bankers' Association or its successor ceases to provide
such quotes, a comparable replacement determined by the Agent)
display page 3750 (or such other display page on the Dow Jones
Markets Service system as may replace display page 3750) two (2)
Business Days prior to the first day of such Interest Period for
an amount comparable to such Borrowing Tranche and having a
borrowing date and a maturity comparable to such Interest Period
by (ii) a number equal to 1.00 minus the LIBO-Rate Reserve
Percentage. The LIBO-Rate may also be expressed by the following
formula:
LIBO-Rate = Average of London interbank offered rates
quoted
by BBA or appropriate successor as shown on
Dow Jones Markets Service display page 3750
1.00 - LIBO-Rate Reserve Percentage
The LIBO-Rate shall be adjusted with respect to any Loan to which
the LIBO-Rate Option applies that is outstanding on the effective
date of any change in the LIBO-Rate Reserve Percentage as of such
effective date. The Agent shall give prompt notice to the
Borrower of the LIBO-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest
error.
LIBO-Rate Option shall mean the Revolving Credit
LIBO-Rate Option.
LIBO-Rate Reserve Percentage shall mean as of
any day the maximum percentage in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System
(or any successor) for determining the reserve requirements
(including supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities").
Lien shall mean any mortgage, deed of trust,
pledge, lien, security interest, charge or other encumbrance or
security arrangement of any nature whatsoever, whether voluntarily
or involuntarily given, including any conditional sale or title
retention arrangement, and any assignment, deposit arrangement or
lease intended as, or having the effect of, security.
LLC Interests shall have the meaning assigned to
such term in Section 5.1.2 (Subsidiaries ).
Loan Documents shall mean this Agreement, the
Agent's Letter, the Notes, the Stock Pledge, the Guaranty
Agreement, the KHL Agreement, and any other instruments,
certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or
therewith, as the same may be supplemented or amended from time to
time in accordance herewith or therewith, and Loan Document shall
mean any of the Loan Documents. Each of the Loan Documents under
the Original Credit Agreement( except for the Revolving Credit
Note of Credit Suisse First Boston) and the Revolving Credit Note
of National City of Pennsylvania and the Guaranty Agreement shall
be Loan Documents hereunder.
Loan Parties shall mean the Borrower, the
Guarantors and KHL.
Loan Request shall have the meaning assigned to
that term in Section 2.5 (Revolving Credit Loan Requests; Swing
Loan Requests).
Loans shall mean collectively all Revolving
Credit Loans and Swing Loans and Loan shall mean separately, any
Revolving Credit Loan or Swing Loan.
Material Adverse Change shall mean any set of
circumstances or events which (a)has or could reasonably be
expected to have any material adverse effect whatsoever upon the
validity or enforceability of this Agreement or any other Loan
Document, (b)is or could reasonably be expected to be material and
adverse to the business, properties, assets, financial condition,
results of operations or business prospects of the Loan Parties
taken as a whole, (c)impairs materially or could reasonably be
expected to impair materially the ability of the Loan Parties
taken as a whole to duly and punctually pay or perform their
material Indebtedness for borrowed money, or (d)impairs materially
or could reasonably be expected to impair materially the ability
of the Agent or any of the Banks, to the extent permitted, to
enforce their legal remedies pursuant to this Agreement or the
Notes, the Stock Pledge or the Guaranty Agreement.
Month, with respect to an Interest Period under
the LIBO-Rate Option, shall mean the interval between the days in
consecutive calendar months numerically corresponding to the first
day of such Interest Period. If any LIBO-Rate Interest Period
begins on a day of a calendar month for which there is no
numerically corresponding day in the month in which such Interest
Period is to end, the final month of such Interest Period shall be
deemed to end on the last Business Day of such final month.
Moody's shall mean Moody's Investors Service,
Inc. and its successors.
Mortgage Subsidiary shall mean each Subsidiary
which is in the business of making residential mortgage loans.
Each of the Mortgage Subsidiaries as of the Closing Date is listed
on Schedule 1.1(C).
Multiemployer Plan shall mean any employee
benefit plan which is a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA.
Non-approving Bank shall have the meaning
assigned to such term in Section 2.10.2 (Approval by 80% Banks).
Non-Restricted Person shall mean any (i) Joint
Venture and (ii) Subsidiary of Hovnanian which is not a Restricted
Subsidiary. Each of the Non-Restricted Persons as of the Closing
Date is listed on Schedule 1.1(C).
Notes shall mean the Revolving Credit Notes and
the Swing Note.
Notices shall have the meaning assigned to that
term in Section 10.6 (Notices).
Obligation shall mean any obligation or
liability of any of the Loan Parties to the Agent or any of the
Banks, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or
due or to become due, under or in connection with this Agreement,
any Notes, the Letters of Credit, the Agent's Letter or any other
Loan Document.
Official Body shall mean any national, federal,
state, local or other government or political subdivision or any
agency, authority, board, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal,
grand jury or arbitrator, in each case whether foreign or
domestic.
Original Credit Agreement shall have the meaning
assigned to such term in the preamble to this Agreement.
Participation Advance shall mean, with respect
to any Bank, such Bank's payment in respect of its participation
in a Letter of Credit Borrowing according to its Ratable Share
pursuant to Section 2.9.4 (Repayment of Participation Advances).
Partnership Interests shall have the meaning
assigned to such term in 5.1.2. (Subsidiaries).
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of
ERISA or any successor.
Permitted Acquisitions shall have the meaning
assigned to such term in Section 7.2.4 (Liquidations, Mergers,
Consolidations, Acquisitions).
Permitted Investments shall mean a Loan Party's
Investment in:
(a) (i) cash, marketable direct
obligations of the United States of America or any agency thereof,
and certificates of deposit, demand deposits, time deposits, or
repurchase agreements issued by any bank with a capital and
surplus of at least $25,000,000 organized under the laws of the
United States of America or any state thereof, provided that such
obligations, certificates of deposit, demand deposits, time
deposits, and repurchase agreements have a maturity of less than
one year from the date of purchase;
(ii) investment grade commercial
paper or debt having a maturity date of one year or less from the
date of purchase; and
(iii) funds holding assets primarily
consisting of those described in clause (i) hereof;
(b) loans or advances to employees of a
Loan Party in the ordinary course of business;
(c) any Person
that is or concurrently becomes a
Loan Party;
(d) purchase money notes not exceeding
$5,000,000 principal amount in the aggregate received incident to
sales of property by a Restricted Subsidiary;
(e) trade credit extended on usual and
customary terms in the ordinary course of business;
(f) loans to officers and directors to
the extent permitted by Section 7.2.6.2 (Restricted Payment;
Restricted Investments);
(g) marketable securities costing at the
time of purchase no more than $3,000,000 in the aggregate of any
one or more residential real estate developers and which are
registered under the Securities Exchange Act of 1934; and
(h) other Investments not in excess of
$5,000,000 in the aggregate.
Permitted Liens shall mean:
(i) Liens for taxes, assessments
or other governmental charges not yet payable or being contested
in good faith and as to which adequate reserves shall have been
established in accordance with GAAP;
(ii) Pledges or deposits made in
the ordinary course of business to secure payment of workers'
compensation, or to participate in any fund in connection with
workers' compensation, unemployment insurance, old-age pensions or
other social security programs;
(iii) Mechanics', materialmen's,
warehousemen's, carriers' or other like liens arising in the
ordinary course of business securing obligations which are not
overdue for a period longer than 30 days or which are being
contested in good faith by appropriate proceedings;
(iv) Good-faith pledges or deposits
made in the ordinary course of business to secure performance of
bids, tenders, contracts (other than for the repayment of borrowed
money) or leases, not in excess of the aggregate amount due
thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the
ordinary course of business;
(v) Encumbrances consisting of
zoning restrictions, easements or other restrictions on the use of
real property, none of which materially impairs the use of such
property or the value thereof, and none of which is violated in
any material respect by existing or proposed structures or land
use;
(vi) Liens, security interests and
mortgages in favor of the Agent for the benefit of the Banks;
(vii) Liens on property leased by
any Loan Party or Subsidiary of a Loan Party under capital and
operating leases not prohibited by this Agreement securing
obligations of such Loan Party or Subsidiary to the lessor under
such leases;
(viii) Any Lien existing on the
date of this Agreement and described on Schedule 1.1(P), provided
that the principal amount secured thereby is not hereafter
increased, and no additional assets become subject to such Lien;
(ix) Purchase Money Mortgages and
Purchase Money Security Interests and Liens on real property owned
and occupied by Hovnanian or any Subsidiary; and
(x) The following, (A)if the
validity or amount thereof is being contested in good faith by
appropriate and lawful proceedings diligently conducted so long as
levy and execution thereon have been stayed and continue to be
stayed or (B)if a final judgment is entered and such judgment is
discharged within thirty (30) days of entry, and they do not in
the aggregate materially impair the ability of any Loan Party to
perform its Obligations hereunder or under the other Loan
Documents:
(1) Claims or Liens for
taxes, assessments or charges due and payable and subject to
interest or penalty, provided that the applicable Loan Party
maintains such reserves or other appropriate provisions as shall
be required by GAAP and pays all such taxes, assessments or
charges forthwith upon the commencement of proceedings to
foreclose any such Lien;
(2) Claims, Liens or
encumbrances upon, and defects of title to, real or personal
property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the
merits;
(3) Claims or Liens of
mechanics, materialmen, warehousemen, carriers, or other statutory
nonconsensual Liens; or
(4) Liens resulting from
final judgments or orders described in Section 8.1.6 (Final
Judgments or Orders).
(xi) Other Liens securing
obligations not in excess of $5,000,000 in the aggregate.
Person shall mean any individual, corporation,
partnership, limited liability company, association, joint-stock
company, trust, unincorporated organization, joint venture,
government or political subdivision or agency thereof, or any
other entity.
Plan shall mean at any time an employee pension
benefit plan (other than a Multiemployer Plan) which is covered
by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code in
respect of which the Borrower or any member of the ERISA Group is
an "employer" as defined in Section 3(5) of ERISA.
PNC Bank shall mean PNC Bank, National
Association, its successors and assigns.
Potential Default shall mean any event or
condition which with notice, passage of time or a determination by
the Agent or the Required Banks, or any combination of the
foregoing, would constitute an Event of Default.
Preliminary Approvals shall mean the following:
(i) in New Jersey, as defined in the Municipal Land Use Law
(N.J.S.A. 40:55D-1 et seq.) and (ii) for states other than New
Jersey, a point in time equivalent thereto.
Principal Office shall mean the main banking
office of the Agent in Pittsburgh, Pennsylvania or such other
location so designated by the Agent.
Prohibited Transaction shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA for which neither an individual nor a
class exemption has been issued by the United States Department of
Labor.
Property shall mean all real property, both
owned and leased, of any Loan Party or Subsidiary of a Loan Party.
Purchase Money Mortgage shall mean any non-
recourse mortgages granted to secure Indebtedness of any Loan
Party.
Purchase Money Security Interest shall mean
Liens upon tangible personal property securing loans to any Loan
Party or deferred payments by such Loan Party or Subsidiary for
the purchase of such tangible personal property and excluding
Purchase Money Mortgages.
Purchasing Bank shall mean a Bank which becomes
a party to this Agreement by executing an Assignment and
Assumption Agreement.
Ratable Share shall mean the proportion that a
Bank's Commitment (excluding the Swing Loan Commitment) bears to
the Commitments (excluding the Swing Loan Commitment) of all of
the Banks.
Regulated Substances shall mean, without
limitation, any substance, material or waste, regardless of its
form or nature, defined under Environmental Laws as a "hazardous
substance," "pollutant," "pollution," "contaminant," "hazardous or
toxic substance," "extremely hazardous substance," "toxic
chemical," "toxic substance," "toxic waste," "hazardous waste,"
"special handling waste," "industrial waste," "residual waste,"
"solid waste," "municipal waste," "mixed waste," "infectious
waste," "chemotherapeutic waste," "medical waste," or "regulated
substance" or any other material, substance or waste, regardless
of its form or nature, which otherwise is regulated by
Environmental Laws.
Regulation U shall mean Regulation U, T or X as
promulgated by the Board of Governors of the Federal Reserve
System, as amended from time to time.
Reimbursement Obligation shall mean the
obligation of the Borrower to reimburse a Letter of Credit Bank
for draws under a Letter of Credit issued by such Bank under this
Agreement, except to the extent such obligation is represented by
a Revolving Credit Loan.
Reportable Event shall mean a reportable event
described in Section 4043 of ERISA and regulations thereunder with
respect to a Plan other than those events as to which the 30-day
notice is waived under the PBGC regulations.
Required Banks shall mean
(i) if there are no Loans,
Reimbursement Obligations or Letter of Credit Borrowings
outstanding, Banks whose Commitments (excluding the Swing Loan
Commitments) aggregate at least 66 2/3% of the Revolving Credit
Commitments of all of the Banks, or
(ii) if there are Loans,
Reimbursement Obligations, or Letter of Credit Borrowings
outstanding, any Bank or group of Banks if the sum of the Loans
(excluding the Swing Loans), Reimbursement Obligations and Letter
of Credit Borrowings of such Banks then outstanding aggregates at
least 66 2/3% of the total principal amount of all of the Loans
(excluding the Swing Loans), Reimbursement Obligations and Letter
of Credit Borrowings then outstanding.
Reimbursement Obligations and Letter of Credit Borrowings shall be
deemed, for purposes of this definition, to be in favor of the
Agent and not a participating Bank if such Bank has not made its
Participation Advance in respect thereof and shall be deemed to be
in favor of such Bank to the extent of its Participation Advance
if it has made its Participation Advance in respect thereof.
Required Environmental Notices shall mean all
notices, reports, plans, forms or other filings which pursuant to
Environmental Laws, Required Environmental Permits or at the
request or direction of an Official Body either must be submitted
to an Official Body or which otherwise must be maintained.
Required Environmental Permits shall mean all
permits, licenses, bonds, consents, programs, approvals or
authorizations required under Environmental Laws to own, occupy or
maintain the Property or which otherwise are required for the
operations and business activities of the Loan Parties.
Required Share shall have the meaning assigned
to such term in Section 4.8 (Settlement Date Procedures).
Restricted Investment shall mean a Loan Party's
Investment that constitutes a Subsidiary Investment in any Non-
Restricted Person or any Investment in Related Business.
Restricted Payments shall mean
(i) Dividends and Capital Stock
Retirement payments after January 31, 2001 by Hovnanian or
otherwise to the shareholders of Hovnanian; and
(ii) Payments (whether in the form
of principal payments, note repurchases or similar items) to the
holder of Subordinated Debt made on or after January 31, 2001;
provided, however, with respect to this item (ii), a refinancing
of the Subordinated Debt to the extent consisting of the repayment
of the Subordinated Debt and the incurring of new "Subordinated
Debt" within 60 days of such repayment shall not constitute a
"Restricted Payment".
Restricted Subsidiaries shall mean any
Subsidiary that has not been designated a Non-Restricted Person as
of the Closing Date or in accordance with Section 2.11
[Designation of Subsidiaries and Release of Guarantors]. Each of
the Restricted Subsidiaries as of the Closing Date is listed on
Schedule 1.1(C).
Revolving Credit Base Rate Option shall mean the
option of the Borrower to have Revolving Credit Loans bear
interest at the rate and under the terms and conditions set forth
in Section 3.1.1((i)) [Revolving Credit Base Rate Option].
Revolving Credit Commitment shall mean, as to
any Bank at any time, the amount set forth opposite its name on
Schedule 1.1(B) in the column labeled "Amount of Commitment for
Revolving Credit Loans" or on Schedule I to the Assignment and
Assumption Agreement pursuant to which such Bank became a party
hereto, and Revolving Credit Commitments shall mean the aggregate
Revolving Credit Commitments of all of the Banks. The Revolving
Credit Commitments shall not exceed at any time $440,000,000.
Revolving Credit LIBO-Rate Option shall mean the
option of the Borrower to have Revolving Credit Loans bear
interest at the rate and under the terms and conditions set forth
in Section 3.1.1((ii)) (Revolving Credit LIBO-Rate Option).
Revolving Credit Loans shall mean collectively
and Revolving Credit Loan shall mean separately all Revolving
Credit Loans or any Revolving Credit Loan made by the Banks or one
of the Banks to the Borrower pursuant to Section 2.1 (Revolving
Credit Commitments) or 2.9.3 (Disbursements, Reimbursement).
Revolving Credit Note shall mean any Revolving
Credit Note of the Borrower in the form of Exhibit 1.1(R) issued
by the Borrower at the request of a Bank pursuant to Section 4.7
(Notes) evidencing the Revolving Credit Loans to such Bank,
together with all amendments, extensions, renewals, replacements,
refinancings or refundings thereof in whole or in part.
Revolving Facility Usage shall mean at any time
the sum of the Revolving Credit Loans outstanding and the Letter
of Credit Outstandings.
SEC shall mean the Securities and Exchange
Commission or any governmental agencies substituted therefor.
Senior Homebuilding Indebtedness shall mean the
sum (without duplication) of (a) outstanding principal amount of
the Obligations, (b) letters of credit (whether or not issued
under this Agreement), (c) Guaranties by any Loan Party of any
obligation of any Person which is not a Restricted Subsidiary or
Hovnanian, (d) Senior Notes, (e) surety bonds (or similar
products) issued by bonding companies in lieu of cash payments or
cash deposits on contracts for any Loan Party to acquire land
inventory in respect of which a Loan Party is obligated and (f)
other Indebtedness of Hovnanian or a Restricted Subsidiary which
is permitted under this Agreement; provided however, that "Senior
Homebuilding Indebtedness" shall not include (i) obligations of
Hovnanian under the Keep-Well Guaranty dated July 16, 2001
previously provided to Bank One, NA, as agent for the benefit of
K. Hovnanian Mortgage Inc., (ii) debt secured by Purchase Money
Security Interests and Purchase Money Mortgages and (iii)
Subordinated Debt.
Senior Notes shall mean the (i) $150,000,000
principal amount 10 1/2% Senior Notes of the Borrower and
guaranteed by Hovnanian due October 2007 and (ii) $150,000,000 9
1/8% Senior Notes of the Borrower and guaranteed by Hovnanian due
in April 2009 and (iii) other notes sold or guaranteed by
Hovnanian or the Borrower from time to time after the Closing Date
on terms not materially less favorable to the Banks (as determined
by the Agent) as those described in clauses (i) and (ii) above
Settlement Date shall mean the date selected
from time to time by the Agent (after consulting the Borrower) on
which the Agents elects to effect settlement pursuant to Section
4.8 (Settlement Date Procedures).
Sold Homes shall mean the Dollar amount of the
capitalized construction costs of any Dwelling Unit upon which a
third party purchaser has paid a cash deposit pursuant to an
enforceable agreement of sale. Such cost shall include the
proportional costs of the land under the Dwelling Unit, site
improvements and soft costs incurred to date.
Standard & Poor's shall mean Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc.,
and its successors.
Stock Pledge shall mean the Stock Pledge
Agreement dated the Closing Date pursuant to which Hovnanian
pledges to the Agent on behalf of the Banks 100% of the capital
stock of KHL as security for the Obligations.
Subordinated Debt shall mean (i) the
$100,000,000 principal amount 9 3/4% Subordinated Notes of the
Borrower due June 1, 2005, and (ii) any other unsecured
indebtedness of the Borrower, Hovnanian, or any other Loan Party
which is subordinated by its terms to the prior payment in full of
the Obligations evidenced by this Agreement, the Notes and the
Letters of Credit, as may be outstanding from time to time, in a
manner no less favorable to the Banks than the terms of the
Subordinated Debt described in clause (i) above and which contain
covenants that are not materially less favorable to Hovnanian, the
Borrower or any other Loan Party than those contained in the
Subordinated Debt described in clause (i) above.
Subsidiary of any Person at any time, shall mean
a corporation, partnership, limited liability company or other
entity (x) whose assets and liabilities are consolidated with
Hovnanian in accordance with GAAP and (y) of which shares of stock
or other ownership interests having ordinary voting power (other
than stock or such other ownership interests having such power
only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or
the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such
Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to
a Subsidiary or Subsidiaries of Hovnanian.
Subsidiary Investment shall mean with respect
to any Subsidiary or Joint Venture the sum of (x) loans to such
Person by Hovnanian or a Restricted Subsidiary and (y) Hovnanian's
or a Restricted Subsidiary's share of equity in such Person.
Subsidiary Shares shall have the meaning
assigned to that term in Section 5.1.2 (Subsidiaries).
Swing Loan Commitment shall mean PNC Bank's
commitment to make Swing Loans to the Borrower pursuant to Section
2.1.2 (Swing Loan Commitment) hereof in an aggregate principal
amount of up to $10,000,000.
Swing Loan Note shall mean the Swing Loan Note
of the Borrower in the form of Exhibit 1.1(S) evidencing the Swing
Loans, together with all amendments, extensions, renewals,
replacements, refinancings or refundings thereof in whole or in
part.
Swing Loan Request shall mean a request for
Swing Loans made in accordance with Section 2.4.2 (Swing Loan
Requests) hereof.
Swing Loans shall mean collectively and Swing
Loan shall mean separately all Swing Loans or any Swing Loan made
by PNC Bank to the Borrower pursuant to Section 2.1.2 (Swing Loan
Commitment) hereof.
Total Debt Multiplier shall mean 2.40, subject
to adjustment as described in this definition.
(a) Total Debt Multiplier shall not at
any time be greater than 2.40 and shall decrease (under
circumstances described below) to 2.05 and then 1.95 and so forth
in increments of 10 basis points; similarly, at any time Total
Debt Multiplier shall increase (under circumstances described
below) it shall increase in 10 basis point increments up to 2.05
and then from 2.05 to 2.40. Such decreases and increases shall
occur as follows, with reference to the Fixed Charge Coverage
Ratio, but only when Actual Leverage is less than or equal to 2.2-
to-1.0.
(b) If the Fixed Charge Coverage Ratio
is less than 1.25-to-1.0 for two (2) consecutive quarters (for
purposes hereof the "reference quarters"):
(i) then for the second of such
quarters Total Debt Multiplier shall reduce to 2.05; and
(ii) for the next such quarter
after the reference quarters, and each subsequent consecutive
quarter in which the Fixed Charge Coverage Ratio is less than
1.25-to-1.0, Total Debt Multiplier shall reduce for each such
quarter in the increments described in subsection (a) of this
definition.
(c) If the Fixed Charge Ratio equals or
exceeds 1.25-to-1.0 for any quarter after the two (2) reference
quarters, then Total Debt Multiplier shall increase for such
quarters in the increments described in subsection (a) of this
definition.
Transferor Bank shall mean the selling Bank
pursuant to an Assignment and Assumption Agreement.
Unimproved Land shall mean the Dollar value of
land which has not been granted Preliminary Approvals, calculated
at the lower of (x) the actual cost (including land costs and
capital expenses relating thereto) or (y) the market value (as
determined in accordance with GAAP) thereof.
Unsold Dwelling Units shall mean the number of
Dwelling Units comprising from time to time "Unsold Homes".
Unsold Homes shall mean the Dollar amount of
capitalized construction costs of any Dwelling Unit being built
for which the construction of slab (or foundation) has been
completed and upon which no cash deposit has been paid pursuant to
an enforceable agreement of sale. Such Dollar amount shall include
the proportional costs of the land under the Dwelling Unit, site
improvements and soft costs actually incurred to date.
1.2 Construction.
Unless the context of this Agreement otherwise clearly
requires, the following rules of construction shall apply to this
Agreement and each of the other Loan Documents:
1.2.1. Number; Inclusion.
references to the plural include the singular,
the plural, the part and the whole; "or" has the inclusive meaning
represented by the phrase "and/or," and "including" has the
meaning represented by the phrase "including without limitation";
1.2.2. Determination.
references to "determination" of or by the Agent
or the Banks shall be deemed to include good-faith estimates by
the Agent or the Banks (in the case of quantitative
determinations) and good-faith beliefs by the Agent or the Banks
(in the case of qualitative determinations) and such determination
shall be conclusive absent manifest error;
1.2.3. Agent's Discretion and Consent.
whenever the Agent or the Banks are granted the
right herein to act in its or their sole discretion or to grant or
withhold consent such right shall be exercised in good faith;
1.2.4. Documents Taken as a Whole.
the words "hereof," "herein," "hereunder,"
"hereto" and similar terms in this Agreement or any other Loan
Document refer to this Agreement or such other Loan Document as a
whole and not to any particular provision of this Agreement or
such other Loan Document;
1.2.5. Headings.
the section and other headings contained in this
Agreement or such other Loan Document and the Table of Contents
(if any) preceding this Agreement or such other Loan Document are
for reference purposes only and shall not control or affect the
construction of this Agreement or such other Loan Document or the
interpretation thereof in any respect;
1.2.6. Implied References to this Agreement.
article, section, subsection, clause, schedule
and exhibit references are to this Agreement or other Loan
Document, as the case may be, unless otherwise specified;
1.2.7. Persons.
reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors
and assigns are permitted by this Agreement or such other Loan
Document, as the case may be, and reference to a Person in a
particular capacity excludes such Person in any other capacity;
1.2.8. Modifications to Documents.
reference to any agreement (including this
Agreement and any other Loan Document together with the schedules
and exhibits hereto or thereto), document or instrument means such
agreement, document or instrument as amended, modified, replaced,
substituted for, superseded or restated;
1.2.9. From, To and Through.
relative to the determination of any period of
time, "from" means "from and including," "to" means "to but
excluding," and "through" means "through and including"; and
1.2.10. Shall; Will.
references to "shall" and "will" are intended to
have the same meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial
matters and all financial statements to be delivered pursuant to
this Agreement shall be made and prepared in accordance with GAAP
(including principles of consolidation where appropriate), and all
accounting or financial terms shall have the meanings ascribed to
such terms by GAAP; provided, however, that all accounting terms
used in Section 7.2 (Negative Covenants) (and all defined terms
used in the definition of any accounting term used in Section 7.2
(Negative Covenants) shall have the meaning given to such terms
(and defined terms) under GAAP as in effect on the date hereof
applied on a basis consistent with those used in preparing the
Annual Statements referred to in Section 5.1.8((i)) (Historical
Statements). In the event of any change after the date hereof in
GAAP, and if such change would result in the inability to
determine compliance with the financial covenants set forth in
Section 7.2 (Negative Covenants) based upon the Loan Parties'
regularly prepared financial statements by reason of the preceding
sentence, then the parties hereto agree to endeavor, in good
faith, to agree upon an amendment to this Agreement that would
adjust such financial covenants in a manner that would not affect
the substance thereof, but would allow compliance therewith to be
determined in accordance with the Loan Parties' financial
statements at that time.
2. REVOLVING CREDIT AND SWING LOAN FACILITIES
2.1 Revolving Credit Commitments.
2.1.1. Revolving Credit Loans.
Subject to the terms and conditions hereof and
relying upon the representations and warranties herein set forth,
each Bank severally agrees to make Revolving Credit Loans to the
Borrower at any time or from time to time on or after the date
hereof to the Expiration Date provided that after giving effect to
such Loan the aggregate amount of Revolving Credit Loans from such
Bank shall not exceed such Bank's Revolving Credit Commitment
minus such Bank's Ratable Share of the Letter of Credit
Outstandings. Within such limits of time and amount and subject
to the other provisions of this Agreement, the Borrower may
borrow, repay and reborrow pursuant to this Section 2.1.
2.1.2. Swing Loan Commitment.
Subject to the terms and conditions hereof and
relying upon the representations and warranties herein set forth,
PNC Bank shall make swing loans (the "Swing Loans") to the
Borrower at any time or from time to time after the date hereof
to, but not including, the Expiration Date, in an aggregate
principal amount up to but not in excess of the Swing Loan
Commitment. The Swing Loan Commitment is a sublimit of the
Revolving Credit Commitments and the aggregate principal amount of
the Swing Loans, the Revolving Credit Loans and the Letter of
Credit Outstandings of all the Banks at any one time outstanding
shall not exceed the Revolving Credit Commitments of all the
Banks. Within such limits of time and amount and subject to the
other provisions of this Agreement, the Borrower may borrow, repay
and reborrow pursuant to this Section 2.1.2. Swing Loans shall,
at the option of PNC Bank after consultation with the Borrower, be
repaid by the proceeds of a Revolving Credit Loan deemed to have
been made for such purpose pursuant to Section 2.8 (Borrowings to
Repay Swing Loans) and shall be subject to the provisions of
Section 4.8 (Settlement Date Procedures).
2.1.3. Increase in Commitments After Closing
Date.
Borrower may request at any time after the
Closing Date until June 21, 2003 that a new lender join this
Agreement as a "Bank" so as to increase the Commitments
outstanding hereunder. The selection of such new Bank shall be
subject to the Borrower's and Agent's consent, which shall not be
unreasonably withheld. The new Bank shall join this Agreement as
a Bank pursuant to the procedures contained in Section 10.11(b)
[Additional Bank]. The amount of such increase under this Section
2.1.3 shall not exceed $5,000,000 and the Revolving Credit
Commitments shall not exceed the Dollar limit set forth in the
definition thereof.
2.1.4. Voluntary Reduction of Commitment.
The Borrower shall have the right at any time
after the Closing Date (i) upon five (5) days' prior written
notice to the Agent to permanently reduce the Revolving Credit
Commitments, in a minimum amount of $500,000 and whole multiples
of $100,000 (provided that in no event shall the aggregate
Revolving Credit Commitments be reduced to an amount less than
$220,000,000) or (ii) at any time upon prepayment in full of the
Obligations, terminate completely the Commitments, without penalty
or premium except as hereinafter set forth, provided that any such
reduction or termination shall be accompanied by prepayment of the
Notes, together with outstanding Commitment Fees, and the full
amount of interest accrued on the principal sum to be prepaid (and
all amounts referred to in Section 4.6.2 [Indemnity] hereof), to
the extent that the aggregate amount thereof then outstanding
exceeds the Commitments as so reduced or terminated. Any notice
to reduce the Revolving Credit Commitments under this Section 2.1.
shall be irrevocable.
2.2 Nature of Banks' Obligations with Respect to Revolving
Credit Loans.
Each Bank shall be obligated to participate in each
request for Revolving Credit Loans pursuant to Section 2.4
[Revolving Credit Loan Requests; Swing Loan Requests] in
accordance with its Ratable Share. The aggregate of each Bank's
Revolving Credit Loans outstanding hereunder to the Borrower at
any time shall never exceed its Revolving Credit Commitment minus
its Ratable Share of the Letter of Credit Outstandings. The
obligations of each Bank hereunder are several. The failure of
any Bank to perform its obligations hereunder shall not affect the
Obligations of the Borrower to any other party nor shall any other
party be liable for the failure of such Bank to perform its
obligations hereunder. The Banks shall have no obligation to make
Revolving Credit Loans hereunder on or after the Expiration Date.
2.3 Commitment Fees.
Accruing from the date hereof until the Expiration
Date, the Borrower agrees to pay to the Agent for the account of
each Bank, as consideration for such Bank's Revolving Credit
Commitment hereunder, a nonrefundable commitment fee (the
"Commitment Fee") equal to the Applicable Commitment Fee Rate
(computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed) on the average daily difference
between the amount of (i)such Bank's Revolving Credit Commitment
as the same may be constituted from time to time and the (ii)the
sum of such Bank's Revolving Credit Loans outstanding (plus, in
the case of PNC Bank, its Swing Loans outstanding) plus its
Ratable Share of Letter of Credit Outstandings. All Commitment
Fees shall be payable in arrears on the fifteenth (15) day of each
calendar quarter after the date hereof and on the Expiration Date
or upon acceleration of the Obligations.
2.4 Revolving Credit Loan Requests; Swing Loan Requests.
2.4.1. Revolving Credit Loan Requests.
Except as otherwise provided herein, the
Borrower may from time to time prior to the Expiration Date
request the Banks to make Revolving Credit Loans, or renew or
convert the Interest Rate Option applicable to existing Revolving
Credit Loans or pursuant to Section 3.2 (Interest Periods), by
delivering to the Agent, not later than 11:00 a.m., Eastern time,
(i)three (3) Business Days prior to the proposed Borrowing Date
with respect to the making of Revolving Credit Loans to which the
LIBO-Rate Option applies or the conversion to or the renewal of
the LIBO-Rate Option for any Loans; and (ii) on the day of either
the proposed Borrowing Date with respect to the making of a
Revolving Credit Loan to which the Base Rate Option applies or the
last day of the preceding Interest Period with respect to the
conversion to the Base Rate Option for any Loan, of a duly
completed request therefor substantially in the form of Exhibit
2.4.1 or a request by telephone promptly confirmed in writing by
letter or facsimile in such form (each, a "Loan Request"), it
being understood that the Agent may rely on the authority of any
individual making such a telephonic request without the necessity
of receipt of such written confirmation. Each Loan Request shall
be irrevocable and shall specify (i)the proposed Borrowing Date;
(ii)the aggregate amount of the proposed Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $
500,000 and not less than $2,500,000 for each Borrowing Tranche to
which the LIBO-Rate Option applies and which shall be in integral
multiples of $100,000 and not less than $500,000 for Borrowing
Tranches to which the Base Rate Option applies; (iii)whether the
LIBO-Rate Option or Base Rate Option shall apply to the proposed
Loans comprising the applicable Borrowing Tranche; and (iv)in the
case of a Borrowing Tranche to which the LIBO-Rate Option applies,
an appropriate Interest Period for the Loans comprising such
Borrowing Tranche.
2.4.2. Swing Loan Requests.
Except as otherwise provided herein, the
Borrower may from time to time prior to the Expiration Date
request PNC Bank to make Swing Loans by delivery to PNC Bank not
later than 2:00 p.m. Eastern time on the proposed Borrowing Date
of a duly completed request therefor substantially in the form of
Exhibit 2.4.2 hereto or a request by telephone promptly confirmed
in writing by letter or facsimile (each, a "Swing Loan Request"),
it being understood that the Agent may rely on the authority of
any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Swing
Loan Request shall be irrevocable and shall specify the proposed
Borrowing Date and the principal amount of such Swing Loan, which
shall be not less than $100,000.
2.5 Making Revolving Credit Loans and Swing Loans.
2.5.1. Generally.
The Agent shall, promptly after receipt by it of
a Loan Request pursuant to Section 2.4.1 [Revolving Credit Loan
Requests], but not later than 12:00 noon, notify the Banks of its
receipt of such Loan Request specifying: (i)the proposed
Borrowing Date and the time and method of disbursement of the
Revolving Credit Loans requested thereby; (ii)the amount and type
of each such Revolving Credit Loan and the applicable Interest
Period (if any); and (iii)the apportionment among the Banks of
such Revolving Credit Loans as determined by the Agent in
accordance with Section 2.2 (Nature of Banks' Obligations with
Respect to Revolving Credit Loans). Each Bank shall remit the
principal amount of each Revolving Credit Loan to the Agent such
that the Agent is able to, and the Agent shall, to the extent the
Banks have made funds available to it for such purpose and subject
to Section 6.2 (Each Additional Loan or Letter of Credit), fund
such Revolving Credit Loans to the Borrower in U.S. Dollars and
immediately available funds at the Principal Office prior to 2:30
p.m., Eastern time, on the applicable Borrowing Date, provided
that if any Bank fails to remit such funds to the Agent in a
timely manner, the Agent may elect in its sole discretion to fund
with its own funds the Revolving Credit Loans of such Bank on such
Borrowing Date, and such Bank shall be subject to the repayment
obligation in Section 9.16 (Availability of Funds).
2.5.2. Making Swing Loans.
Subject to the other provisions of this
Agreement, PNC Bank shall, after receipt by it of a Swing Loan
Request pursuant to Section 2.4.2 (Swing Loan Requests), fund such
Swing Loan to the Borrower in Dollars and immediately available
funds at the Principal Office as soon as reasonably practicable
after receipt by PNC Bank of said Swing Loan Request but in any
event by the close of business on the same Business Day.
2.6 Swing Loan Note.
The obligation of the Borrower to repay the unpaid
principal amount of the Swing Loans made to it by PNC Bank
together with interest thereon shall, if requested by PNC Bank, be
evidenced by the Swing Loan Note dated the Closing Date payable to
the order of PNC Bank in a face amount equal to the Swing Loan
Commitment.
2.7 Use of Proceeds.
The proceeds of the Revolving Credit Loans shall be
used to refinance existing indebtedness and provide for Letters of
Credit and provide working capital and funds for general corporate
purpose for the Borrower, Hovnanian and the Restricted
Subsidiaries, all in accordance with Section 7.1.10 (Use of
Proceeds).
2.8 Borrowings to Repay Swing Loans.
PNC Bank may, at its option, and upon consultation
with the Borrower, exercisable at any time for any reason
whatsoever, demand that each Bank shall make a Revolving Credit
Loan in an amount equal to such Bank's Ratable Share of the
aggregate principal amount of the outstanding Swing Loans made in
accordance with Section 2.5.2 (Making Swing Loans), plus, if PNC
Bank so requests, accrued interest thereon, provided that no Bank
shall be obligated in any event to make Revolving Credit Loans in
excess of its Revolving Credit Commitment. Revolving Credit Loans
made pursuant to the preceding sentence shall bear interest at the
Base Rate Option and shall be deemed to have been properly
requested in accordance with Section 2.4.1 (Revolving Credit Loan
Requests) without regard to any of the requirements of that
provision. PNC Bank shall provide notice to the Banks (which may
be telephonic or written notice by letter, facsimile or telex)
that such Revolving Credit Loans are to be made under this Section
2.8 and of the apportionment among the Banks, and the Banks shall
be unconditionally obligated to fund such Revolving Credit Loans
(whether or not the conditions specified in Section 2.4.1
(Revolving Credit Loan Requests) or Section 6.2 (Each Additional
Loan or Letter of Credit) are then satisfied) by the time PNC Bank
so requests, which shall not be earlier than three o'clock (3:00)
p.m. Eastern time on the Business Day next after the date the
Banks receive such notice from PNC Bank.
2.9 Letter of Credit Subfacility.
2.9.1. Issuance of Letters of Credit.
The Borrower may request the issuance of a
letter of credit (each a "Letter of Credit") on behalf of itself
or another Loan Party by the Agent or any Bank which issues a
Letter of Credit hereunder (such Bank, with respect to the
issuance of the Letter of Credit so requested by the Borrower,
being a "Letter of Credit Bank") by delivering to the Agent and
the Letter of Credit Bank a completed application and agreement
for letters of credit in such form as the Letter of Credit Bank
and the Agent may specify from time to time by no later than 10:00
a.m., Eastern time, at least three (3) Business Days, or such
shorter period as may be agreed to by the Letter of Credit Bank,
in advance of the proposed date of issuance. Each letter of
credit issued hereunder, including those issued under the terms of
the Original Credit Agreement and those issued or existing
pursuant to the Second Amended and Restated Credit Agreement dated
as of February 22, 2000 and thereafter made "Letters of Credit"
under the terms of the Original Credit Agreement, is described on
Schedule 2.9.1 and shall be deemed to be a "Letter of Credit"
hereunder as of the Closing Date. Subject to the terms and
conditions hereof and in reliance on the agreements of the other
Banks set forth in this Section 2.9, the Letter of Credit Bank
will issue a Letter of Credit provided that each Letter of Credit
shall in no event expire later than one (1) Business Day prior to
the Expiration Date and providing that in no event shall the
Letter of Credit Outstanding exceed, at any one time,
$125,000,000.
2.9.2. Letter of Credit Fees.
The Borrower shall pay (i)to the Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee")
equal to the Applicable Letter of Credit Fee Rate (computed on the
daily average Letter of Credit Outstandings) and (ii)to the Agent
on behalf of each respective Letter of Credit Bank for its own
account a fronting fee for Letters of Credit issued by such Letter
of Credit Bank equal to .125% per annum (computed on the basis of
a year of 365 or 366 days, as the case may be, and actual days
elapsed) and shall be payable quarterly in arrears commencing with
the fifteenth (15) day of each calendar quarter following issuance
of each Letter of Credit and on the Expiration Date. The Borrower
shall also pay to the Letter of Credit Bank for the Letter of
Credit Bank's sole account the Letter of Credit Bank's then in
effect customary fees and administrative expenses payable with
respect to the Letters of Credit as the Letter of Credit Bank may
generally charge or incur from time to time in connection with the
issuance, maintenance, modification (if any), assignment or
transfer (if any), negotiation, and administration of Letters of
Credit.
2.9.3. Disbursements, Reimbursement.
2.9.3.1 Immediately upon the
issuance of each Letter of Credit, each Bank shall be deemed to,
and hereby irrevocably and unconditionally agrees to, purchase
from the Letter of Credit Bank a participation in such Letter of
Credit and each drawing thereunder in an amount equal to such
Bank's Ratable Share of the maximum amount available to be drawn
under such Letter of Credit and the amount of such drawing,
respectively.
2.9.3.2 In the event of any
request for a drawing on or before 11:00 a.m. under a Letter of
Credit by the beneficiary or transferee thereof, the Letter of
Credit Bank shall promptly notify the Agent upon such request.
Provided that it shall have received such notice, the Agent will
promptly notify the Borrower and each Bank thereof, and the
Borrower shall be deemed to have requested that Revolving Credit
Loans be made by the Banks in an amount equal to the amount so
paid by the Letter of Credit Bank under the Base Rate Option to be
disbursed on the Drawing Date under such Letter of Credit, subject
to the amount of the unutilized portion of the Revolving Credit
Commitment and not subject to the conditions set forth in Section
6.2 (Each Additional Loan or Letter of Credit). Any notice given
by the Letter of Credit Bank or the Agent pursuant to this Section
2.9.3.2 may be oral if immediately confirmed in writing; provided
that the lack of such an immediate confirmation shall not affect
the conclusiveness or binding effect of such notice.
2.9.3.3 Each Bank shall upon any
notice pursuant to Section 2.9.3.2 (Disbursements, Reimbursement)
make available to the Agent on behalf of the Letter of Credit Bank
an amount in immediately available funds equal to its Ratable
Share of the amount of the drawing, whereupon the participating
Banks shall (subject to Section 2.9.3.4 (Disbursements,
Reimbursement)) each be deemed to have made a Revolving Credit
Loan under the Base Rate Option to the Borrower in that amount.
If any Bank so notified fails to make available to the Agent for
the account of the Agent on behalf of the Letter of Credit Bank
the amount of such Bank's Ratable Share of such amount by no later
than two o'clock (2:00) p.m., Eastern time on the Drawing Date,
then interest shall accrue on such Bank's obligation to make such
payment from the Drawing Date to the date on which such Bank makes
such payment (i) at a rate per annum equal to the Federal Funds
Effective Rate during the first three days following the Drawing
Date and (ii) at a rate per annum equal to the rate applicable to
Loans under the Revolving Credit Base Rate Option on and after the
fourth day following the Drawing Date. The Agent will promptly
give notice of the occurrence of the Drawing Date, but failure of
the Agent to give any such notice on the Drawing Date or in
sufficient time to enable any Bank to effect such payment on such
date shall not relieve such Bank from its obligation under this
Section 2.9.3.3.
2.9.3.4 With respect to any
unreimbursed drawing that is not converted into Revolving Credit
Loans under the Base Rate Option to the Borrower in whole or in
part as contemplated by Section 2.9.3.2 (Disbursements,
Reimbursement), the Borrower shall be deemed to have incurred from
the Agent a borrowing (each a "Letter of Credit Borrowing") in the
amount of such drawing. Such Letter of Credit Borrowing shall be
due and payable on demand (together with interest) and shall bear
interest at the rate per annum applicable to the Revolving Credit
Loans under the Base Rate Option. Each Bank's payment to the
Agent pursuant to Section 2.9.3.3 (Disbursements, Reimbursement)
shall be deemed to be a payment in respect of its participation in
such Letter of Credit Borrowing and shall constitute a
"Participation Advance" from such Bank in satisfaction of its
participation obligation under Section 2.9.3 (Disbursements,
Reimbursement).
2.9.4. Repayment of Participation Advances.
2.9.4.1 Upon (and only upon)
receipt by the Agent on behalf of the Letter of Credit Bank of
immediately available funds from the Borrower (i)in reimbursement
of any payment made by the on behalf of the Letter of Credit Bank
under the Letter of Credit with respect to which any Bank has made
a Participation Advance to the Agent on behalf of the Letter of
Credit Bank or (ii)in payment of interest on such a payment made
by the Agent under such a Letter of Credit, the Agent will pay to
each Bank, in the same funds as those received by the Agent, the
amount of such Bank's Ratable Share of such funds, except the
Agent shall retain the amount of the Ratable Share of such funds
of any Bank that did not make a Participation Advance in respect
of such payment by Agent. If the Letter of Credit Bank receives
any such payment prior to 1:00 p.m. on a Business Day and does not
make payment to any such Bank which has made such a Participation
Advance on the same Business Day, then such Bank shall be entitled
to receive such Letter of Credit Bank interest at the Federal
Funds Effective Rate for each day until such payment is made to
such Bank.
2.9.4.2 If the Agent or the
Letter of Credit Bank is required at any time to return to any
Loan Party, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the
payments made by any Loan Party pursuant to Section 2.9.4.1
(Repayment of Participation Advances) in reimbursement of a
payment made under the Letter of Credit or interest or fee
thereon, each Bank shall, on demand of the Agent on behalf of the
Letter of Credit Bank, forthwith return to the Agent the amount of
its Ratable Share of any amounts so returned by the Agent or such
Letter of Credit Bank plus interest thereon from the date such
demand is made to the date such amounts are returned by such Bank
to the Agent, at a rate per annum equal to the Federal Funds
Effective Rate in effect from time to time.
2.9.5. Documentation.
Each Loan Party agrees to be bound by the terms
of the Letter of Credit Bank's application and agreement for
letters of credit and the Letter of Credit Bank's written
regulations and customary practices relating to letters of credit,
though such interpretation may be different from such Loan Party's
own. In the event of a conflict between such application or
agreement and this Agreement, this Agreement shall govern. It is
understood and agreed that, except in the case of gross negligence
or willful misconduct, the Letter of Credit Bank shall not be
liable for any error, negligence and/or mistakes, whether of
omission or commission, in following any Loan Party's instructions
or those contained in the Letters of Credit or any modifications,
amendments or supplements thereto.
2.9.6. Determinations to Honor Drawing Requests.
In determining whether to honor any request for
drawing under any Letter of Credit by the beneficiary thereof, the
Letter of Credit Bank shall be responsible only to determine that
the documents and certificates required to be delivered under such
Letter of Credit have been delivered and that they comply on their
face with the requirements of such Letter of Credit.
2.9.7. Nature of Participation and Reimbursement
Obligations.
Each Bank's obligation in accordance with this
Agreement to make the Revolving Credit Loans or Participation
Advances, as contemplated by Section 2.9.3 (Disbursements,
Reimbursement), as a result of a drawing under a Letter of Credit,
and the obligations of the Borrower to reimburse the Agent upon a
draw under a Letter of Credit, shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance
with the terms of this Section 2.9 (Letter of Credit Subfacility)
under all circumstances, including the following circumstances:
(i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have
against the Agent, any Loan Party or any other Person for any
reason whatsoever;
(ii) the failure of any Loan Party
or any other Person to comply, in connection with a Letter of
Credit Borrowing, with the conditions set forth in Section 2.1
(Revolving Credit Commitments), 2.4 (Revolving Credit Loan
Requests; Swing Loan Requests), 2.4.2 (Swing Loan Requests) or 6.2
(Each Additional Loan or Letter of Credit), if applicable, or as
otherwise set forth in this Agreement for the making of a
Revolving Credit Loan, it being acknowledged that such conditions
are not required for the making of a Letter of Credit Borrowing
and the obligation of the Banks to make Participation Advances
under Section 2.9.3 (Disbursements, Reimbursement);
(iii) any lack of validity or
enforceability of any Letter of Credit;
(iv) the existence of any claim,
set-off, defense or other right which any Loan Party or any Bank
may have at any time against a beneficiary or any transferee of
any Letter of Credit (or any Persons for whom any such transferee
may be acting), the Agent, the Letter of Credit Bank or any Bank
or any other Person or, whether in connection with this Agreement,
the transactions contemplated herein or any unrelated transaction
(including any underlying transaction between any Loan Party or
Subsidiaries of a Loan Party and the beneficiary for which any
Letter of Credit was procured);
(v) any draft, demand, certificate
or other document presented under any Letter of Credit proving to
be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect
even if the Letter of Credit Bank has been notified thereof;
(vi) payment by the Letter of
Credit Bank under any Letter of Credit against presentation of a
demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit;
(vii) any adverse change in the
business, operations, properties, assets, condition (financial or
otherwise) or prospects of any Loan Party or Subsidiaries of a
Loan Party;
(viii) any breach of this
Agreement or any other Loan Document by any party thereto;
(ix) the occurrence or continuance
of an Insolvency Proceeding with respect to any Loan Party;
(x) the fact that an Event of
Default or a Potential Default shall have occurred and be
continuing;
(xi) the fact that the Expiration
Date shall have passed or this Agreement or the Commitments
hereunder shall have been terminated; and
(xii) any other circumstance or
happening whatsoever, whether or not similar to any of the
foregoing.
2.9.8. Indemnity.
In addition to amounts payable as provided in
Section 9.5 (Reimbursement and Indemnification of Agent by the
Borrower), the Borrower hereby agrees to protect, indemnify, pay
and save harmless the Agent and any Letter of Credit Bank from and
against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable fees, expenses
and disbursements of counsel and allocated costs of internal
counsel) which the Agent or any Letter of Credit Bank may incur or
be subject to as a consequence, direct or indirect, of the
issuance of any Letter of Credit, other than as a result of (A)the
gross negligence or willful misconduct of the Agent or any Letter
of Credit Bank as determined by a final judgment of a court of
competent jurisdiction or (B)the wrongful dishonor by the Letter
of Credit Bank of a proper demand for payment made under any
Letter of Credit, except if such dishonor resulted from any act or
omission, whether rightful or wrongful, of any present or future
de jure or de facto government or governmental authority (all such
acts or omissions herein called "Governmental Acts").
2.9.9. Liability for Acts and Omissions.
As between any Loan Party and the Agent or any
Letter of Credit Bank, such Loan Party assumes all risks of the
acts and omissions of, or misuse of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, neither the
Agent nor any Letter of Credit Bank shall not be responsible for:
(i)the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any party in connection with
the application for an issuance of any such Letter of Credit, even
if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged (even if the Agent
or any Letter of Credit Bank shall have been notified thereof);
(ii)the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective
for any reason; (iii)the failure of the beneficiary of any such
Letter of Credit, or any other party to which such Letter of
Credit may be transferred, to comply fully with any conditions
required in order to draw upon such Letter of Credit or any other
claim of any Loan Party against any beneficiary of such Letter of
Credit, or any such transferee, or any dispute between or among
any Loan Party and any beneficiary of any Letter of Credit or any
such transferee; (iv)errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher;
(v)errors in interpretation of technical terms; (vi)any loss or
delay in the transmission or otherwise of any document required in
order to make a drawing under any such Letter of Credit or of the
proceeds thereof; (vii)the misapplication by the beneficiary of
any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii)any consequences arising from
causes beyond the control of the Agent or Letter of Credit Bank,
including any Governmental Acts, and none of the above shall
affect or impair, or prevent the vesting of, any of the Agent's or
any Letter of Credit Bank's rights or powers hereunder. Nothing
in the preceding sentence shall relieve the Agent or any Letter of
Credit Bank from liability for the Agent's or any Letter of Credit
Bank's gross negligence or willful misconduct in connection with
actions or omissions described in such clauses (i) through (viii)
of such sentence.
In furtherance and extension and not in
limitation of the specific provisions set forth above, any action
taken or omitted by the Agent or any Letter of Credit Bank under
or in connection with the Letters of Credit issued by it or any
documents and certificates delivered thereunder, if taken or
omitted in good faith, shall not put the Agent or any Letter of
Credit Bank under any resulting liability to any Loan Party or any
Bank.
2.9.10. Sharing Letter of Credit Documentation.
Each Letter of Credit Bank shall furnish to the
Agent copies of any letter of credit application and related
documentation to which such Letter of Credit Bank and a Loan Party
are parties and promptly after issuance, a copy of any Letter of
Credit or amendment to any Letter of Credit issued by such Bank.
2.10 Extension by Banks of the Expiration Date.
2.10.1. Requests; Approval by All Banks.
After delivery by the Borrower of the annual
financial statements to be provided under Section 7.3.2 (Annual
Financial Statements) for the fiscal year ending October 30, 2002
or any subsequent fiscal year, the Borrower may request a one-year
extension of the Expiration Date by written notice to the Banks
made by May 30, and the Banks agree to respond to the Borrower's
request for an extension no later than thirty (30) days following
receipt of the request; provided, however, that the failure of any
Bank to respond within such time period shall not in any manner
constitute an agreement by such Bank to extend the Expiration
Date. If all Banks elect to extend, the Expiration Date shall be
extended for a period of one year. If one or more Banks decline
to extend or do not respond to Borrower's request, the provisions
of Section 2.10.2 (Approval by 80% Banks) shall apply.
2.10.2. Approval by 80% Banks.
In the event that one or more Banks do not agree
to extend the Expiration Date or do not respond to Borrower's
request for an extension within the time required under Section
2.10.1 (Requests; Approval by All Banks) (each a "Non-approving
Bank"), but 80% of the Banks (measured by their Ratable Shares and
not per capita) agree to such extension within such time (each
such agreeing Bank being an "Extending Bank"), then the Borrower
may, at the Borrower's option, on or before July 31 of each year
notify the Agent and the Banks that the Borrower intends to employ
one or more of the following three (3) options: (i) cause the
Commitment of each Non-approving Bank to be terminated (after
which time such Non-approving Bank shall cease to be a "Bank"
hereunder) and cause the aggregate Commitments to be reduced by
the amount of such terminated Commitments, or (ii) require the
Non-approving Banks to sell, and allow (upon prior notice to the
Agent) the Extending Banks which have agreed to such extension
within the time required under Section 2.11.1 [Requests; Approval
by All Banks] or any financial institution approved by the Agent
and (absent an Event of Default) the Borrower (each such Person
referred to in this clause (ii) being an "Assignee Bank") to
purchase all of the outstanding Loans if any, of the Non-approving
Banks and succeed to and assume the Commitments and all other
rights, interests and obligations of the Non-approving Banks under
this Agreement and the other Loan Documents, or (iii) require the
Non-approving Bank to remain a Bank and require it to maintain its
Commitment and retain for such Non-approving Bank's Commitment the
"Expiration Date" established prior to the extension referred to
in this Section 2.10.2, all subject to the other provisions of
this Agreement. Any such purchase and assumption pursuant to
clause (ii) above shall be (1)pursuant to an Assignment and
Assumption Agreement and (2)subject to and in accordance with
Section 10.11 (Successors and Assigns). The Borrower shall pay
all amounts due and payable to the Non-approving Bank on the
effective date of such Assignment and Assumption Agreement. In
the event that the Agent shall become a Non-approving Bank, the
provisions of this Section 2.10 (Extension by Banks of the
Expiration Date) shall be subject to Section 9.14 (Successor
Agent). In the event that the Borrower has selected the option
described in clause (ii) above and if the Loans and Commitments of
a Non-approving Bank are, nevertheless, not fully assigned and
assumed pursuant to this Section 2.10.2, or terminated or retained
pursuant to clause (i) or clause (iii)above, as applicable, on or
before August 31 of such year, then the Expiration Date shall not
be extended for any Bank. Nothing in this Section 2.10.2 shall
expand the options provided in Section 4.4.2 (Replacement of a
Bank).
2.11 Designation of Subsidiaries and Release of Guarantors.
2.11.1. Release of Guarantors.
At any time when the Borrower wishes to cause
the Banks to release a Guarantor from its obligations under the
Guaranty Agreement (whether directly or in connection with the
designation of a Restricted Subsidiary as a Non-Restricted
Person), the consent of the Banks shall be required as described
below and shall be subject to the other provisions of this Section
2.11.
(a) For the release of any Guarantor (i)
whose assets are principally comprised of residential or
commercial property which is leased or held for the purposes of
leasing to unaffiliated third parties or (ii) in which any Loan
Party (or Loan Parties in the aggregate) has, at the time of such
release, a Subsidiary Investment less than $100,000, no consent of
the Banks shall be required and such request of the Borrower shall
be granted absent an Event of Default or Potential Default,
effective on the date specified by the Borrower which shall not be
earlier than five (5) Business Days after the receipt by the Agent
of such request;
(b) For the release of any Guarantor
(not described in item (a)(i) hereof) in which any Loan Party (or
Loan Parties in the aggregate) has, at the time of such release,
a Subsidiary Investment greater than or equal to $100,000 and less
than $1,000,000, the consent of Required Banks shall be required;
(c) For the release of Hovnanian or any
Guarantor (not described in item (a)(i) hereof) in which any Loan
Party (or Loan Parties in the aggregate) has, at the time of such
release, a Subsidiary Investment greater than or equal to
$1,000,000, the consent of 100% of the Banks shall be required;
and
(d) The designation of a Person as a
Non-Restricted Person for any reason shall not itself constitute a
release of any Guarantor.
2.11.2. Designation of Non-Restricted Person.
The Borrower may, by written notice delivered to
the Agent, designate as a Non-Restricted Person a Subsidiary
formerly designated a Restricted Subsidiary or a newly formed or
acquired Subsidiary, subject to: (i) the provisions of subsection
2.11.1 hereof in relation to Guaranties, (ii) the requirements of
Section 7 (Covenants) and in particular Section 7.2.10 (Borrowing
Base); and (iii) the requirement that such designation not cause
an Event of Default or Potential Default. Such designation shall
be effective on the date specified by the Borrower which shall not
be earlier than five (5) Business Days after the receipt by the
Agent of such notice.
2.11.3. Automatic Designation of Non-Restricted
Person.
Upon the occurrence of any event described in
Section 8.1.10 (Insolvency), Section 8.1.14 (Involuntary
Proceedings), Section 8.1.15 [Voluntary Proceedings], or the
winding-up or termination of business, with respect to any
Restricted Subsidiary, such Subsidiary shall automatically become
a Non-Restricted Person. Such designation as a Non-Restricted
Person shall, with respect such Person's obligations under the
Guaranty Agreement, if any, be subject to the requirements of
Section 2.11.1 (Release of Guarantors). The release of any
Subsidiary which is a Guarantor from its obligations under the
Guaranty Agreement pursuant to Section 2.11.1 (Release of
Guarantors) shall automatically cause such Subsidiary to be a Non-
Restricted Person.
2.11.4. Designation of Restricted Subsidiary.
The Borrower may by written notice delivered to
the Agent designate as a Restricted Subsidiary a Subsidiary
formerly designated a Non-Restricted Person or a newly formed or
acquired Subsidiary. Such designation is subject to (i)
compliance with Section 10.18 (Joinder of Guarantors); (ii) the
requirements of Section 7 (Covenants) and in particular Section
7.2.10 [Borrowing Base]; and (iii) the requirement that such
designation not cause an Event of Default or Potential Default.
Such designation shall be effective on the date specified by the
Borrower which shall not be earlier than five (5) Business Days
after the receipt by the Agent of such notice.
3. INTEREST RATES
3.1 Interest Rate Options.
The Borrower shall pay interest in respect of the
outstanding unpaid principal amount of the Loans as selected by it
from the Base Rate Option or LIBO-Rate Option set forth below
applicable to the Loans, it being understood that, subject to the
provisions of this Agreement, the Borrower may select different
Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing
Tranches and may convert to or renew one or more Interest Rate
Options with respect to all or any portion of the Loans comprising
any Borrowing Tranche, provided that there shall not be at any one
time outstanding more than ten (10) Borrowing Tranches in the
aggregate among all of the Loans, and provided further that only
the Base Rate Option shall apply to the Swing Loans. If at any
time the designated rate applicable to any Loan made by any Bank
exceeds such Bank's highest lawful rate, the rate of interest on
such Bank's Loan shall be limited to such Bank's highest lawful
rate.
3.1.1. Revolving Credit Interest Rate Options.
The Borrower shall have the right to select from
the following Interest Rate Options applicable to the Revolving
Credit Loans (subject to the provisions above regarding Swing
Loans):
(i) Revolving Credit Base Rate
Option: A fluctuating rate per annum (computed on the basis of a
year of 365 or 366 days, as the case may be, and actual days
elapsed) equal to the Base Rate plus the Applicable Margin, such
interest rate to change automatically from time to time effective
as of the effective date of each change in the Base Rate; or
(ii) Revolving Credit LIBO-Rate
Option: A rate per annum (computed on the basis of a year of 360
days and actual days elapsed) equal to the LIBO-Rate plus the
Applicable Margin.
3.1.2. Rate Quotations.
The Borrower may call the Agent on or before the
date on which a Loan Request is to be delivered to receive an
indication of the rates then in effect, but it is acknowledged
that such projection shall not be binding on the Agent or the
Banks nor affect the rate of interest which thereafter is actually
in effect when the election is made.
3.2 Interest Periods.
At any time when the Borrower shall select,
convert to or renew a LIBO-Rate Option, the Borrower shall notify
the Agent thereof at least three (3) Business Days prior to the
effective date of such LIBO-Rate Option by delivering a Loan
Request. The notice shall specify an Interest Period during which
such Interest Rate Option shall apply. Notwithstanding the
preceding sentence, in the case of the renewal of a LIBO-Rate
Option at the end of an Interest Period, the first day of the new
Interest Period shall be the last day of the preceding Interest
Period, without duplication in payment of interest for such day.
3.3 Interest After Default.
3.3.1. Default Rate.
To the extent permitted by Law, upon the
occurrence of an Event of Default under Section 8.1.1 (Payment
Under Loan Documents), Section 8.1.10 (Insolvency), Section 8.1.14
(Involuntary Proceedings), Section 8.1.15 (Voluntary Proceedings)
or the Obligations are accelerated under this Agreement and until
such time such Event of Default shall have been cured or waived,
each Obligation hereunder shall bear interest at a rate per annum
equal to the sum of the rate of interest applicable under the
Revolving Credit Base Rate Option plus an additional 3.0% per
annum from the time such Obligation becomes due and payable and
until it is paid in full (the "Default Rate").
3.3.2. Acknowledgment.
The Borrower acknowledges that the increase in
rate referred to in Section 3.3.1 (Default Rate) reflects, among
other things, the fact that such Loans or other amounts have
become a substantially greater risk given their default status and
that the Banks are entitled to additional compensation for such
risk; and all such interest shall be payable by Borrower upon
demand by Agent.
3.4 LIBO-Rate Unascertainable; Illegality; Increased
Costs; Deposits Not Available.
3.4.1. Unascertainable.
If on any date on which a LIBO-Rate would
otherwise be determined, the Agent shall have determined that:
(i) adequate and reasonable means
do not exist for ascertaining such LIBO-Rate, or
(ii) a contingency has occurred
which materially and adversely affects the London interbank
eurodollar market relating to the LIBO-Rate, the Agent shall have
the rights specified in Section 3.4.3 (Agent's and Bank's Rights).
3.4.2. Illegality; Increased Costs; Deposits Not
Available.
If at any time any Bank shall have determined
that:
(i) the making, maintenance or
funding of any Loan to which a LIBO-Rate Option applies has been
made impracticable or unlawful by compliance by such Bank in good
faith with any Law or any interpretation or application thereof by
any Official Body or with any request or directive of any such
Official Body (whether or not having the force of Law), or
(ii) such LIBO-Rate Option will not
adequately and fairly reflect the cost to such Bank of the
establishment or maintenance of any such Loan, or
(iii) after making all reasonable
efforts, deposits of the relevant amount in Dollars for the
relevant Interest Period for a Loan, or to banks generally, to
which a LIBO-Rate Option applies, respectively, are not available
to such Bank with respect to such Loan, or to banks generally, in
the interbank eurodollar market,
then the Agent shall have the rights specified in Section 3.4.3
(Agent's and Bank's Rights).
3.4.3. Agent's and Bank's Rights.
In the case of any event specified in Section
3.4.1 (Unascertainable) above, the Agent shall promptly so notify
the Banks and the Borrower thereof, and in the case of an event
specified in Section 3.4.2 (Illegality; Increased Costs; Deposits
Not Available) above, such Bank shall promptly so notify the Agent
and endorse a certificate to such notice as to the specific
circumstances of such notice, and the Agent shall promptly send
copies of such notice and certificate to the other Banks and the
Borrower. Upon such date as shall be specified in such notice
(which shall not be earlier than the date such notice is given),
the obligation of (A)the Banks, in the case of such notice given
by the Agent, or (B)such Bank, in the case of such notice given by
such Bank, to allow the Borrower to select, convert to or renew a
LIBO-Rate Option shall be suspended until the Agent shall have
later notified the Borrower, or such Bank shall have later
notified the Agent, of the Agent's or such Bank's, as the case may
be, determination that the circumstances giving rise to such
previous determination no longer exist. If at any time the Agent
makes a determination under Section 3.4.1 (Unascertainable) and
the Borrower has previously notified the Agent of its selection
of, conversion to or renewal of a LIBO-Rate Option and such
Interest Rate Option has not yet gone into effect, such
notification shall be deemed to provide for selection of,
conversion to or renewal of the Base Rate Option otherwise
available with respect to such Loans. If any Bank notifies the
Agent of a determination under Section 3.4.2 (Illegality;
Increased Costs; Deposits Not Available), the Borrower shall,
subject to the Borrower's indemnification Obligations under
Section 4.6.2 (Indemnity), as to any Loan of the Bank to which a
LIBO-Rate Option applies, on the date specified in such notice
either convert such Loan to the Base Rate Option otherwise
available with respect to such Loan or prepay such Loan in
accordance with Section 4.4 [Voluntary Prepayments]. Absent due
notice from the Borrower of conversion or prepayment, such Loan
shall automatically be converted to the Base Rate Option otherwise
available with respect to such Loan upon such specified date.
3.5 Selection of Interest Rate Options.
If the Borrower fails to select a new Interest Period
to apply to any Borrowing Tranche of Loans under the LIBO-Rate
Option at the expiration of an existing Interest Period applicable
to such Borrowing Tranche in accordance with the provisions of
Section 3.2 [Interest Periods], the Borrower shall be deemed to
have converted such Borrowing Tranche to the Revolving Credit Base
Rate Option, commencing upon the last day of the existing Interest
Period.
4. PAYMENTS
4.1 Payments.
All payments and prepayments to be made in respect of
principal, interest, Commitment Fees, Letter of Credit Fees,
Agent's Fee or other fees or amounts due from the Borrower
hereunder shall be payable prior to eleven o'clock (11:00) a.m.,
Eastern time, on the date when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly
waived by the Borrower, and without set-off, counterclaim or other
deduction of any nature, and an action therefor shall immediately
accrue. Such payments shall be made to the Agent at the Principal
Office for the account of PNC Bank with respect to the Swing Loans
and for the ratable accounts of the Banks with respect to the
Revolving Credit Loans in Dollars and in immediately available
funds, and the Agent shall promptly distribute such amounts to the
Banks in immediately available funds, provided that in the event
payments are received by eleven o'clock (11:00) a.m., Eastern
time, by the Agent with respect to the Loans and such payments are
not distributed to the Banks on the same day received by the
Agent, the Agent shall pay the Banks the Federal Funds Effective
Rate with respect to the amount of such payments for each day held
by the Agent and not distributed to the Banks. The Agent's and
each Bank's statement of account, ledger or other relevant record
shall, in the absence of manifest error, be conclusive as the
statement of the amount of principal of and interest on the Loans
and other amounts owing under this Agreement and shall be deemed
an "account stated."
4.2 Pro Rata Treatment of Banks.
Each borrowing shall be allocated to each Bank
according to its Ratable Share, and each selection of, conversion
to or renewal of any Interest Rate Option and each payment or
prepayment by the Borrower with respect to principal, interest,
Commitment Fees, Letter of Credit Fees, or other fees (except for
the Agent's Fee) or amounts due from the Borrower hereunder to the
Banks with respect to the Loans, shall (except as provided in
Section 3.4.3 (Agent's and Bank's Rights) in the case of an event
specified in Sections 3.4 (LIBO-Rate Unascertainable; Illegality,
Increased Costs, Deposits Not Available), 4.4.2 (Replacement of a
Bank) or 4.6 (Additional Compensation in Certain Circumstances))
be made in proportion to the applicable Loans outstanding from
each Bank and, if no such Loans are then outstanding, in
proportion to the Ratable Share of each Bank. Notwithstanding any
of the foregoing, each borrowing or payment or prepayment by the
Borrower of principal, interest, fees or other amounts from the
Borrower with respect to Swing Loans shall be made by or to PNC
Bank according to Section 2 (Revolving Credit and Swing Loan
Facilities).
4.3 Interest Payment Dates.
Interest on Loans to which the Base Rate Option
applies shall be due and payable in arrears on the first Business
Day of each calendar month after the date hereof and on the
Expiration Date or upon acceleration of the Loan. Interest on
Loans to which the LIBO-Rate Option applies shall be due and
payable on the last day of each Interest Period for those Loans
and, if such Interest Period is longer than three (3) Months, also
on the 90th day of such Interest Period. Interest on mandatory
prepayments of principal under Section 4.5 (Mandatory Payments)
shall be due on the date such mandatory prepayment is due.
Interest on the principal amount of each Loan or other monetary
Obligation shall be due and payable on demand after such principal
amount or other monetary Obligation becomes due and payable
(whether on the stated maturity date, upon acceleration or
otherwise).
4.4 Voluntary Prepayments.
4.4.1. Right to Prepay.
The Borrower shall have the right at its option
at any time and from time to time to prepay the Loans in whole or
part without premium or penalty (except as provided in Section
4.4.2 (Replacement of a Bank) below or in Section 4.6 (Additional
Compensation in Certain Circumstances)).
Whenever the Borrower desires to prepay any part of the Loans, it
shall provide a prepayment notice to the Agent no later than (A)
11:00 a.m., Eastern time, at least two (2) Business Days prior to
the date of prepayment of the Revolving Credit Loans to which the
LIBO-Rate Option applies, (B) 11:00 a.m., Eastern time, on the
date of prepayment of Revolving Credit Loans to which the Base
Rate Option applies or (C) 2:00 p.m., Eastern time, on the date of
prepayment of Swing Loans, setting forth the following
information:
(x) the date, which shall be a Business
Day, on which the proposed prepayment is to be made;
(y) a statement indicating the
application of the prepayment between the Swing Loans
and the Revolving Credit Loans; and
(z) the total principal amount of such
prepayment, which shall not be less than (i) $100,000
and in increments of $100,000 for any Swing Loans,
(ii) $500,000 and in increments of $100,000 for any
Revolving Credit Loan to which the Base Rate Option
applies or (iii) $2,500,000 and in increments of
$500,000 for any Revolving Credit Loan to which the
LIBO-Rate Option applies.
All prepayment notices shall be irrevocable.
The principal amount of the Loans for which a prepayment notice is
given, together with interest on such principal amount except with
respect to Loans to which the Base Rate Option applies, shall be
due and payable on the date specified in such prepayment notice as
the date on which the proposed prepayment is to be made. Except
as provided in Section 3.4.3 (Agent's and Bank's Rights), if the
Borrower prepays a Loan but fails to specify the applicable
Borrowing Tranche which the Borrower is prepaying, the prepayment
shall be applied first to Swing Loans, then to Loans to which the
Base Rate Option applies, and then to Loans to which the LIBO-Rate
Option applies. Any prepayment hereunder shall be subject to the
Borrower's Obligation to indemnify the Banks under Section 4.6.2
(Indemnity).
4.4.2. Replacement of a Bank.
In the event any Bank (i)gives notice under
Section 3.4 (LIBO-Rate Unascertainable; Illegality; Increased
Costs; Deposits Not Available) or Section 4.6.1 (Increased Costs
or Reduced Return Resulting from Taxes, Reserves, Capital Adequacy
Requirements, Expenses, Etc.), (ii)does not fund Revolving Credit
Loans because the making of such Loans would contravene any Law
applicable to such Bank, or (iii)becomes subject to the control of
an Official Body (other than normal and customary supervision),
then the Borrower shall have the right at its option, with the
consent of the Agent, which shall not be unreasonably withheld, to
prepay the Loans of such Bank in whole, together with all interest
accrued thereon, and terminate such Bank's Commitment within
ninety (90) days after (x)receipt of such Bank's notice under
Section 3.4 (LIBO-Rate Unascertainable; Illegality; Increased
Costs; Deposits Not Available) or 4.6.1 (Increased Costs or
Reduced Return Resulting from Taxes, Reserves, Capital Adequacy
Requirements, Expenses, Etc.), (y)the date such Bank has failed to
fund Revolving Credit Loans because the making of such Loans would
contravene Law applicable to such Bank, or (z)the date such Bank
became subject to the control of an Official Body, as applicable;
provided that the Borrower shall also pay to such Bank at the time
of such prepayment any amounts required under Section 4.6
(Additional Compensation in Certain Circumstances) and any accrued
interest due on such amount and any related fees; provided,
further, the remaining Banks shall have no obligation hereunder to
increase their Commitments. Notwithstanding the foregoing, the
Agent may only be replaced subject to the requirements of Section
9.14 (Successor Agent).
4.4.3. Change of Lending Office.
Each Bank agrees that upon the occurrence of any
event giving rise to increased costs or other special payments
under Section 3.4.2 (Illegality; Increased Costs; Deposits Not
Available) or 4.6.1 (Increased Costs or Reduced Return Resulting
from Taxes, Reserves, Capital Adequacy Requirements, Expenses,
Etc.) with respect to such Bank, it will if requested by the
Borrower, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office
for any Loans or Letters of Credit affected by such event,
provided that such designation is made on such terms that such
Bank and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such
Section. Nothing in this Section 4.4.3 (Change of Lending Office)
shall affect or postpone any of the Obligations of the Borrower or
any other Loan Party or the rights of the Agent or any Bank
provided in this Agreement.
4.5 Mandatory Payments.
The Borrower shall make mandatory payments of
principal (together with accrued interest thereon) to the Agent to
the extent by which Revolving Facility Usage exceeds at any time
the Commitments (as they may be reduced pursuant to Section 2.1.
(Voluntary Reduction of Commitment), Section 2.11.2 (Approval by
80% Banks) or otherwise) within three (3) Business Days after such
excess is calculated.
4.6 Additional Compensation in Certain Circumstances.
4.6.1. Increased Costs or Reduced Return
Resulting from Taxes, Reserves, Capital Adequacy
Requirements, Expenses, Etc.
If any Law, guideline or interpretation or any
change in any Law, guideline or interpretation or application
thereof by any Official Body charged with the interpretation or
administration thereof or compliance with any request or directive
(whether or not having the force of Law) of any central bank or
other Official Body:
(i) subjects any Bank to any tax
or changes the basis of taxation with respect to this Agreement,
the Notes, the Loans or payments by the Borrower of principal,
interest, Commitment Fees, or other amounts due from the Borrower
hereunder (except for taxes on the overall net income of such
Bank),
(ii) imposes, modifies or deems
applicable any reserve, special deposit or similar requirement
against credits or commitments to extend credit extended by, or
assets (funded or contingent) of, deposits with or for the account
of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems
applicable any capital adequacy or similar requirement (A)against
assets (funded or contingent) of, or letters of credit, other
credits or commitments to extend credit extended by, any Bank, or
(B)otherwise applicable to the obligations of any Bank under this
Agreement,
and the result of any of the foregoing is to increase the cost to,
reduce the income receivable by, or impose any expense upon any
Bank with respect to this Agreement, or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital
adequacy or similar requirement, to have the effect of reducing
the rate of return on any Bank's capital, taking into
consideration such Bank's customary policies with respect to
capital adequacy) by an amount which such Bank in its sole
discretion deems to be material, such Bank shall from time to time
notify the Borrower and the Agent of the amount determined in good
faith (using any averaging and attribution methods employed in
good faith) by such Bank to be necessary to compensate such Bank
for such increase in cost, reduction of income, additional expense
or reduced rate of return. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount
shall be due and payable by the Borrower to such Bank ten (10)
Business Days after such notice is given.
4.6.2. Indemnity.
In addition to the compensation required by
Section 4.6.1 (Increased Costs or Reduced Return Resulting from
Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc.),
the Borrower shall indemnify each Bank against all liabilities,
losses or expenses (including actual loss of margin, any loss or
expense incurred in liquidating or employing deposits from third
parties and any loss or expense incurred in connection with funds
acquired by a Bank to fund or maintain Loans subject to a LIBO-
Rate Option) which such Bank sustains or incurs as a consequence
of any:
(i) payment, prepayment,
conversion or renewal of any Loan to which a LIBO-Rate Option
applies on a day other than the last day of the corresponding
Interest Period (whether or not such payment or prepayment is
mandatory, voluntary or automatic and whether or not such payment
or prepayment is then due),
(ii) attempt by the Borrower to
revoke (expressly, by later inconsistent notices or otherwise) in
whole or part any Loan Requests under Section 2.4 (Revolving
Credit Loan Requests; Swing Loan Requests) or Section 3.2
(Interest Periods) or notice relating to prepayments under Section
4.4 (Voluntary Prepayments), or
(iii) default by the Borrower in the
performance or observance of any covenant or condition contained
in this Agreement or any other Loan Document, including any
failure of the Borrower to pay when due (by acceleration or
otherwise) any principal, interest, Commitment Fee, Letter of
Credit Fees, or any other amount due hereunder.
If any Bank sustains or incurs any such loss or
expense, it shall from time to time notify the Borrower of the
amount determined in good faith by such Bank (which determination
may include such assumptions, allocations of costs and expenses
and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify such Bank for such loss
or expense. Such notice shall set forth in reasonable detail the
basis for such determination. Such amount shall be due and
payable by the Borrower to such Bank ten (10) Business Days after
such notice is given.
4.7 Notes.
The Revolving Credit Loans made by each Bank shall, if
requested by such Bank, be evidenced by a Revolving Credit Note.
4.8 Settlement Date Procedures.
The Borrower may borrow, repay and reborrow Swing
Loans and PNC Bank may make Swing Loans as provided in Section
2.1.2 (Swing Loan Commitment) hereof. On any Business Day, the
Agent may notify each Bank of its Ratable Share of the total of
the Revolving Credit Loans and the Swing Loans (each a "Required
Share"). Prior to 2:30 p.m., Eastern time, on the date following
the date of such notice, each Bank shall pay to the Agent the
amount equal to the difference between its Required Share and its
Revolving Credit Loans, and the Agent shall pay to each Bank its
Ratable Share of all payments made by the Borrower to the Agent
with respect to the Revolving Credit Loans. The Agent shall also
effect settlement in accordance with the foregoing sentence on the
proposed Borrowing Dates for Revolving Credit Loans and on any
date when payments of principal of any Loan is required to be paid
by any Loan Party hereunder and may at its option, and in
consultation with the Borrower, effect settlement on any other
Business Day. These settlement procedures are established solely
as a matter of administrative convenience, and nothing contained
in this Section 4.8 shall relieve the Banks of their obligations
to fund Revolving Credit Loans on dates other than a Settlement
Date pursuant to Section 2.8 (Borrowings to Repay Swing Loans).
The Agent may at any time at its option for any reason whatsoever
require each Bank to pay immediately to the Agent such Bank's
Ratable Share of the outstanding Revolving Credit Loans and each
Bank may at any time require the Agent to pay immediately to such
Bank its Ratable Share of all payments made by the Borrower to the
Agent with respect to the Revolving Credit Loans.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.
The Borrower and Hovnanian, jointly and severally,
represent and warrant to the Agent and to each of the Banks as
follows:
5.1.1. Organization and Qualification.
Each of the Borrower, KHL and Hovnanian is a
corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and each other
Loan Party is a corporation, partnership or limited liability
company duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization except to the
extent the failure to do so could not, individually or in the
aggregate, reasonably be expected to cause a Material Adverse
Change. Each Loan Party has the lawful power to own or lease its
properties and to engage in the business it presently conducts or
proposes to conduct. Each Loan Party is duly licensed or
qualified and in good standing in each jurisdiction where the
failure to obtain them could, individually or in the aggregate,
reasonably be expected to cause a Material Adverse Change.
5.1.2. Subsidiaries.
As of the Closing Date, Schedule 5.1.2 states
the name of each of Hovnanian's Subsidiaries and its jurisdiction
of incorporation. Hovnanian and each Loan Party has good and
marketable title to all of the Subsidiary Shares, Partnership
Interests and LLC Interests it purports to own, free and clear in
each case of any Lien. All Subsidiary Shares, Partnership
Interests and LLC Interests have been validly issued, and all
Subsidiary Shares are fully paid and nonassessable. All capital
contributions and other consideration required to be made or paid
in connection with the issuance of the Partnership Interests and
LLC Interests have been made or paid, as the case may be.
Schedule 5.1.2 also sets forth, as to each of Hovnanian's
Subsidiaries, the percentage ownership of each owner of: the
issued and outstanding shares (referred to herein as the
"Subsidiary Shares") if such Subsidiary is a corporation, its
outstanding partnership interests (the "Partnership Interests") if
such Subsidiary is a partnership and its outstanding limited
liability company interests (the "LLC Interests") if such
Subsidiary is a limited liability company. Schedule 5.1.2 also
footnote the controlling interests of each Subsidiary if such
controlling interest is held by a Person other than Hovnanian or a
Subsidiary of Hovnanian.
5.1.3. Power and Authority.
Each Loan Party has full power to enter into,
execute, deliver and carry out this Agreement and the other Loan
Documents to which it is a party, to incur the Indebtedness
contemplated by the Loan Documents and to perform its Obligations
under the Loan Documents to which it is a party, and all such
actions have been duly authorized by all necessary proceedings on
its part.
5.1.4. Validity and Binding Effect.
This Agreement has been duly and validly
executed and delivered by each Loan Party, and each other Loan
Document which any Loan Party is required to execute and deliver
on or after the date hereof will have been duly executed and
delivered by such Loan Party on the required date of delivery of
such Loan Document. This Agreement and each other Loan Document
constitutes, or will constitute, legal, valid and binding
obligations of each Loan Party which is or will be a party thereto
on and after its date of delivery thereof, enforceable against
such Loan Party in accordance with its terms, except to the extent
that enforceability of any of such Loan Document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforceability of creditors' rights
generally or limiting the right of specific performance.
5.1.5. No Conflict.
Neither the execution and delivery of this
Agreement or the other Loan Documents by any Loan Party nor the
consummation of the transactions herein or therein contemplated or
compliance with the terms and provisions hereof or thereof by any
of them will conflict with, constitute a default under or result
in any breach of (i)the terms and conditions of the certificate of
incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability
company agreement or other organizational documents of any Loan
Party or (ii)any Law or any material agreement or instrument or
order, writ, judgment, injunction or decree to which any Loan
Party is a party or by which it is bound or to which it is
subject, or result in the creation or enforcement of any Lien,
charge or encumbrance whatsoever upon any property (now or
hereafter acquired) of any Loan Party (other than Liens granted
under the Loan Documents) which could, individually or in the
aggregate, reasonably be expected to cause a Material Adverse
Change.
5.1.6. Litigation.
There are no actions, suits, proceedings or
investigations pending or, to the knowledge of any Loan Party,
threatened against such Loan Party at law or equity before any
Official Body which individually or in the aggregate may result in
any Material Adverse Change. None of the Loan Parties is in
violation of any order, writ, injunction or any decree of any
Official Body which may result in any Material Adverse Change.
5.1.7. Title to Properties.
Each Loan Party has good and marketable title to
or a valid leasehold interest in all properties, assets and other
rights which it purports to own or lease or which are reflected as
owned or leased on its books and records, free and clear of all
Liens and encumbrances, except Permitted Liens, and subject to the
terms and conditions of the applicable leases. All leases of
property are in full force and effect without the necessity for
any consent which has not previously been obtained upon
consummation of the transactions contemplated hereby.
5.1.8. Financial Statements.
(i) Historical Statements. The
Borrower has delivered to the Agent copies of Hovnanian's audited
consolidated year-end financial statements for and as of the end
of the fiscal year ended October 31, 2001 (the "Annual
Statements"). In addition, the Borrower has delivered to the
Agent copies of Hovnanian's unaudited consolidated interim
financial statements for the fiscal year to date and as of the end
of the fiscal quarter ended January 31, 2002 (the "Interim
Statements") (the Annual and Interim Statements being collectively
referred to as the "Historical Statements"). The Historical
Statements were compiled from the books and records maintained by
Hovnanian's management, are correct and complete and fairly
represent the consolidated financial condition of Hovnanian and
its Subsidiaries as of their dates and the results of operations
for the fiscal periods then ended and have been prepared in
accordance with GAAP consistently applied, subject (in the case of
the Interim Statements) to normal year-end audit adjustments.
(ii) Financial Projections. The
Borrower has delivered to the Agent and the Banks financial
projections of Hovnanian and its Subsidiaries for the period
ending October 31, 2005 derived from various assumptions of
Hovnanian's management (the "Financial Projections"). The
Financial Projections represent a reasonable range of possible
results in light of the history of the business, present and
foreseeable conditions and the intentions of Hovnanian's
management (it being understood that actual results may vary
materially from the Financial Projections). The Financial
Projections accurately reflect the liabilities of Hovnanian and
its Subsidiaries upon consummation of the transactions
contemplated hereby as of the Closing Date.
(iii) Accuracy of Financial
Statements. As of the Closing Date, neither Hovnanian nor any
Subsidiary of Hovnanian has any liabilities, contingent or
otherwise, or forward or long-term commitments that are required
by GAAP to be, but are not, disclosed in the Historical Statements
or in the notes thereto, and except as disclosed therein there are
no unrealized or anticipated losses from any commitments of
Hovnanian or any Subsidiary of Hovnanian which may cause a
Material Adverse Change. Since October 31, 2001, no Material
Adverse Change has occurred.
5.1.9. Use of Proceeds; Margin Stock.
5.1.9.1 General.
The Loan Parties intend to use the proceeds of
the Loans in accordance with Sections 2.7 (Use of Proceeds) and
7.1.10 (Use of Proceeds).
5.1.9.2 Margin Stock.
None of the Loan Parties engages or intends to
engage principally, or as one of its important activities, in the
business of extending credit for the purpose, immediately,
incidentally or ultimately, of purchasing or carrying margin stock
(within the meaning of Regulation U). No part of the proceeds of
any Loan has been or will be used, immediately, incidentally or
ultimately, to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any
margin stock or to refund Indebtedness originally incurred for
such purpose, or for any purpose which entails a violation of or
which is inconsistent with the provisions of the regulations of
the Board of Governors of the Federal Reserve System. None of the
Loan Parties holds or intends to hold margin stock in such amounts
that more than 25% of the reasonable value of the assets of such
Loan Party are or will be represented by margin stock.
5.1.10. Full Disclosure.
Neither this Agreement nor any other Loan
Document, nor any certificate, statement, agreement or other
documents furnished to the Agent or any Bank in connection
herewith or therewith, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make
the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading. There
is no fact known to any Loan Party which materially adversely
affects the business, property, assets, financial condition,
results of operations or business prospects of the Loan Parties
taken as a whole which has not been set forth in this Agreement or
in the certificates, statements, agreements or other documents
furnished in writing to the Agent and the Banks prior to or at the
date hereof in connection with the transactions contemplated
hereby.
5.1.11. Taxes.
All federal, state, local and other tax returns
required to have been filed with respect to the Loan Parties have
been filed, and payment or adequate provision has been made for
the payment of all taxes, fees, assessments and other governmental
charges which have or may become due pursuant to said returns or
to assessments received, except to the extent that such taxes,
fees, assessments and other charges are not material or are being
contested in good faith by appropriate proceedings diligently
conducted and for which such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been
made. There are no agreements or waivers extending the statutory
period of limitations applicable to any federal income tax return
of any Loan Party for any period.
5.1.12. Consents and Approvals.
No consent, approval, exemption, order or
authorization of, or a registration or filing with, any Official
Body or any other Person is required by any Law or any agreement
in connection with the execution, delivery and carrying out of
this Agreement and the other Loan Documents by any Loan Party,
except as listed on Schedule 5.1.12, all of which shall have been
obtained or made on or prior to the Closing Date except as
otherwise indicated on Schedule 5.1.12.
5.1.13. No Event of Default; Compliance with
Instruments.
No event has occurred and is continuing and no
condition exists or will exist after giving effect to the
borrowings or other extensions of credit to be made on the Closing
Date under or pursuant to the Loan Documents which constitutes an
Event of Default or Potential Default. None of the Loan Parties
is in violation of (i)any term of its certificate of
incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability
company agreement or other organizational documents or (ii)any
material agreement or instrument to which it is a party or by
which it or any of its properties may be subject or bound where
such violation would constitute a Material Adverse Change.
5.1.14. Patents, Trademarks, Copyrights, Licenses,
Etc.
Each Loan Party owns or possesses all the
material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and
rights necessary to own and operate its properties and to carry on
its business as presently conducted and planned to be conducted by
such Loan Party, without known possible, alleged or actual
material conflict with the rights of others.
5.1.15. Insurance.
No notice has been given or claim made and no
grounds exist to cancel or avoid any of insurance policies of the
type described in Section 7.1.3 (Maintenance of Insurance) or to
reduce the coverage provided thereby.
5.1.16. Compliance with Laws.
The Loan Parties are in compliance in all
material respects with all applicable Laws (other than
Environmental Laws which are specifically addressed in Section
5.1.21 (Environmental Matters)) in all jurisdictions in which any
Loan Party is presently or will be doing business except where the
failure to do so would not constitute a Material Adverse Change.
5.1.17. Burdensome Restrictions.
None of the Loan Parties is bound by any
contractual obligation, or subject to any restriction in any
organization document, or any requirement of Law which could
reasonably be expected to constitute a Material Adverse Change.
5.1.18. Investment Companies; Regulated Entities.
None of the Loan Parties is an "investment
company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an
"investment company" as such terms are defined in the Investment
Company Act of 1940 and shall not become such an "investment
company" or under such "control." None of the Loan Parties is
subject to any other Federal or state statute or regulation
limiting its ability to incur Indebtedness for borrowed money
(other than Regulation X of the Board of Governors of the Federal
Reserve System).
5.1.19. Plans and Benefit Arrangements.
(i) Except where the liability
that could reasonably be expected to result therefrom would not,
individually or in the aggregate, result in a Material Adverse
Change, (a) the Loan Parties and each other member of the ERISA
Group are in compliance in all material respects with any
applicable provisions of ERISA with respect to all Plans and, as
to the Borrower, Benefit Arrangements; (b) there has been no
Prohibited Transaction with respect to any such Benefit
Arrangement or any Plan which could result in any material
liability of the Loan Parties or any other member of the ERISA
Group; (c) the Loan Parties and all other members of the ERISA
Group have made when due any and all payments required to be made
under any agreement relating to a Multiemployer Plan or any Law
pertaining thereto; (d) with respect to each Plan the Loan Parties
and each other member of the ERISA Group (i)have fulfilled in all
respects their obligations under the minimum funding standards of
ERISA, (ii)have not incurred any liability to the PBGC, except for
premiums in the ordinary course which are not overdue and
(iii)have not had asserted against them any penalty for failure to
fulfill the minimum funding requirements of Section 302 of ERISA;
and (e) all Plans and Benefit Arrangements have been administered
in material compliance with their terms and applicable Law.
(ii) Except where the liability
that could reasonably be expected to result therefrom would not,
individually or in the aggregate, result in a Material Adverse
Change, no event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to
occur with respect to any Plan, and no amendment with respect to
which security is required under Section 307 of ERISA has been
made or is reasonably expected to be made to any Plan.
(iii) Except where the liability
that could reasonably be expected to result therefrom would not,
individually or in the aggregate, result in a Material Adverse
Change, neither the Loan Parties nor any other member of the ERISA
Group has incurred or reasonably expects to incur any material
withdrawal liability under Section 4201 of ERISA to any
Multiemployer Plan or under Section 4063 or 4064 of ERISA to any
Plan;. Neither the Loan Parties nor any other member of the ERISA
Group has been notified by any Multiemployer Plan or Plan that
such Multiemployer Plan or Plan has been terminated within the
meaning of Sections 4041 A or 4064, respectively, of ERISA and,
to the best knowledge of the Borrower, no Multiemployer Plan is
reasonably expected to be reorganized or terminated, within the
meaning of Title IV of ERISA.
(iv) To the best knowledge of
Borrower, neither the Borrower nor any other member of the ERISA
Group has, within the preceding five years, entered into a
transaction to which either Section 4069 or Section 4212(c) of
ERISA could apply so as to subject Borrower or other member of the
ERISA Group to a liability, except where the liability that could
reasonably be expected to result therefrom would not result in a
Material Adverse Change.
5.1.20. Employment Matters.
Each of the Loan Parties is in compliance with
the Labor Contracts and all applicable Federal, state and local
labor and employment Laws including those related to equal
employment opportunity and affirmative action, labor relations,
minimum wage, overtime, child labor, medical insurance
continuation, worker adjustment and relocation notices,
immigration controls and worker and unemployment compensation,
where such failure to comply would constitute a Material Adverse
Change. There are no outstanding grievances, arbitration awards
or appeals therefrom arising out of the Labor Contracts or current
or threatened strikes, picketing, handbilling or other work
stoppages or slowdowns at facilities of any of the Loan Parties
which in any case would constitute a Material Adverse Change.
5.1.21. Environmental Matters.
None of the Loan Parties has received any
Environmental Complaint, including but not limited to those from
any Official Body or private Person alleging that such Loan Party
or any prior owner, operator or occupant of any of the Property is
a potentially responsible party under the Comprehensive
Environmental Response, Cleanup and Liability Act, 42 U.S.C. 9601,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
6901, et seq. or any analogous state or local Law, which could
reasonably be expected to constitute a Material Adverse Change and
none of the Loan Parties has any reason to believe that such an
Environmental Complaint might be received. There are no pending
or, to any Loan Party's knowledge, threatened Environmental
Complaints relating to any Loan Party or, to any Loan Party's
knowledge, any prior owner, operator or occupant of any of the
Properties pertaining to, or arising out of, any Contamination or
violations of Environmental Laws or Required Environmental Permits
which could reasonably be expected to constitute a Material
Adverse Change.
5.1.22. Senior Debt Status.
The Obligations of each Loan Party under this
Agreement, the Guaranty Agreement and each of the other Loan
Documents to which it is a party do rank and will rank at least
pari passu in priority of payment with all other Indebtedness of
such Loan Party except Indebtedness of such Loan Party to the
extent secured by Permitted Liens. There is no Lien upon or with
respect to any of the properties or income of any Loan Party which
secures Indebtedness or other obligations of any Person except for
Permitted Liens.
5.2 Continuation of Representations.
The Borrower and Hovnanian make the representations
and warranties in this Section 5 on the date hereof and on the
Closing Date and each date thereafter on which a Loan is made or a
Letter of Credit is issued as provided in and subject to Sections
6.1 (First Loans and Letters of Credit) and 6.2 (Each Additional
Loan or Letter of Credit).
6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
The obligation of each Bank to make Loans and of the
Agent and the Letter of Credit Banks to issue Letters of Credit
hereunder is subject to the performance by each of the Loan
Parties of its Obligations to be performed hereunder at or prior
to the making of any such Loans or issuance of such Letters of
Credit and to the satisfaction of the following further
conditions:
6.1 First Loans and Letters of Credit.
On the Closing Date:
6.1.1. Officer's Certificate.
The representations and warranties of each of
the Loan Parties contained in Section 5 (Representation and
Warranties) and in each of the other Loan Documents shall be true
and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as
of such date (except representations and warranties which relate
solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific
dates or times referred to therein), and each of the Loan Parties
shall have performed and complied with all covenants and
conditions hereof and thereof, no Event of Default or Potential
Default shall have occurred and be continuing or shall exist; and
there shall be delivered to the Agent for the benefit of each Bank
a certificate of each of the Loan Parties, dated the Closing Date
and signed by the Chief Executive Officer, President or Chief
Financial Officer of each of the Loan Parties, to each such
effect.
6.1.2. Incumbency Certificate.
There shall be delivered to the Agent for the
benefit of each Bank a certificate dated the Closing Date and
signed by the Secretary or an Assistant Secretary or the managing
member (or equivalent), as the case may be, of each of the Loan
Parties, certifying as appropriate as to:
(i) all action taken by each Loan
Party in connection with this Agreement and the other Loan
Documents;
(ii) the names of the officer or
officers authorized to sign this Agreement and the other Loan
Documents and the true signatures of such officer or officers and
specifying the Authorized Officers permitted to act on behalf of
each Loan Party for purposes of this Agreement and the true
signatures of such officers, on which the Agent and each Bank may
conclusively rely; and
(iii) as to Hovnanian and the
Borrower only, copies of its organizational documents, including
its certificate of incorporation, bylaws, certificate of limited
partnership, partnership agreement, certificate of formation, and
limited liability company agreement as in effect on the Closing
Date certified by the appropriate state official where such
documents are filed in a state office together with certificates
from the appropriate state officials as to the continued existence
and good standing of such Loan Party in each state where
organized, all as acceptable to the Agent.
6.1.3. Delivery of Loan Documents .
The Guaranty Agreement, the KHL Agreement , the
Stock Pledge and the other Loan Documents shall have been duly
executed and delivered by Hovnanian to the Agent on or before the
date hereof for the benefit of the Banks, together with
certificates evidencing 100% of the stock of KHL and stock powers
therefor executed in blank.
6.1.4. Opinion of Counsel.
There shall be delivered to the Agent for the
benefit of each Bank a written opinion of Peter Reinhart, Esquire,
in-house counsel for the Loan Parties, dated the Closing Date and
in form and substance satisfactory to the Agent and its counsel.
6.1.5. Legal Details.
All legal details and proceedings in connection
with the transactions contemplated by this Agreement and the other
Loan Documents shall be in form and substance satisfactory to the
Agent and counsel for the Agent, and the Agent shall have received
all such other counterpart originals or certified or other copies
of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agent and
said counsel, as the Agent or said counsel may reasonably request.
6.1.6. Payment of Fees.
The Borrower shall have paid or caused to be
paid to the Agent for itself and for the account of the Banks to
the extent not previously paid, all commitment and other fees
accrued through the Closing Date and the costs and expenses for
which the Agent and the Banks are entitled to be reimbursed.
6.1.7. Consents.
All material consents required to effectuate the
transactions contemplated hereby as set forth on Schedule 5.1.12
shall have been obtained.
6.1.8. Officer's Certificate Regarding MACs.
Since October 31, 2001, no Material Adverse
Change shall have occurred, and there shall have been delivered to
the Agent for the benefit of each Bank a certificate dated the
Closing Date and signed by the Chief Executive Officer, President
or Chief Financial Officer of each Loan Party to each such effect.
6.1.9. No Actions or Proceedings.
No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to
enjoin, restrain or prohibit, or to obtain damages in respect of,
this Agreement, the other Loan Documents or the consummation of
the transactions contemplated hereby or thereby.
6.2 Each Additional Loan or Letter of Credit.
At the time of making any Loans or issuing any Letters
of Credit other than Loans made or Letters of Credit issued on the
Closing Date and after giving effect to the proposed extensions of
credit: the representations and warranties of the Loan Parties
contained in Section 5 (Representations and Warranties) and in the
other Loan Documents shall be true and correct in all material
respects on and as of the date of such additional Loan or Letter
of Credit with the same effect as though such representations and
warranties had been made on and as of such date (except
representations and warranties which expressly relate solely to an
earlier date or time, which representations and warranties shall
be true and correct in all material respects on and as of the
specific dates or times referred to therein); no Event of Default
or Potential Default shall have occurred and be continuing or
shall exist; and the Borrower shall have delivered to the Agent a
duly executed and completed Loan Request or application for a
Letter of Credit as the case may be.
7. COVENANTS
7.1 Affirmative Covenants.
The Borrower and Hovnanian, jointly and severally,
covenant and agree that until payment in full of the Loans,
Reimbursement Obligations and Letter of Credit Borrowings, and
interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations
under the Loan Documents and termination of the Commitments, they
shall, and shall cause the other Loan Parties to, comply at all
times with the following affirmative covenants:
7.1.1. Preservation of Existence, Etc.
Each Loan Party shall maintain its legal
existence as a corporation, limited partnership or limited
liability company and its license or qualification and good
standing in each jurisdiction in which its ownership or lease of
property or the nature of its business makes such license or
qualification necessary, except as otherwise expressly permitted
in Section 7.2.4 (Liquidations, Mergers, Consolidations,
Acquisitions) and except where failure to do so could not
reasonably be expected to constitute a Material Adverse Change
with respect to the Borrower or Hovnanian or with respect to the
Loan Parties taken as a whole.
7.1.2. Payment of Liabilities, Including Taxes,
Etc.
Each Loan Party shall duly pay and discharge all
material liabilities to which it is subject or which are asserted
against it, promptly as and when the same shall become due and
payable, including all material taxes, assessments and
governmental charges upon it or any of its properties, assets,
income or profits, prior to the date on which penalties attach
thereto, except to the extent that such liabilities, including
taxes, assessments or charges, are being contested in good faith
and by appropriate and lawful proceedings diligently conducted and
for which such reserve or other appropriate provisions, if any, as
shall be required by GAAP shall have been made, or to the extent
that failure to discharge any such liabilities would not result in
any additional liability which would adversely affect to a
material extent the financial condition of the Borrower or
Hovnanian or of the Loan Parties taken as a whole, provided that
the Loan Parties will pay all such liabilities forthwith upon the
commencement of proceedings to foreclose any Lien which may have
attached as security therefor.
7.1.3. Maintenance of Insurance.
Each Loan Party shall insure its properties and
assets against loss or damage by fire and such other insurable
hazards as such assets are commonly insured (including fire,
extended coverage, property damage, workers' compensation, public
liability, flood and business interruption insurance) and against
other risks (including errors and omissions) in such amounts as
similar properties and assets are insured by prudent companies in
similar circumstances carrying on similar businesses, and with
reputable and financially sound insurers, including self-insurance
to the extent customary.
7.1.4. Maintenance of Properties and Leases.
Each Loan Party shall maintain in good repair,
working order and condition (ordinary wear and tear excepted) in
accordance with the general practice of other businesses of
similar character and size, all of those properties necessary to
its business, and from time to time, such Loan Party will make or
cause to be made all appropriate repairs, renewals or replacements
thereof.
7.1.5. Maintenance of Patents, Trademarks, Etc.
Each Loan Party shall maintain in full force and
effect all patents, trademarks, service marks, trade names,
copyrights, licenses, franchises, permits and other authorizations
necessary for the ownership and operation of its properties and
business if the failure so to maintain the same would constitute a
Material Adverse Change.
7.1.6. Visitation Rights.
Each Loan Party shall permit any of the officers
or authorized employees or representatives of the Agent or (at the
expense of such Bank) any of the Banks to visit and inspect any of
its properties and to examine and make excerpts from its books and
records and discuss its business affairs, finances and accounts
with its officers, all in such detail and at such times and as
often as any of the Banks may reasonably request, provided that
each Bank shall provide the Borrower and the Agent with reasonable
notice prior to any visit or inspection. In the event any Bank
desires to conduct an audit of any Loan Party, such Bank shall
make a reasonable effort to conduct such audit contemporaneously
with any audit to be performed by the Agent.
7.1.7. Keeping of Records and Books of Account.
The Loan Parties shall maintain and keep proper
books of record and account which enable Hovnanian and its
Subsidiaries to issue financial statements in accordance with GAAP
and as otherwise required by applicable Laws of any Official Body
having jurisdiction over Hovnanian or any Subsidiary of Hovnanian,
and in which full, true and correct entries shall be made in all
material respects of all its dealings and business and financial
affairs.
7.1.8. Plans and Benefit Arrangements.
The Loan Parties shall, and shall cause each
member of the ERISA Group that is a Subsidiary to, and shall use
its reasonable best efforts to cause each other member of the
ERISA Group to, comply with ERISA, the Internal Revenue Code and
other applicable Laws applicable to Plans and, as to the Borrower,
Benefit Arrangements, except where such failure, alone or in
conjunction with any other failure, would not result in a Material
Adverse Change. Without limiting the generality of the foregoing,
the Loan Parties shall cause all of their Plans and shall use
reasonable best efforts to cause all Plans maintained by any
member of the ERISA Group, to be funded in accordance with the
minimum funding requirements of ERISA and shall make, and cause
each Subsidiary to, and shall use its reasonable best efforts to
cause each member of the ERISA Group to make, in a timely manner,
all contributions due to Plans and Multiemployer Plans except
where such failure, alone or in conjunction with any other
failure, would not result in a Material Adverse Change.
7.1.9. Compliance with Laws.
Each Loan Party shall comply with all applicable
Laws, including all Environmental Laws, in all respects, provided
that it shall not be deemed to be a violation of this Section
7.1.9 if any failure to comply with any Law would not result in
fines, penalties, remediation costs, other similar liabilities or
injunctive relief which in the aggregate would constitute a
Material Adverse Change.
7.1.10. Use of Proceeds.
The Loan Parties will use the Letters of Credit
and the proceeds of the Loans only for general corporate purposes
and for working capital for the Borrower, Hovnanian and the
Restricted Subsidiaries.
7.1.11. Required Dividends of KHL.
The Loan Parties shall cause KHL to pay to
Hovnanian, at least annually, all net income of KHL.
7.2 Negative Covenants.
The Borrower and Hovnanian, jointly and severally,
covenant and agree that until payment in full of the Loans,
Reimbursement Obligations and Letter of Credit Borrowings and
interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations
hereunder and termination of the Commitments, they shall, and
shall cause the other Loan Parties to, comply with the following
negative covenants:
7.2.1. Indebtedness.
7.2.1.1 Each of the Loan Parties
shall not at any time create, incur, assume or suffer to exist any
secured indebtedness, except Indebtedness secured by Permitted
Liens.
7.2.1.2 KHL shall not incur
Indebtedness of any kind or suffer to exist any Lien on its
property or provide any Guaranty in respect of the Indebtedness or
other obligations of any Person, or become obligated to do so, and
no Loan Party shall allow any of the foregoing to occur.
7.2.1.3 The Loan Parties shall
not permit any Mortgage Subsidiary to incur or suffer to exist any
Indebtedness if, after giving effect thereto, the ratio of (x)
debt to (y) equity plus the amount of any loans or Guaranties
provided by Hovnanian of such Mortgage Subsidiary exceeds 12.0-to-
1.0.
7.2.2. Liens.
Each of the Loan Parties shall not at any time
create, incur, assume or suffer to exist any Lien on any of its
property or assets, tangible or intangible, now owned or hereafter
acquired, or agree or become liable to do so, except Permitted
Liens.
7.2.3. Loans and Investments.
Each of the Loan Parties shall not, at any time,
make or suffer to remain outstanding any Investment except
Permitted Investments and, to the extent permitted by Section
7.2.6 (Restricted Payments; Restricted Investments), Restricted
Investments.
7.2.4. Liquidations, Mergers, Consolidations,
Acquisitions.
Each of the Loan Parties shall not dissolve,
liquidate or wind-up its affairs, or become a party to any merger
or consolidation, or acquire by purchase, lease or otherwise all
or substantially all of the assets or capital stock of any other
Person, provided that
(1) any Loan Party other than the Borrower or
Hovnanian may consolidate or merge into another Loan Party (or any
Person that concurrently becomes a Loan Party) which is wholly-
owned by one or more of the other Loan Parties, and
(2) any Loan Party may consolidate or merge
with a Person who is not a Loan Party if the common stockholders
of Hovnanian prior to such transaction maintain at least 50% of
the voting control (direct or indirect) of the combined entity
after consummation of the transaction, and
(3) any Loan Party may acquire, whether by
purchase or by merger, (A) all or substantially all of the
ownership interests of another Person or (B) all or substantially
all of assets of another Person or of a business or division of
another Person (each, a "Permitted Acquisition"), provided that
each of the following requirements is met:
(i) if the Loan Parties are
acquiring the ownership interests in such Person, and such Person
is, or concurrently will be, designated a Restricted Subsidiary,
such Person shall execute a Guarantor Joinder and join this
Agreement as a Guarantor pursuant to Section 10.18 (Joinder of
Guarantors) and the Borrower shall have otherwise complied with
Section 2.11.4 (Designation of Restricted Subsidiary) on or before
the date of such Permitted Acquisition;
(ii) if such Person's shares are
registered as "public" shares under applicable law, the board of
directors or other equivalent governing body of such Person shall
have approved such Permitted Acquisition;
(iii) the business acquired, or the
business conducted by the Person whose ownership interests are
being acquired, as applicable, shall comply with Section 7.2.8
(Continuation of or Change in Business); and
(iv) no Potential Default or Event
of Default shall exist immediately prior to and after giving
effect to such Permitted Acquisition.
(4) the Loan Parties may make, whether by
purchase or merger or otherwise, Permitted Investments and, to the
extent permitted by Section 7.2.6 [Restricted Investments and
Restricted Payments], Restricted Investments and Restricted
Payments;
(5) the Loan Parties may liquidate or wind-up
Restricted Subsidiaries of Hovnanian which are not individually
material to Hovnanian, the Borrower or to the Loan Parties taken
as a whole; provided that the Loan Parties shall satisfy the
requirements of Section 2.11 [Designation of Subsidiaries and
Release of Guarantors], to the extent applicable;
(6) the Loan Parties may effectuate any sale
permitted by Section 7.2.5 as a merger or consolidation; and
(7) for the avoidance of doubt, any Loan Party
may effect or allow the liquidation or winding-up of any Non-
Restricted Person.
7.2.5. Dispositions of Assets or Subsidiaries;
Sale and Leaseback.
7.2.5.1 Each of the Loan Parties
shall not sell, convey, assign, lease, abandon or otherwise
transfer or dispose of, voluntarily or involuntarily, any of its
properties or assets, tangible or intangible (including sale,
assignment, discount or other disposition of accounts, contract
rights, chattel paper, equipment or general intangibles with or
without recourse or of capital stock, shares of beneficial
interest, partnership interests or limited liability company
interests of a Subsidiary of such Loan Party, but excluding
Investments in Non-Restricted Persons), except:
(i) any sale, transfer or lease of
assets in the ordinary course of business which are no longer
necessary or required in the conduct of such Loan Party's
business;
(ii) any sale, transfer or lease of
assets to a Loan Party;
(iii) any sale, transfer or lease of
assets in the ordinary course of business which are replaced by
substitute assets acquired not in violation of this Agreement; or
(iv) any sale and leaseback
permitted by Section 7.2.5.2.
7.2.5.2 The Loan Parties shall
not, directly or indirectly, sell, transfer or otherwise dispose
of real and/or personal property with a view directly or
indirectly to the leasing back of the same or of any similar
property except for (i) sales and leasebacks of sample model homes
and their contents; (ii) sales and leasebacks of any office
buildings and their contents, or (iii) sales and leasebacks in the
normal course of business.
7.2.6. Restricted Payments; Restricted Investments.
7.2.6.1 The Loan Parties shall not pay
or make Restricted Payments or Restricted Investments from and
after January 31, 2001 which exceed in the aggregate the sum of:
(i) $45,000,000;
(ii) 50% of net income of Hovnanian
(calculated and consolidated in accordance with GAAP) for all
fiscal quarters commencing on February 1, 2001 and thereafter; and
(iii) 50% of the proceeds (less
costs of issuance) of any issuance or sale of equity of Hovnanian
to any Person other than a Loan Party during all fiscal quarters
commencing on February 1, 2001 and thereafter.
7.2.6.2 Each of the Loan Parties shall
not enter into or carry out any transaction with any Affiliate
(including purchasing property or services from or selling
property or services to any Affiliate of any Loan Party or other
Person but excluding transactions between Loan Parties) unless
such transaction is not otherwise prohibited by this Agreement, is
entered into in the ordinary course of business upon fair and
reasonable arm's-length terms and is in accordance with all
applicable Law. Without limiting the foregoing, the aggregate
amount of all Indebtedness for owed or borrowed money owing to any
Loan Party by any officer or director, or relative thereof, shall
not exceed $4,000,000 in the aggregate owing at any one time and
all such Indebtedness shall bear interest at a rate not less than
the coupon rate on six month U.S. Treasury bills as of the date
such Indebtedness is incurred.
7.2.6.3 The Loan Parties shall not pay
or make (i) any Restricted Payment in respect of Dividends and
Capital Stock Retirement during the period commencing on February
1, 2001 which, in the aggregate, exceed an amount equal to (x)
$25,000,000 plus (y) 50% of Hovnanian's consolidated net income
(calculated and consolidated in accordance with GAAP) generated
after January 31, 2002 or (ii) any Restricted Payment in respect
of the Subordinated Debt in excess of $25,000,000 in the aggregate
after January 31, 2001.
7.2.7. Subsidiaries, Partnerships and Joint
Ventures.
Each of the Loan Parties shall not own or create
directly or indirectly any Subsidiaries other than (i) any
Subsidiary which has executed the Guaranty Agreement as Guarantor
on the Closing Date, (ii) KHL, (iii) any Subsidiary formed or
acquired after the Closing Date which joins the Guaranty Agreement
as a Guarantor pursuant to Section 10.18 (Joinder of Guarantors)
or (iv) any Non-Restricted Person.
7.2.8. Continuation of or Change in Business.
Each of the Loan Parties shall not engage in any
business other than the homebuilding business or Existing Related
Businesses.
7.2.9. Plans and Benefit Arrangements.
Each of the Loan Parties shall not engage in a
Prohibited Transaction with any Plan, Benefit Arrangement or
Multiemployer Plan which, alone or in conjunction with any other
circumstances or set of circumstances, results in liability under
ERISA, except where the liability that could reasonably be
expected to result therefrom would not result in a Material
Adverse Change.
7.2.10. Borrowing Base.
The Loan Parties shall not permit Senior
Homebuilding Indebtedness minus the face amount of outstanding
letters of credit (whether "Letters of Credit" or not) in respect
of which a Loan Party is obligated and which is issued to guaranty
or assure the installation of site improvements on (or appurtenant
to) land owned by a Loan Party to exceed at any time the Borrowing
Base. Pursuant thereto, the Borrower shall make (or cause to be
made), on the Business Day following the date on which any such
excess is calculated, payments of principal of Senior Homebuilding
Indebtedness sufficient to reduce to zero ($0) on such date any
such excess.
7.2.11. Minimum ATNW.
The Loan Parties shall not permit Adjusted
Tangible Net Worth to be less than the sum of: (i)$272,710,000 and
(ii) 50% of Hovnanian's consolidated net income (calculated and
consolidated in accordance with GAAP) for each fiscal quarter
commencing on February 1, 2002 and thereafter in which net income
was earned (as opposed to a net loss) and (iii) 50% of the
proceeds (less costs of issuance) of any issuance or sale of
equity of Hovnanian to any Person other than a Loan Party during
each fiscal quarter commencing on February 1, 2001 and thereafter.
7.2.12. Leverage Ratio.
(a) The Loan Parties shall not permit
Actual Leverage to exceed 2.20-to-1.0 in any two (2) consecutive
fiscal quarters in which the Fixed Charge Coverage Ratio is less
than 1.5-to-1.0; and
(b) The Loan Parties shall not permit
Actual Leverage to exceed the Total Debt Multiplier.
7.2.13. Inventory and Land Purchase Limits.
7.2.13.1 The Loan Parties shall
not permit:
(i) The Dollar value of Unimproved
Land to exceed twenty percent (20%) of the sum of Adjusted
Tangible Net Worth and the principal amount of the Subordinated
Debt, as calculated as of the end of each fiscal quarter;
(ii) The Dollar value of Finished
Lots and Land under Development plus Unimproved Land to exceed the
sum of Adjusted Tangible Net Worth and the principal amount of the
Subordinated Debt, as calculated as of the end of each fiscal
quarter; or
(iii) The number of Unsold Dwelling
Units existing as of the end of any fiscal quarter to exceed 25%
of the number of Dwelling Units conveyed by any Person who is a
Loan Party on the date of determination or any Person that was
acquired and merged or consolidated with and into a Person who is
a Loan Party on the date of determination to third party
purchasers within the previous twelve (12) months.
7.2.13.2 If the Fixed Charge
Coverage Ratio is less than 1.0-to-1.0 and the Cash Flow Coverage
Ratio is less than 1.1-to-1.0 for two (2) consecutive fiscal
quarters (referred to herein as the "prior two quarters"), then,
during the fiscal quarter following the prior two quarters, the
Loan Parties shall not purchase land (whether Unimproved Land or
otherwise) in amounts which exceed in such quarter the lesser of:
(x) the total land portion of "cost of
sales" as reflected in the financial statements delivered pursuant
to Section 7.3 [Reporting Requirements] for sales by the Loan
Parties to third party purchasers in arm's length transactions
during the immediately preceding fiscal quarter; and
(y) fifty percent (50%) of the total
land portion of "cost of sales" as reflected in the financial
statements delivered pursuant to Section 7.3 (Reporting
Requirements) for the average quarterly sales by the Loan Parties
to third party purchasers in arm's length transactions during the
preceding four (4) fiscal quarters.
7.2.14. Fiscal Year.
The Loan Parties shall not change their fiscal
year from the twelve-month period ending October 31.
7.2.15. Changes in Subordinated Debt Documents.
The Loan Parties shall not amend or modify any
provisions of the documents relating to the Subordinated Debt
without providing at least ten (10) calendar days' prior written
notice to the Agent and the Banks, and, if the same would
adversely affect the interests of the Agent and the Banks,
obtaining the prior written consent of the Required Banks. No
Loan Party shall directly or indirectly make any payment on the
Subordinated Debt which would violate the provisions of any
applicable subordination agreement or provision. Neither the
Senior Notes nor the Subordinated Debt shall become secured.
7.3 Reporting Requirements.
The Borrower and Hovnanian, jointly and severally,
covenant and agree that until payment in full of the Loans,
Reimbursement Obligations and Letter of Credit Borrowings and
interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations
hereunder and under the other Loan Documents and termination of
the Commitments, they shall, and shall cause the other Loan
Parties to, furnish or cause to be furnished to the Agent and each
of the Banks:
7.3.1. Quarterly Financial Statements.
As soon as available and in any event within
fifty-five (55) calendar days after the end of each of the first
three fiscal quarters in each fiscal year of Hovnanian, financial
statements of Hovnanian, consisting of a consolidated and
consolidating balance sheet as of the end of such fiscal quarter
and related consolidated and consolidating statements of income,
stockholders' equity and cash flows for the fiscal quarter then
ended and the fiscal year through that date, all in reasonable
detail and certified (subject to normal year-end audit
adjustments) by the Chief Executive Officer, President, Treasurer
or Chief Financial Officer or principal accounting officer of
Hovnanian as having been prepared in accordance with GAAP,
consistently applied, and setting forth in comparative form the
respective financial statements for the corresponding date and
period in the previous fiscal year. The Loan Parties will be
deemed to have complied with the delivery requirements of this
Section 7.3.1 if within fifty-five (55) days after the end of
their fiscal quarter, the Borrower delivers to the Agent and each
of the Banks a copy of Hovnanian's Form 10-Q as filed with the SEC
and the financial statements contained therein meets the
requirements described in this Section 7.3.1.
7.3.2. Annual Financial Statements.
As soon as available and in any event within
ninety (90) days after the end of each fiscal year of Hovnanian,
financial statements of Hovnanian consisting of a consolidated
balance sheet as of the end of such fiscal year, and related
consolidated statements of income, stockholders' equity and cash
flows for the fiscal year then ended, all in reasonable detail and
setting forth in comparative form the financial statements as of
the end of and for the preceding fiscal year, and certified by
independent certified public accountants of nationally recognized
standing satisfactory to the Agent. The certificate or report of
accountants shall be free of qualifications (other than any
consistency qualification that may result from a change in the
method used to prepare the financial statements as to which such
accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would
materially impair the prospect of payment or performance of any
covenant, agreement or duty of any Loan Party under any of the
Loan Documents or cause or constitute an Event of Default. The
Loan Parties will be deemed to have complied with the delivery
requirements of this Section 7.3.2 if within ninety (90) days
after the end of Hovnanian's fiscal year, the Borrower delivers to
the Agent and each of the Banks a copy of Hovnanian's Annual
Report and Form 10-K as filed with the SEC and the financial
statements and separately delivers the above-referenced
certification of public accountants.
7.3.3. Certificates of the Borrower.
7.3.3.1 Compliance Certificate.
Concurrently with the financial statements of Hovnanian furnished
to the Agent and to the Banks pursuant to Sections 7.3.1
(Quarterly Financial Statements) and 7.3.2 (Annual Financial
Statements):
(a) a certificate of the Borrower signed
by the Chief Executive Officer, President, Treasurer or Chief
Financial Officer or principal accounting officer of the Borrower,
in the form of Exhibit 7.3.3.1, to the effect that, except as
described pursuant to Section 7.3.3.2 (Borrowing Base
Certificate), (i)the representations and warranties of the
Borrower contained in Section 5.1 (Representations and Warranties)
and in the other Loan Documents are true and correct in all
material respects on and as of the date of such certificate with
the same effect as though such representations and warranties had
been made on and as of such date (except representations and
warranties which expressly relate solely to an earlier date or
time), (ii)no Event of Default or Potential Default exists and is
continuing on the date of such certificate and (iii)containing
calculations in sufficient detail to demonstrate compliance as of
the date of such financial statements with all financial covenants
contained in Section 7.2 (Negative Covenants).
(b) summary consolidated and
consolidating financial statements for each of (i) the Mortgage
Subsidiaries as a group; (ii) the Non-Restricted Persons as a
group and (iii) the Borrower, Hovnanian and the Restricted
Subsidiaries as a group;
(c) summary financial statements for
each Joint Venture in which any Loan Party has a Subsidiary
Investment greater than an amount equal to 2% of Adjusted Tangible
Net Worth as of the last day of the previous fiscal quarter of
Hovnanian; and
(d) to the extent not previously
disclosed in writing to the Agent and the Banks, a report of any
changes to Schedule 1.1(C) including changes arising under Section
2.11 (Designation of Subsidiaries and Release of Guarantors).
7.3.3.2 Borrowing Base Certificate.
As soon as available, but not later than fifty-
five (55) days after the end of each month, a Borrowing Base
Certificate as of the end of such month, appropriately completed,
executed and delivered by an Authorized Officer, together with a
certificate of the Borrower signed by the Chief Executive Officer,
President, Treasurer or Chief Financial Officer or principal
accounting officer of the Borrower, in the form of Exhibit
7.3.3.2, to the effect that, except as described pursuant to
Section 7.3.4 (Notice of Default), no Event of Default or
Potential Default exists and is continuing on the date of such
Borrowing Base Certificate.
7.3.4. Notice of Default.
Promptly after any officer of any Loan Party has
learned of the occurrence of an Event of Default or Potential
Default, a certificate signed by the Chief Executive Officer,
President or Chief Financial Officer or principal accounting
officer of such Loan Party setting forth the details of such Event
of Default or Potential Default and the action which such Loan
Party proposes to take with respect thereto.
7.3.5. Notice of Litigation.
Promptly after the commencement thereof, notice
of all actions, suits, proceedings or investigations before or by
any Official Body or any other Person against any Loan Party that
involve a claim or series of claims in excess of $1,000,000 or
which could reasonably be expected to constitute a Material
Adverse Change.
7.3.6. Notice of Change in Debt Rating.
Within two (2) Business Days after Standard &
Poor's or Moody's announces a change in Hovnanian's Debt Rating,
notice of such change. Hovnanian will deliver together with such
notice a copy of any written notification which Hovnanian received
from the applicable rating agency regarding such change of Debt
Rating.
7.3.7. Budgets, Forecasts, Other Reports and
Information.
Promptly upon their becoming available to any
Loan Party:
(i) any reports, notices or proxy
statements generally distributed by Hovnanian to its stockholders,
(ii) regular or periodic reports,
including Forms 10-K, 10-Q and 8-K, registration statements and
prospectuses, filed by Hovnanian with the SEC, and
(iii) such other reports and
information as any of the Banks may from time to time reasonably
request. The Loan Parties shall also notify the Banks promptly of
the enactment or adoption of any Law which could reasonably be
expected to constitute a Material Adverse Change.
7.3.8. Notices Regarding Plans and Benefit
Arrangements.
7.3.8.1 Certain Events.
Promptly after learning of the occurrence
thereof, notice (including the nature of the event and, when
known, any action taken or threatened by the Internal Revenue
Service or the PBGC with respect thereto) of any of the following
events, or services of such events, if, individually or in the
aggregate, any liabilities or penalties resulting from such
event(s) could reasonably be expected to result in a Material
Adverse Change:
(i) any Reportable Event with
respect to any Plan,
(ii) any Prohibited Transaction
which could subject any Loan Party or any other member of the
ERISA Group to a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the Internal Revenue
Code in connection with any Plan, any Benefit Arrangement or any
trust created thereunder,
(iii) any withdrawal from a
Multiemployer Plan by the Borrower or any other member of the
ERISA Group under Title IV of ERISA or assertion by a
Multiemployer Plan that such a withdrawal has occurred
(iv) any cessation of operations
(by any Loan Party or any other member of the ERISA Group) at a
facility in the circumstances described in Section 4062(e) of
ERISA,
(v) withdrawal by any Loan Party
or any other member of the ERISA Group from a Plan in the
circumstances described in Section 4063 of ERISA or the
termination of such Plan in the circumstances described in Section
4064 of ERISA,
(vi) a failure to make any required
contribution to a Plan or the creation of any Lien in favor of the
PBGC or a Plan,
(vii) the adoption of an amendment
to a Plan requiring the provision of security to such Plan
pursuant to Section 307 of ERISA, or
(viii) the distress termination
of a Plan, under Title IV of ERISA, which has insufficient assets
to pay all liabilities.
7.3.8.2 Notices of Involuntary
Termination and Annual Reports.
Promptly after receipt thereof, copies of (a)all
notices received by any Loan Party or any other member of the
ERISA Group of the PBGC's intent to terminate any Plan
administered or maintained by the Borrower or any member of the
ERISA Group, or to have a trustee appointed to administer any such
Plan; and (b)at the request of the Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the
most recent actuarial reports, the most recent financial
information concerning the financial status of each Plan
administered or maintained by any Loan Party or any other member
of the ERISA Group, and schedules showing the amounts contributed
to each such Plan by or on behalf of the Borrower or any other
member of the ERISA Group in which any of their personnel
participate or from which such personnel may derive a benefit, and
each Schedule B (Actuarial Information) to the annual report filed
by any Loan Party or any other member of the ERISA Group with the
Internal Revenue Service with respect to each such Plan.
7.3.8.3 Notice of Voluntary
Termination.
Where a termination of any Plan would result in a
Material Adverse Change, promptly upon the filing thereof, copies
of any Form 5310, or any successor or equivalent form to Form
5310, filed with the PBGC in connection with the termination of
any Plan.
..
8. DEFAULT
8.1 Events of Default.
An Event of Default shall mean the occurrence or
existence of any one or more of the following events or conditions
(whatever the reason therefor and whether voluntary, involuntary
or effected by operation of Law):
8.1.1. Payments Under Loan Documents.
The Borrower shall fail to pay (i)any principal
of any Loan (including scheduled installments, mandatory
prepayments or the payment due at maturity), Reimbursement
Obligation or Letter of Credit Borrowing when such principal is
due hereunder or (ii)any interest on any Loan, Reimbursement
Obligation or Letter of Credit Borrowing or any other amount owing
hereunder or under the other Loan Documents within three (3)
Business Days after such interest or other amount becomes due in
accordance with the terms hereof or thereof;
8.1.2. Breach of Warranty.
Any representation or warranty made at any time
by any of the Loan Parties herein or by any of the Loan Parties in
any other Loan Document, or in any certificate, other instrument
or statement furnished pursuant to the provisions hereof or
thereof, shall prove to have been false or misleading in any
material respect as of the time it was made or furnished;
8.1.3. Breach of Certain Negative Covenants.
Any of the Loan Parties shall default in the
observance or performance of any covenant contained in Sections
7.2.10 (Borrower Base), 7.2.11 (Minimum ATNW), 7.2.12 (Leverage
Ratio) or 7.2.13 (Inventory and Land Purchase Limits);
8.1.4. Breach of Other Covenants.
Any of the Loan Parties shall default in the
observance or performance of any other covenant, condition or
provision hereof or of any other Loan Document and such default
shall continue unremedied for a period of thirty (30) Business
Days after notice to the Borrower from the Agent;
8.1.5. Defaults in Other Agreements or
Indebtedness.
A default or event of default shall occur at any
time under the terms of any other agreement involving borrowed
money or the extension of credit or any other Indebtedness under
which any Loan Party may be obligated as a borrower or guarantor
in excess of $1,000,000 in the aggregate, and such breach, default
or event of default consists of the failure to pay (beyond any
period of grace permitted with respect thereto, whether waived or
not) any Indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or if such breach or default permits or
causes the acceleration of any Indebtedness (whether or not such
right shall have been waived) or the termination of any commitment
to lend;
8.1.6. Final Judgments or Orders.
Any final judgments or orders for the payment of
money in excess of $1,000,000 in the aggregate shall be entered
against any Loan Party by a court having jurisdiction, which
judgment is not discharged, vacated, bonded or stayed pending
appeal within a period of thirty (30) days from the date of entry;
8.1.7. Loan Document Unenforceable.
Any of the Loan Documents shall cease to be
legal, valid and binding agreements enforceable against the party
executing the same or such party's successors and assigns (as
permitted under the Loan Documents) in accordance with the
respective terms thereof or shall in any way be terminated (except
in accordance with its terms or as permitted under the Loan
Documents) or become or be declared ineffective or inoperative or
shall in any way be challenged or contested or cease to give or
provide the respective Liens, security interests, rights, titles,
interests, remedies, powers or privileges intended to be created
thereby;
8.1.8. Uninsured Losses; Proceedings Against
Assets.
Any of the Loan Parties' assets are attached,
seized, levied upon or subjected to a writ or distress warrant; or
such come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is
not cured within thirty (30) days thereafter and any of the
foregoing could reasonably be expected to constitute a Material
Adverse Change;
8.1.9. Notice of Lien or Assessment.
A notice of Lien or assessment in excess of
$1,000,000 which is not a Permitted Lien is filed of record with
respect to all or any part of any of the Loan Parties' assets by
the United States, or any department, agency or instrumentality
thereof, or by any state, county, municipal or other governmental
agency, including the PBGC, or any taxes or debts owing at any
time or times hereafter to any one of these becomes payable and
the same is not paid within thirty (30) days after the same
becomes payable;
8.1.10. Insolvency.
Any of (i) Hovnanian, (ii) the Borrower or (iii)
Restricted Subsidiaries owning as of the date of any event
described in this Section 8.1.10 three percent (3%) or more of the
Dollar value of all of the assets of all of the Subsidiaries of
Hovnanian taken as a whole ceases to be solvent or admits in
writing its inability to pay its debts as they mature;
8.1.11. Events Relating to Plans and Benefit
Arrangements.
Any of the following occurs: (i)any Reportable
Event with respect to a Plan, which the Agent reasonably
determines in good faith constitutes grounds for the termination
of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be
continuing; (ii)proceedings shall have been instituted or other
action taken to terminate any Plan, or a termination notice shall
have been filed with respect to any Plan; (iii)a trustee shall be
appointed to administer or liquidate any Plan; (iv)the PBGC shall
give notice of its intent to institute proceedings to terminate
any Plan or Plans or to appoint a trustee to administer or
liquidate any Plan; and, in the case of the occurrence of (i),
(ii), (iii) or (iv) above, the Agent reasonably determines in good
faith that the amount of any Loan Party's liability is likely to
exceed 10% of its Consolidated Tangible Net Worth; (v)any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA) shall exist with respect to any Plan, or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the Borrower or
any other member of the ERISA Group, (vi)any Loan Party or any
other member of the ERISA Group shall make any amendment to a Plan
with respect to which security is required under Section 307 of
ERISA; (vii)any Loan Party or any other member of the ERISA Group
shall incur any liability in connection with a withdrawal from a
Multiemployer Plan; (viii)any Loan Party or any other member of
the ERISA Group shall withdraw under Section 4063 of ERISA (or
shall be deemed under Section 4062(e) of ERISA to withdraw) from a
Plan; or (ix)any applicable Law is adopted, changed or interpreted
by any Official Body with respect to or otherwise affecting one or
more Plans, Multiemployer Plans or Benefit Arrangements and, with
respect to any of the events specified in (v), (vi), (vii), (viii)
or (ix), the Agent reasonably determines in good faith that any
such occurrence, together with all other such events, would be
reasonably likely to result in a Material Adverse Change;
8.1.12. Cessation of Business.
Any Loan Party ceases to conduct its business as
contemplated, except as expressly permitted under Section 7.2.4
(Liquidations, Mergers, Consolidations, Acquisitions) or Section
7.2.5 (Dispositions of Assets or Subsidiaries; Sale and
Leaseback), or any Loan Party is enjoined, restrained or in any
way prevented by court order from conducting all or any material
part of its business and such injunction, restraint or other
preventive order is not dismissed within thirty (30) days after
the entry thereof and any of the foregoing could reasonably be
expected to constitute a Material Adverse Change;
8.1.13. Change of Control.
(i) Any person or group of persons
(within the meaning of Sections 13(d) or 14(a) of the Securities
Exchange Act of 1934, as amended) shall have acquired beneficial
ownership of (within the meaning of Rule 13d-3 promulgated by the
SEC under said Act) 40% or more of the voting capital stock of
Hovnanian; or (ii)within a period of twelve (12) consecutive
calendar months, individuals who were directors of the Borrower on
the first day of such period, or who were nominated by a majority
of such directors, shall cease to constitute a majority of the
board of directors of the Borrower;
8.1.14. Involuntary Proceedings.
A proceeding shall have been instituted in a
court having jurisdiction seeking a decree or order for relief in
respect of any of (i) Hovnanian, (ii) the Borrower or (iii)
Restricted Subsidiaries owning as of the date of any event
described in this Section 8.1.14 three percent (3%) or more of the
Dollar value of all of the assets of all of the Subsidiaries of
Hovnanian taken as a whole in an involuntary case under any
applicable bankruptcy, insolvency, reorganization or other similar
law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator,
conservator (or similar official) of any Loan Party for any
substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of sixty (60)
consecutive days or such court shall enter a decree or order
granting any of the relief sought in such proceeding; or
8.1.15. Voluntary Proceedings.
Any of (i) Hovnanian, (ii) the Borrower or (iii)
Restricted Subsidiaries owning as of the date of any event
described in this Section 8.1.15 three percent (3%) or more of the
Dollar value of all of the assets of all of the Subsidiaries of
Hovnanian taken as a whole shall commence a voluntary case under
any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, shall consent to the entry
of an order for relief in an involuntary case under any such law,
or shall consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator,
conservator (or other similar official) of itself or for any
substantial part of its property or shall make a general
assignment for the benefit of creditors, or shall fail generally
to pay its debts as they become due, or shall take any action in
furtherance of any of the foregoing.
8.2 Consequences of Event of Default.
8.2.1. Events of Default Other Than Bankruptcy,
Insolvency or Reorganization Proceedings.
If an Event of Default specified under Sections
8.1.1 (Payments Under Loan Documents) through 8.1.13 (Change of
Control) shall occur and be continuing, the Banks and the Agent
shall be under no further obligation to make Loans or issue
Letters of Credit, as the case may be, and the Agent may, and upon
the request of the Required Banks, shall (i)by written notice to
the Borrower, declare the unpaid principal amount of the Loan then
outstanding and all interest accrued thereon, any unpaid fees and
all other Indebtedness of the Borrower to the Banks hereunder and
thereunder to be forthwith due and payable, and the same shall
thereupon become and be immediately due and payable to the Agent
for the benefit of each Bank without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly
waived, and (ii)require the Borrower to, and the Borrower shall
thereupon, deposit in an interest-bearing account with the Agent,
as cash collateral for its Obligations under the Loan Documents,
an amount equal to the maximum amount currently or at any time
thereafter available to be drawn on all outstanding Letters of
Credit, and the Borrower hereby pledges to the Agent and the
Banks, and grants to the Agent and the Banks a security interest
in, all such cash as security for such Obligations. Upon the
curing of all existing Events of Default, the Agent shall return
such cash collateral to the Borrower; and
8.2.2. Bankruptcy, Insolvency or Reorganization
Proceedings.
If an Event of Default specified under Section
8.1.14 (Involuntary Proceedings) or 8.1.15 (Voluntary Proceedings)
shall occur, the Banks shall be under no further obligations to
make Loans or issue Letters of Credit hereunder and the unpaid
principal amount of the Loans then outstanding and all interest
accrued thereon, any unpaid fees and all other Indebtedness of the
Borrower to the Banks hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived;
and
8.2.3. Set-off.
If an Event of Default shall occur and be
continuing, any Bank to whom any Obligation is owed by any Loan
Party hereunder or under any other Loan Document or any
participant of such Bank which has agreed in writing to be bound
by the provisions of Section 9.13 (Equalization of Banks) and any
branch, Subsidiary or Affiliate of such Bank or participant
anywhere in the world shall have the right, in addition to all
other rights and remedies available to it, without notice to such
Loan Party, to set-off against and apply to the then unpaid
balance of all past-due Loans and all other past-due Obligations
of the Borrower and the other Loan Parties hereunder or under any
other Loan Document any debt owing to, and any other funds held in
any manner for the account of, the Borrower or such other Loan
Party by such Bank or participant or by such branch, Subsidiary or
Affiliate, including all funds in all deposit accounts (whether
time or demand, general or special, provisionally credited or
finally credited, or otherwise) now or hereafter maintained by the
Borrower or such other Loan Party for its own account (but not
including funds held in custodian or trust accounts) with such
Bank or participant or such branch, Subsidiary or Affiliate; and
8.2.4. Suits, Actions, Proceedings.
If an Event of Default shall occur and be
continuing, and whether or not the Agent shall have accelerated
the maturity of Loans pursuant to any of the foregoing provisions
of this Section 8.2 (Consequences of Event of Default), the Agent
or any Bank, if owed any amount with respect to the Loans, may
proceed to protect and enforce its rights by suit in equity,
action at law and/or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in
this Agreement or the other Loan Documents, including as permitted
by applicable Law the obtaining of the ex parte appointment of a
receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof
or any other legal or equitable right of the Agent or such Bank;
and
8.2.5. Application of Proceeds.
From and after the date on which the Agent has
taken any action pursuant to this Section 8.2 (Consequences of
Event of Default) and until all Obligations of the Loan Parties
have been paid in full, any and all proceeds received by the Agent
from the exercise of any remedy by the Agent, shall be applied as
follows:
(i) first, to reimburse the Agent
and the Banks for out-of-pocket costs, expenses and disbursements,
including reasonable attorneys' and paralegals' fees and legal
expenses, incurred by the Agent or the Banks in connection with
collection of any Obligations of any of the Loan Parties under any
of the Loan Documents;
(ii) second, to the repayment of
all Indebtedness then due and unpaid of the Loan Parties to the
Banks incurred under this Agreement or any of the other Loan
Documents, whether of principal, interest, fees, expenses or
otherwise, in such manner as the Agent may determine in its
discretion; and
(iii) the balance, if any, as
required by Law.
8.2.6. Other Rights and Remedies.
In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents,
the Agent shall have all of the rights and remedies under
applicable Law, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by Law. The
Agent may, and upon the request of the Required Banks shall,
exercise all post-default rights granted to the Agent and the
Banks under the Loan Documents or applicable Law.
9. THE AGENT
9.1 Appointment.
Each Bank hereby irrevocably designates, appoints and
authorizes PNC Bank to act as Agent for such Bank under this
Agreement and to execute and deliver or accept on behalf of each
of the Banks the other Loan Documents. Each Bank hereby
irrevocably authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and the other Loan
Documents and any other instruments and agreements referred to
herein, and to exercise such powers and to perform such duties
hereunder as are specifically delegated to or required of the
Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. PNC Bank agrees to act as the
Agent on behalf of the Banks to the extent provided in this
Agreement.
9.2 Delegation of Duties.
The Agent may perform any of its duties hereunder by
or through agents or employees (provided such delegation does not
constitute a relinquishment of its duties as Agent) and, subject
to Sections 9.5 (Reimbursement and Indemnification of Agent by the
Borrower) and 9.6 (Exculpatory Provisions; Limitation of
Liability), shall be entitled to engage and pay for the advice or
services of any attorneys, accountants or other experts concerning
all matters pertaining to its duties hereunder and to rely upon
any advice so obtained.
9.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and no implied
covenants, functions, responsibilities, duties, obligations, or
liabilities shall be read into this Agreement or otherwise exist.
The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and
nothing in this Agreement, expressed or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations
in respect of this Agreement except as expressly set forth herein.
Without limiting the generality of the foregoing, the use of the
term "agent" in this Agreement with reference to the Agent is not
intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable Law.
Instead, such term is used merely as a matter of market custom,
and is intended to create or reflect only an administrative
relationship between independent contracting parties. Each Bank
expressly acknowledges (i)that the Agent has not made any
representations or warranties to it and that no act by the Agent
hereafter taken, including any review of the affairs of any of the
Loan Parties, shall be deemed to constitute any representation or
warranty by the Agent to any Bank; (ii)that it has made and will
continue to make, without reliance upon the Agent, its own
independent investigation of the financial condition and affairs
and its own appraisal of the creditworthiness of each of the Loan
Parties in connection with this Agreement and the making and
continuance of the Loans hereunder; and (iii)except as expressly
provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to
provide any Bank with any credit or other information with respect
thereto, whether coming into its possession before the making of
any Loan or at any time or times thereafter.
9.4 Actions in Discretion of Agent; Instructions From the
Banks.
The Agent agrees, upon the written request of the
Required Banks, to take or refrain from taking any action of the
type specified as being within the Agent's rights, powers or
discretion herein, provided that the Agent shall not be required
to take any action which exposes the Agent to personal liability
or which is contrary to this Agreement or any other Loan Document
or applicable Law. In the absence of a request by the Required
Banks, the Agent shall have authority, in its sole discretion, to
take or not to take any such action, unless this Agreement
specifically requires the consent of the Required Banks or all of
the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject
to Section 9.6 (Exculpatory Provisions; Limitation of Liability).
Subject to the provisions of Section 9.6 (Exculpatory Provisions;
Limitation of Liability), no Bank shall have any right of action
whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the
instructions of the Required Banks, or in the absence of such
instructions, in the absolute discretion of the Agent.
9.5 Reimbursement and Indemnification of Agent by the
Borrower.
The Borrower unconditionally agrees to pay or
reimburse the Agent and hold the Agent harmless against
(a)liability for the payment of all reasonable out-of-pocket
costs, expenses and disbursements, including fees and expenses of
counsel (including the allocated costs of staff counsel), incurred
by the Agent (i)in connection with the development, negotiation,
preparation, printing, execution, administration, syndication,
interpretation and performance of this Agreement and the other
Loan Documents, (ii)relating to any requested amendments, waivers
or consents pursuant to the provisions hereof, (iii)in connection
with the enforcement of this Agreement or any other Loan Document
or collection of amounts due hereunder or thereunder or the proof
and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (iv)in any workout or restructuring
or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder
or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings, and (b)all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted
against the Agent, in its capacity as such, in any way relating to
or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Agent hereunder or thereunder,
provided that the Borrower shall not be liable for any portion of
such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements if the
same results from the Agent's gross negligence or willful
misconduct, or if the Borrower was not given notice of the subject
claim and the opportunity to participate in the defense thereof,
at its expense (except that the Borrower shall remain liable to
the extent such failure to give notice does not result in a loss
to the Borrower), or if the same results from a compromise or
settlement agreement entered into without the consent of the
Borrower, which shall not be unreasonably withheld. In addition,
after the occurrence and during the continuance of an Event of
Default, the Borrower agrees to reimburse and pay all reasonable
out-of-pocket expenses of the Agent's regular employees and agents
engaged periodically to perform audits of the Loan Parties' books,
records and business properties.
9.6 Exculpatory Provisions; Limitation of Liability.
Neither the Agent nor any of its directors, officers,
employees, agents, attorneys or Affiliates shall (a)be liable to
any Bank for any action taken or omitted to be taken by it or them
hereunder, or in connection herewith including pursuant to any
Loan Document, unless caused by its or their own gross negligence
or willful misconduct, (b)be responsible in any manner to any of
the Banks for the effectiveness, enforceability, genuineness,
validity or the due execution of this Agreement or any other Loan
Documents or for any recital, representation, warranty, document,
certificate, report or statement herein or made or furnished under
or in connection with this Agreement or any other Loan Documents,
or (c)be under any obligation to any of the Banks to ascertain or
to inquire as to the performance or observance of any of the
terms, covenants or conditions hereof or thereof on the part of
the Loan Parties, or the financial condition of the Loan Parties,
or the existence or possible existence of any Event of Default or
Potential Default. No claim may be made by any of the Loan
Parties, any Bank, the Agent or any of their respective
Subsidiaries against the Agent, any Bank or any of their
respective directors, officers, employees, agents, attorneys or
Affiliates, or any of them, for any special, indirect or
consequential damages or, to the fullest extent permitted by Law,
for any punitive damages in respect of any claim or cause of
action (whether based on contract, tort, statutory liability, or
any other ground) based on, arising out of or related to any Loan
Document or the transactions contemplated hereby or any act,
omission or event occurring in connection therewith, including the
negotiation, documentation, administration or collection of the
Loans, and each of the Loan Parties (for itself and on behalf of
each of its Subsidiaries), the Agent and each Bank hereby waive,
release and agree never to sue upon any claim for any such
damages, whether such claim now exists or hereafter arises and
whether or not it is now known or suspected to exist in its favor.
Each Bank agrees that, except for notices, reports and other
documents expressly required to be furnished to the Banks by the
Agent hereunder or given to the Agent for the account of or with
copies for the Banks, the Agent and each of its directors,
officers, employees, agents, attorneys or Affiliates shall not
have any duty or responsibility to provide any Bank with credit or
other information concerning the business, operations, property,
condition (financial or otherwise), prospects or creditworthiness
of the Loan Parties which may come into the possession of the
Agent or any of its directors, officers, employees, agents,
attorneys or Affiliates.
9.7 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent
(to the extent not reimbursed by the Borrower and without limiting
the obligation of the Borrower to do so) in proportion to its
Ratable Share from and against all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements, including attorneys' fees and
disbursements (including the allocated costs of staff counsel),
and costs of appraisers and environmental consultants, of any kind
or nature whatsoever which may be imposed on, incurred by or
asserted against the Agent, in its capacity as such, in any way
relating to or arising out of this Agreement or any other Loan
Documents or any action taken or omitted by the Agent hereunder or
thereunder, provided that no Bank shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements (a)if
the same results from the Agent's gross negligence or willful
misconduct, or (b)if such Bank was not given notice of the subject
claim and the opportunity to participate in the defense thereof,
at its expense (except that such Bank shall remain liable to the
extent such failure to give notice does not result in a loss to
the Bank), or (c)if the same results from a compromise and
settlement agreement entered into without the consent of such
Bank, which shall not be unreasonably withheld. In addition, each
Bank agrees promptly upon demand to reimburse the Agent (to the
extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) in proportion to its Ratable
Share for all amounts due and payable by the Borrower to the Agent
in connection with the Agent's periodic audit of the Loan Parties'
books, records and business properties.
9.8 Reliance by Agent.
The Agent shall be entitled to rely upon any writing,
telegram, telex or teletype message, electronic mail, resolution,
notice, consent, certificate, letter, cablegram, statement, order
or other document or conversation by telephone or otherwise
believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon the advice
and opinions of counsel and other professional advisers selected
by the Agent. The Agent shall be fully justified in failing or
refusing to take any action hereunder unless it shall first be
indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.
9.9 Notice of Default.
The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Potential Default or Event of
Default unless the Agent has received written notice from a Bank
or the Borrower referring to this Agreement, describing such
Potential Default or Event of Default and stating that such notice
is a "notice of default."
9.10 Notices.
The Agent shall promptly send to each Bank a copy of
all notices received from the Borrower pursuant to the provisions
of this Agreement or the other Loan Documents promptly upon
receipt thereof. The Agent shall promptly notify the Borrower and
the other Banks of each change in the Base Rate and the effective
date thereof.
9.11 Banks in Their Individual Capacities; Agents in its
Individual Capacity.
With respect to its Revolving Credit Commitment, the
Revolving Credit Loans made by it and any other rights and powers
given to it as a Bank hereunder or under any of the other Loan
Documents, the Agent shall have the same rights and powers
hereunder as any other Bank and may exercise the same as though it
were not the Agent, and the term "Bank" and "Banks" shall, unless
the context otherwise indicates, include the Agent in its
individual capacity. PNC Bank and its Affiliates and each of the
Banks and their respective Affiliates may, without liability to
account, except as prohibited herein, make loans to, issue letters
of credit for the account of, acquire equity interests in, accept
deposits from, discount drafts for, act as trustee under
indentures of, and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with, the Loan
Parties and their Affiliates, in the case of the Agent, as though
it were not acting as Agent hereunder and in the case of each
Bank, as though such Bank were not a Bank hereunder, in each case
without notice to or consent of the other Banks. The Banks
acknowledge that, pursuant to such activities, the Agent or its
Affiliates may (i)receive information regarding the Loan Parties
or any of their Subsidiaries or Affiliates (including information
that may be subject to confidentiality obligations in favor of the
Loan Parties or such Subsidiary or Affiliate) and acknowledge that
the Agent shall be under no obligation to provide such information
to them, and (ii)accept fees and other consideration from the Loan
Parties for services in connection with this Agreement and
otherwise without having to account for the same to the Banks.
9.12 Holders of Notes.
The Agent may deem and treat any payee of any Note as
the owner thereof for all purposes hereof unless and until written
notice of the assignment or transfer thereof shall have been filed
with the Agent. Any request, authority or consent of any Person
who at the time of making such request or giving such authority or
consent is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or
of any Note or Notes issued in exchange therefor.
9.13 Equalization of Banks.
The Banks and the holders of any participations in any
Commitments or Loans or other rights or obligations of a Bank
hereunder agree among themselves that, with respect to all amounts
received by any Bank or any such holder for application on any
Obligation hereunder or under any such participation, whether
received by voluntary payment, by realization upon security, by
the exercise of the right of set-off or banker's lien, by
counterclaim or by any other non-pro rata source, equitable
adjustment will be made in the manner stated in the following
sentence so that, in effect, all such excess amounts will be
shared ratably among the Banks and such holders in proportion to
their interests in payments on the Loans, except as otherwise
provided in Section 3.4.3 (Agent's and Bank's Rights), 4.4.2
(Replacement of a Bank) or 4.6 (Additional Compensation in Certain
Circumstances). The Banks or any such holder receiving any such
amount shall purchase for cash from each of the other Banks an
interest in such Bank's Loans in such amount as shall result in a
ratable participation by the Banks and each such holder in the
aggregate unpaid amount of the Loans, provided that if all or any
portion of such excess amount is thereafter recovered from the
Bank or the holder making such purchase, such purchase shall be
rescinded and the purchase price restored to the extent of such
recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Bank or
the holder making such purchase.
9.14 Successor Agent.
The Agent (i)may resign as Agent or (ii)shall resign
if such resignation is requested by the Required Banks (if the
Agent is a Bank, the Agent's Loans and its Commitment shall be
considered in determining whether the Required Banks have
requested such resignation) or required by Section 4.4.2
(Replacement of a Bank), in either case of (i) or (ii) by giving
not less than thirty (30) days' prior written notice to the
Borrower. If the Agent shall resign under this Agreement, then
either (a)the Required Banks shall appoint from among the Banks a
successor agent for the Banks, subject to the consent of the
Borrower, such consent not to be unreasonably withheld, or (b)if a
successor agent shall not be so appointed and approved within the
thirty (30) day period following the Agent's notice to the Banks
of its resignation, then the Agent shall appoint from among the
Banks, with the consent of the Borrower, such consent not to be
unreasonably withheld, a successor agent who shall serve as Agent
until such time as the Required Banks appoint and the Borrower
consents to the appointment of a successor agent. Upon its
appointment pursuant to either clause (a) or (b) above, such
successor agent shall succeed to the rights, powers and duties of
the Agent, and the term "Agent" shall mean such successor agent,
effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated without any other
or further act or deed on the part of such former Agent or any of
the parties to this Agreement. After the resignation of any Agent
hereunder, the provisions of this Section 9 shall inure to the
benefit of such former Agent and such former Agent shall not by
reason of such resignation be deemed to be released from liability
for any actions taken or not taken by it while it was an Agent
under this Agreement.
9.15 Agent's Fee.
The Borrower shall pay to the Agent a nonrefundable
fee (the "Agent's Fee") under the terms of a letter (the "Agent's
Letter") between the Borrower and Agent, as amended from time to
time.
9.16 Availability of Funds.
The Agent may assume that each Bank has made or will
make the proceeds of a Loan available to the Agent unless the
Agent shall have been notified by such Bank on or before the later
of (1)the close of Business on the Business Day preceding the
Borrowing Date with respect to such Loan or two (2) hours before
the time on which the Agent actually funds the proceeds of such
Loan to the Borrower (whether using its own funds pursuant to this
Section 9.16 or using proceeds deposited with the Agent by the
Banks and whether such funding occurs before or after the time on
which Banks are required to deposit the proceeds of such Loan with
the Agent). The Agent may, in reliance upon such assumption (but
shall not be required to), make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Bank, the Agent shall be
entitled to recover such amount on demand from such Bank (or, if
such Bank fails to pay such amount forthwith upon such demand from
the Borrower) together with interest thereon, in respect of each
day during the period commencing on the date such amount was made
available to the Borrower and ending on the date the Agent
recovers such amount, at a rate per annum equal to (i) the Federal
Funds Effective Rate during the first three (3) days after such
interest shall begin to accrue and (ii) the applicable interest
rate in respect of such Loan after the end of such three-day
period.
9.17 Calculations.
In the absence of gross negligence or willful
misconduct, the Agent shall not be liable for any error in
computing the amount payable to any Bank whether in respect of the
Loans, fees or any other amounts due to the Banks under this
Agreement. In the event an error in computing any amount payable
to any Bank is made, the Agent, the Borrower and each affected
Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any
compensation therefor will be calculated at the Federal Funds
Effective Rate.
9.18 Beneficiaries.
Except as expressly provided herein, the provisions of
this Section 9 [The Agent] are solely for the benefit of the Agent
and the Banks, and the Loan Parties shall not have any rights to
rely on or enforce any of the provisions hereof. In performing
its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of
agency or trust with or for any of the Loan Parties.
10. MISCELLANEOUS
10.1 Modifications, Amendments or Waivers.
With the written consent of the Required Banks, the
Agent, acting on behalf of all the Banks, and the Borrower, on
behalf of the Loan Parties, may from time to time enter into
written agreements amending or changing any provision of this
Agreement or any other Loan Document or the rights of the Banks or
the Loan Parties hereunder or thereunder, or may grant written
waivers or consents to a departure from the due performance of the
Obligations of the Loan Parties hereunder or thereunder. Any such
agreement, waiver or consent made with such written consent shall
be effective to bind all the Banks and the Loan Parties; provided,
that, without the written consent of all the Banks, no such
agreement, waiver or consent may be made which will:
10.1.1. Increase of Commitment.
Increase the amount of the aggregate Revolving
Credit Commitments;
10.1.2. Extension of Payment; Reduction of Principal,
Interest or Fees; Modification of Terms of
Payment.
Subject to Section 2.10 (Extension by Banks of
the Expiration Date), but whether or not any Loans are
outstanding, extend the time for payment of principal or interest
of any Loan (excluding the due date of any mandatory prepayment of
a Loan or any mandatory Commitment reduction in connection with
such a mandatory prepayment hereunder except for mandatory
reductions of the Commitments on the Expiration Date), the
Commitment Fee or any other fee payable to any Bank, or reduce the
principal amount of or the rate of interest borne by any Loan or
reduce the Commitment Fee or any other fee payable to any Bank, or
otherwise directly affect the terms of payment of the principal of
or interest of any Loan, the Commitment Fee or any other fee
payable to any Bank;
10.1.3. Miscellaneous
Amend Section 4.2 (Pro Rata Treatment of Banks),
9.6 (Exculpatory Provisions; Limitation of Liability), 9.13
(Equalization of Banks) or this Section 10.1 (Modifications,
Amendments or Waivers) change the pro rata treatment of the Banks,
change the definition of Required Banks, or change any requirement
providing for the Banks or the Required Banks to authorize the
taking of any action hereunder;
provided, that no agreement, waiver or consent which would modify
the interests, rights or obligations of the Agent in its capacity
as Agent shall be effective without the written consent of the
Agent and provided further, that no provision of Sections 2.1.2
(Swing Loan Commitment), 2.4.2 (Swing Loan Requests), 2.5.2
(Making Swing Loans), 2.6 (Swing Loan Note), 2.8 (Borrowings to
Repay Swing Loans) and 4.8 (Settlement Date Procedures) may be
amended or modified without the consent of PNC Bank.
10.2 No Implied Waivers; Cumulative Remedies; Writing
Required.
No course of dealing and no delay or failure of the
Agent or any Bank in exercising any right, power, remedy or
privilege under this Agreement or any other Loan Document shall
affect any other or future exercise thereof or operate as a waiver
thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right,
power, remedy or privilege preclude any further exercise thereof
or of any other right, power, remedy or privilege. The rights and
remedies of the Agent and the Banks under this Agreement and any
other Loan Documents are cumulative and not exclusive of any
rights or remedies which they would otherwise have. Any waiver,
permit, consent or approval of any kind or character on the part
of any Bank of any breach or default under this Agreement or any
such waiver of any provision or condition of this Agreement must
be in writing and shall be effective only to the extent
specifically set forth in such writing.
10.3 Reimbursement and Indemnification of Banks by the
Borrower; Taxes.
The Borrower agrees unconditionally upon demand to pay
or reimburse to each Bank (other than the Agent, as to which the
Borrower's Obligations are set forth in Section 9.5 (Reimbursement
and Indemnification of Agent by the Borrower)) and to save such
Bank harmless against (i)liability for the payment of all
reasonable out-of-pocket costs, expenses and disbursements
(including fees and expenses of counsel (including allocated costs
of staff counsel) for the Agent except with respect to (a) and (b)
below), incurred by the Agent (a)in connection with the
administration and interpretation of this Agreement, and other
instruments and documents to be delivered hereunder, (b)relating
to any amendments, waivers or consents pursuant to the provisions
hereof, (c)in connection with the enforcement of this Agreement or
any other Loan Document, or collection of amounts due hereunder or
thereunder or the proof and allowability of any claim arising
under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d)in any
workout or restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof
or of any rights hereunder or under any other Loan Document or in
connection with any foreclosure, collection or bankruptcy
proceedings, or (ii)all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent, in its
capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken or
omitted by the Agent hereunder or thereunder, provided that the
Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements (A)if the same results
from the Agent's gross negligence or willful misconduct, or (B)if
the Borrower was not given notice of the subject claim and the
opportunity to participate in the defense thereof, at its expense
(except that the Borrower shall remain liable to the extent such
failure to give notice does not result in a loss to the Borrower),
or (C)if the same results from a compromise or settlement
agreement entered into without the consent of the Borrower, which
shall not be unreasonably withheld. The Borrower agrees
unconditionally to pay all stamp, document, transfer, recording or
filing taxes or fees and similar impositions now or hereafter
determined by the Agent to be payable in connection with this
Agreement or any other Loan Document, and the Borrower agrees
unconditionally to save the Agent and the Banks harmless from and
against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions.
10.4 Holidays.
Whenever payment of a Loan to be made or taken
hereunder shall be due on a day which is not a Business Day such
payment shall be due on the next Business Day (except as provided
in Section 3.2 (Interest Periods) with respect to Interest Periods
under the LIBO-Rate Option) and such extension of time shall be
included in computing interest and fees, except that the Loans
shall be due on the Business Day preceding the Expiration Date if
the Expiration Date is not a Business Day. Whenever any payment
or action to be made or taken hereunder (other than payment of the
Loans) shall be stated to be due on a day which is not a Business
Day, such payment or action shall be made or taken on the next
following Business Day, and such extension of time shall not be
included in computing interest or fees, if any, in connection with
such payment or action.
10.5 Funding by Branch, Subsidiary or Affiliate.
10.5.1. Notional Funding.
Each Bank shall have the right from time to
time, without notice to the Borrower, to deem any branch,
Subsidiary or Affiliate (which for the purposes of this Section
10.5 shall mean any corporation or association which is directly
or indirectly controlled by or is under direct or indirect common
control with any corporation or association which directly or
indirectly controls such Bank) of such Bank to have made,
maintained or funded any Loan to which the LIBO-Rate Option
applies at any time, provided that immediately following (on the
assumption that a payment were then due from the Borrower to such
other office), and as a result of such change, the Borrower would
not be under any greater financial obligation (including pursuant
to Section 4.6 (Additional Compensation in Certain Circumstances))
than it would have been in the absence of such change. Notional
funding offices may be selected by each Bank without regard to
such Bank's actual methods of making, maintaining or funding the
Loans or any sources of funding actually used by or available to
such Bank.
10.5.2. Actual Funding.
Each Bank shall have the right from time to time
to make or maintain any Loan by arranging for a branch, Subsidiary
or Affiliate of such Bank to make or maintain such Loan subject to
the last sentence of this Section 10.5.2. If any Bank causes a
branch, Subsidiary or Affiliate to make or maintain any part of
the Loans hereunder, all terms and conditions of this Agreement
shall, except where the context clearly requires otherwise, be
applicable to such part of the Loans to the same extent as if such
Loans were made or maintained by such Bank, but in no event shall
any Bank's use of such a branch, Subsidiary or Affiliate to make
or maintain any part of the Loans hereunder cause such Bank or
such branch, Subsidiary or Affiliate to incur any cost or expenses
payable by the Borrower hereunder or require the Borrower to pay
any other compensation to any Bank (including any expenses
incurred or payable pursuant to Section 4.6 (Additional
Compensation in Certain Circumstances)) which would otherwise not
be incurred.
10.6 Notices.
Any notice, request, demand, direction or other
communication (for purposes of this Section 10.6 only, a "Notice")
to be given to or made upon any party hereto under any provision
of this Agreement shall be given or made by telephone or in
writing (which includes means of electronic transmission (i.e.,
"e-mail") or facsimile transmission or by setting forth such
Notice on a site on the World Wide Web (a "Website Posting") if
Notice of such Website Posting (including the information
necessary to access such site) has previously been delivered to
the applicable parties hereto by another means set forth in this
Section 10.6 in accordance with this Section 10.6. Any such
Notice must be delivered to the applicable parties hereto at the
addresses and numbers set forth under their respective names on
Schedule 1.1(B) hereof or in accordance with any subsequent
unrevoked Notice from any such party that is given in accordance
with this Section 10.6. Any Notice shall be effective:
(i) In the case of hand-delivery,
when delivered;
(ii) If given by mail, four (4)
days after such Notice is deposited with the United States Postal
Service, with first-class postage prepaid, return receipt
requested;
(iii) In the case of a telephonic
Notice, when a party is contacted by telephone, if delivery of
such telephonic Notice is confirmed no later than the next
Business Day by hand delivery, a facsimile or electronic
transmission, a Website Posting or overnight courier delivery of a
confirmatory notice (received at or before noon on such next
Business Day);
(iv) In the case of a facsimile
transmission, when sent to the applicable party's facsimile
machine's telephone number if the party sending such Notice
receives confirmation of the delivery thereof from its own
facsimile machine;
(v) In the case of electronic
transmission, when actually received;
(vi) In the case of a Website
Posting, upon delivery of a Notice of such posting (including the
information necessary to access such web site) by another means
set forth in this Section 10.6; and
(vii) If given by any other means
(including by overnight courier), when actually received.
Any Bank giving a Notice to a Loan Party shall concurrently send a
copy thereof to the Agent, and the Agent shall promptly notify the
other Banks of its receipt of such Notice.
10.7 Severability.
The provisions of this Agreement are intended to be
severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any
other jurisdiction or the remaining provisions hereof in any
jurisdiction.
10.8 Governing Law.
Each Letter of Credit and Section 2.10 (Letter of
Credit Subfacility) shall be subject to the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, as the same may be
revised or amended from time to time, and to the extent not
inconsistent therewith, the internal laws of the State of New
Jersey without regard to its conflict of laws principles, and the
balance of this Agreement shall be deemed to be a contract under
the Laws of the State of New Jersey and for all purposes shall be
governed by and construed and enforced in accordance with the
internal laws of the State of New Jersey without regard to its
conflict of laws principles.
10.9 Prior Understanding.
This Agreement and the other Loan Documents supersede
all prior understandings and agreements, whether written or oral,
between the parties hereto and thereto relating to the
transactions provided for herein and therein, including any prior
confidentiality agreements and commitments.
10.10 Duration; Survival.
All representations and warranties of the Borrower and
Hovnanian contained herein or made in connection herewith shall
survive the making of Loans and issuance of Letters of Credit and
shall not be waived by the execution and delivery of this
Agreement, any investigation by the Agent or the Banks, the making
of Loans, issuance of Letters of Credit, or payment in full of the
Loans. All covenants and agreements of the Borrower and Hovnanian
contained in Sections 7.1 (Affirmative Covenants), 7.2 (Negative
Covenants) and 7.3 (Reporting Requirements) herein shall continue
in full force and effect from and after the date hereof so long as
the Borrower may borrow or request Letters of Credit hereunder and
until termination of the Commitments and payment in full of the
Loans and expiration or termination of all Letters of Credit. All
covenants and agreements of the Borrower contained herein relating
to the payment of principal, interest, premiums, additional
compensation or expenses and indemnification, including those set
forth in Section 4 (Payments) and Sections 9.5 (Reimbursement and
Indemnification of Agent by the Borrower), 9.7 (Reimbursement and
Indemnification of Agent by Banks) and 10.3 (Reimbursement and
Indemnification of Banks by Borrower; Taxes), shall survive
payment in full of the Loans, expiration or termination of the
Letters of Credit and termination of the Commitments.
10.11 Successors and Assigns.
(a) (i) This Agreement shall be
binding upon and shall inure to the benefit of the Banks, the
Agent, the Loan Parties a party hereto and their respective
successors and assigns, except that none of the Loan Parties a
party hereto may assign or transfer any of its rights and
obligations hereunder or any interest herein. Each Bank may, at
its own cost, make assignments of or sell participations in all or
any part of its Commitments and the Loans made by it to one or
more banks or other entities, subject to the consent of the
Borrower and the Agent with respect to any assignee, such consent
not to be unreasonably withheld provided that (1)no consent of the
Borrower shall be required (A) if an Event of Default exists and
is continuing, (B) in the case of an assignment by a Bank to an
Affiliate of such Bank, or (C) in respect of the sale of a
participation and (2)any assignment by a Bank to a Person other
than an Affiliate of such Bank may not be made in amounts less
than the lesser of $10,000,000 or the amount of the assigning
Bank's Commitment. In the case of an assignment, upon receipt by
the Agent of the Assignment and Assumption Agreement, the assignee
shall have, to the extent of such assignment (unless otherwise
provided therein), the same rights, benefits and obligations as it
would have if it had been a signatory Bank hereunder, the
Commitments shall be adjusted accordingly, and upon surrender of
any Note subject to such assignment, the Borrower shall execute
and deliver a new Note to the assignee, if such assignee requests
such a Note in an amount equal to the amount of the Revolving
Credit Commitment assumed by it and a new Revolving Credit Note to
the assigning Bank, if the assigning Bank requests such a Note, in
an amount equal to the Revolving Credit Commitment or retained by
it hereunder. Any Bank which assigns any or all of its Commitment
or Loans to a Person other than an Affiliate of such Bank shall
pay to the Agent a service fee in the amount of $3,500 for each
assignment. In the case of a participation, the participant shall
only have the rights specified in Section 8.2.3 (Set-off) (the
participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by
such Bank in favor of the participant relating thereto and not to
include any voting rights except with respect to changes of the
type referenced in Sections 10.1.1 (Increase of Commitment,
Extension of Expiration Date), or 10.1.2 (Extension of Payment;
Reduction of Principal, Interest or Fees; Modification of Terms of
Payment)), all of such Bank's obligations under this Agreement or
any other Loan Document shall remain unchanged, and all amounts
payable by any Loan Party hereunder or thereunder shall be
determined as if such Bank had not sold such participation.
(ii) Each Bank or assignee or
participant of a Bank that is not incorporated under the laws of
the United States of America or a state thereof (and, upon the
written request of the Agent, each other Bank or assignee or
participant of a Bank) shall deliver to the Borrower and the Agent
a Withholding Certificate as described in Section 10.17 (Tax
Withholding Clause) relating to federal income tax withholding.
Each Bank may furnish any publicly available information
concerning Hovnanian or any Loan Party and any other information
concerning Hovnanian or any Loan Party in the possession of such
Bank from time to time to assignees and participants (including
prospective assignees or participants), provided that such
assignees and participants agree to be bound by the provisions of
Section 10.12 (Confidentiality).
(iii) Notwithstanding any other
provision in this Agreement, any Bank may at any time pledge or
grant a security interest in all or any portion of its rights
under this Agreement, its Note (if any) and the other Loan
Documents to any Federal Reserve Bank in accordance with
Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section
203.14 without notice to or consent of the Borrower or the Agent.
No such pledge or grant of a security interest shall release the
transferor Bank of its obligations hereunder or under any other
Loan Document.
(b) Additional Bank. A lender which is
to become a party to this Agreement pursuant to Section 2.1.3
(Increase in Commitments After Closing Date) hereof or otherwise
(each an "Additional Bank") shall execute and deliver to the Agent
a Bank Joinder to this Agreement in substantially the form
attached hereto as Exhibit 1.1(B)(1). Upon execution and delivery
of a Bank Joinder, such Additional Bank shall be a party hereto
and a "Bank" under each of the Loan Documents for all purposes,
except that such Additional Bank shall not participate in any
Revolving Credit Loans to which the LIBO-Rate Option applies which
are outstanding on the effective date of such Bank Joinder. If
Borrower should renew after the effective date of such Bank
Joinder the LIBO-Rate Option with respect to Revolving Credit
Loans existing on such date, Borrower shall be deemed to repay the
applicable Revolving Credit Loans on the renewal date and then
reborrow a similar amount on such date so that the Additional Bank
shall participate in such Revolving Credit Loans after such
renewal date. Schedule 1.1(B) shall be amended and restated on the
date of such Bank Joinder to read as set forth on the attachment
to such Bank Joinder. Simultaneously with the execution and
delivery of such Bank Joinder, the Borrower shall execute, if
requested, a Revolving Credit Note and deliver it to such
Additional Bank together with copies of such other documents
described in Section 7.1 (Affirmative Covenants) hereof as such
Additional Bank may reasonably require.
10.12 Confidentiality.
10.12.1. General.
The Agent and the Banks each agree to keep
confidential all information obtained from any Loan Party or its
Subsidiaries which is nonpublic and confidential or proprietary in
nature (including any information the Borrower specifically
designates as confidential), except as provided below, and to use
such information only in connection with their respective
capacities under this Agreement and for the purposes contemplated
hereby. The Agent and the Banks shall be permitted to disclose
such information (i)to outside legal counsel, accountants and
other professional advisors who need to know such information in
connection with the administration and enforcement of this
Agreement, subject to agreement of such Persons to maintain the
confidentiality, (ii) to Moody's, Standard & Poor's and similar
rating agencies, (iii)to assignees and participants as
contemplated by Section 10.11 (Successors and Assigns), and
prospective assignees and participants subject to an agreement of
such Persons to maintain the confidentiality, (iv)to the extent
requested by any bank regulatory authority or, with notice to the
Borrower, as otherwise required by applicable Law or by any
subpoena or similar legal process, or in connection with any
investigation or proceeding arising out of the transactions
contemplated by this Agreement, (v)if it becomes publicly
available other than as a result of a breach of this Agreement or
becomes available from a source not known to be subject to
confidentiality restrictions, or (vi)if the Borrower shall have
consented to such disclosure.
10.12.2. Sharing Information With Affiliates of the
Banks.
Each Loan Party a party hereto acknowledges
that from time to time financial advisory, investment banking and
other services may be offered or provided to the Borrower or one
or more of its Affiliates (in connection with this Agreement or
otherwise) by any Bank or by one or more Subsidiaries or
Affiliates of such Bank and each of the Loan Parties a party
hereto hereby authorizes each Bank to share any information
delivered to such Bank by such Loan Party and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of
such Bank to enter into this Agreement, to any such Subsidiary or
Affiliate of such Bank, it being understood that any such
Subsidiary or Affiliate of any Bank receiving such information
shall be bound by the provisions of Section 10.12
[Confidentiality] as if it were a Bank hereunder. Such
Authorization shall survive the repayment of the Loans and other
Obligations and the termination of the Commitments.
10.13 Counterparts.
This Agreement may be executed by different parties
hereto on any number of separate counterparts, each of which, when
so executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same
instrument.
10.14 Agent's or Bank's Consent.
Whenever the Agent's or any Bank's consent is required
to be obtained under this Agreement or any of the other Loan
Documents as a condition to any action, inaction, condition or
event, unless specifically otherwise provided herein, the Agent
and each Bank shall be authorized to give or withhold such consent
in its sole and absolute discretion and to condition its consent
upon the giving of additional collateral, the payment of money or
any other matter.
10.15 Exceptions.
The representations, warranties and covenants
contained herein shall be independent of each other, and no
exception to any representation, warranty or covenant shall be
deemed to be an exception to any other representation, warranty or
covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that
would be in contravention of applicable Law.
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY A PARTY HERETO HEREBY IRREVOCABLY
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE SUPERIOR COURT OF
NEW JERSEY, LAW DIVISION, MIDDLESEX COUNTY AND THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY AND WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL
DIRECTED TO SUCH LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN
SECTION 10.6 (NOTICES) AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY A PARTY
HERETO WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY
ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO
ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. EACH
LOAN PARTY A PARTY HERETO, THE AGENT AND THE BANKS HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY COLLATERAL TO THE FULL EXTENT PERMITTED BY
LAW.
10.17 Tax Withholding Clause.
Each Bank or assignee or participant of a Bank that is
not incorporated under the Laws of the United States of America or
a state thereof (and, upon the written request of the Agent, each
other Bank or assignee or participant of a Bank) agrees that it
will deliver to each of the Borrower and the Agent two (2) duly
completed appropriate valid Withholding Certificates (as defined
under S1.1441-1(c)(16) of the Income Tax Regulations
("Regulations")) certifying its status (i.e., U.S. or foreign
person) and, if appropriate, making a claim of reduced, or
exemption from, U.S. withholding tax on the basis of an income tax
treaty or an exemption provided by the Internal Revenue Code. Such
delivery may be made by electronic transmission as described in
S1.1441-1(e)(4)(iv) of the Regulations if the Agent establishes an
electronic delivery system. The term "Withholding Certificate"
means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and
the related statements and certifications as required under
S1.1441-1(e)(3) of the Regulations; a statement described in
S1.871-14(c)(2)(v) of the Regulations; or any other certificates
under the Code or Regulations that certify or establish the status
of a payee or beneficial owner as a U.S. or foreign person. Each
Bank, assignee or participant required to deliver to the Borrower
and the Agent a valid Withholding Certificate pursuant to the
preceding sentence shall deliver such valid Withholding
Certificate as follows: (A) each Bank which is a party hereto on
the Closing Date shall deliver such valid Withholding Certificate
at least five (5) Business Days prior to the first date on which
any interest or fees are payable by the Borrower hereunder for the
account of such Bank; (B) each assignee or participant shall
deliver such valid Withholding Certificate at least five (5)
Business Days before the effective date of such assignment or
participation (unless the Agent in its sole discretion shall
permit such assignee or participant to deliver such Withholding
Certificate less than five (5) Business Days before such date in
which case it shall be due on the date specified by the Agent).
Each Bank, assignee or participant which so delivers a valid
Withholding Certificate further undertakes to deliver to each of
the Borrower and the Agent two (2) additional copies of such
Withholding Certificate (or a successor form) on or before the
date that such Withholding Certificate expires or becomes obsolete
or after the occurrence of any event requiring a change in the
most recent Withholding Certificate so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Agent. Notwithstanding
the submission of a Withholding Certificate claiming a reduced
rate of, or exemption from, United States withholding tax, the
Agent shall be entitled to withhold United States federal income
taxes at the full 30% withholding rate if in its reasonable
judgment it is required to do so under the due diligence
requirements imposed upon a withholding agent under S1.1441-7(b)
of the Regulations. Further, the Agent is indemnified under
S1.1461-1(e) of the Regulations against any claims and demands of
any Bank or assignee or participant of a Bank for the amount of
any tax it deducts and withholds in accordance with regulations
under S1441 of the Internal Revenue Code.
10.18 Joinder of Guarantors.
Any Subsidiary of Hovnanian which is required to join
the Guaranty Agreement as a Guarantor pursuant to Section 7.2.7
(Subsidiaries, Partnerships and Joint Ventures) or which is to
become, a Restricted Subsidiary shall execute and deliver to the
Agent (i)a Guarantor Joinder pursuant to which it shall join as a
Guarantor the Guaranty Agreement; and (ii) at the request of the
Agent, documents in the forms described in Section 6.1 (First
Loans and Letters of Credit) modified as appropriate to relate to
such new Guarantor. Hovnanian and Borrower shall deliver such
Guarantor Joinder and any related documents that the Agent may
reasonably request to the Agent after the formation thereof and
its designation as a Restricted Subsidiary; such Subsidiary shall
not be a Restricted Subsidiary until the delivery and
effectiveness of the items required herein.
10.19 Concerning Agent Terms.
Notwithstanding anything contained herein which may be
construed to the contrary, none of the Syndication Agent, the
Documentation Agent and the Joint Lead Arrangers and Joint Book
Runners shall exercise any of the rights or have any of the
responsibilities of the Agent hereunder, or any other rights or
responsibilities other than their respective rights and
responsibilities (if any) as Banks hereunder.
10.20 Ratification of Notes and Loan Documents and Existing
Obligations.
All of the terms, conditions, provisions and covenants
in the Original Credit Agreement, the Notes and other Loan
Documents delivered in connection therewith, and all other
documents delivered to the Agent and the Banks in connection with
any of the foregoing documents and obligations evidenced or
secured thereby shall remain unaltered and in full force and
effect and are hereby ratified and confirmed in all respects,
except as specifically modified herein. Without limiting the
foregoing, each of the Notes under the Original Credit Agreement
shall be, and hereby are, amended to bear an Expiration Date of
July 30, 2005. This Agreement amends and restates, and supersedes,
the Original Credit Agreement and is in no way intended to
constitute a novation of the "Obligations" under the Original
Credit Agreement. On the date this Agreement becomes effective,
and subject to the satisfaction (or waiver by Agent in its sole
discretion) of all applicable conditions to advances hereunder,
all sums owning under the Original Credit Agreement and the Loan
Documents thereunder shall be deemed to be outstanding and owing
under, evidenced by, and governed by the terms of this Agreement,
the existing Notes, and the other existing Loan documents.
(SIGNATURES CONTINUED ON NEXT PAGE)
IN WITNESS WHEREOF, the undersigned have executed this Agreement
on the date first written.
K. HOVNANIAN ENTERPRISES, INC.
By:
Title:
PNC BANK, NATIONAL ASSOCIATION
as Agent and as a Bank
By:
Title:
BANK OF AMERICA, N.A.
By:
Title:
FLEET NATIONAL BANK
By:
Title:
FIRST UNION NATIONAL BANK
By:
Title:
GUARANTY BANK
By:
Title:
KEYBANK, NATIONAL ASSOCIATION
By:
Title:
BANK ONE, NA
By:
Title:
AMSOUTH BANK
By:
Title:
COMERICA BANK
By:
Title:
SUNTRUST BANK
By:
Title:
NATIONAL CITY BANK OF
PENNSYLVANIA
By:
Title:
WASHINGTON MUTUAL BANK, FA
By:
Title:
ACCEPTED AND AGREED:
HOVNANIAN ENTERPRISES, INC.
as a Guarantor
By:
Title:
SCHEDULE 1.1(A)
K. HOVNANIAN ENTERPRISES, INC.
PRICING GRID
(expressed in basis points)
Level Debt Rating Libor Margin Base Rate Margin
Commitment Fee LOC Fee
I ?BB+/Ba1 145 0 30.0 117.5
II BB/Ba2 165 15 32.5 137.5
III BB-/Ba3 185 40 37.5 157.5
IV B+/B1 205 60 42.5 177.5
V ?B/B2 225 80 47.5 197.5
The Applicable Margins will only be as shown above if Hovnanian
holds both noted Debt Ratings from S&P and Moody's, respectively.
In the event of inconsistent Debt Ratings, the Applicable Margin
will be the midpoint of the margin(s) between the two levels. In
the absence of ratings, pricing will be at Level V. As of the
Closing Date, pricing shall be a Level III.
Any change in the Applicable Margin; the Applicable Commitment Fee
Rate or the Applicable Letter of Credit Fee Rate shall become
effective five Business Days after any public announcement of the
change in the Debt Rating requiring such change.
Bank
Amount of Commitment for Revolving Credit Loans
Ratable Share
Bank Name (also Agent):
PNC Bank, National Association
Address for Notices:
Two Tower Center, 18th Fl
E. Brunswick, NJ 08816
Attention: Douglas G. Paul
Telephone: (732) 220-3566
Telecopy: (732) 220-3744
Address of Lending Office:
One PNC Plaza
MS: P1-POPP-22-1
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Rini Davis
Telephone: (412) 762-7638
Telecopy: (412) 762-8672
$60,000,000
13.793%
Bank Name:
Bank of America, N.A.
Address for Notices:
231 S. LaSalle Street
Mail Code IL 1-231-12-18
Chicago, IL 60697
Attention: Kelley Prentiss
Telephone: (312) 828-7363
Telecopy: (312) 974-4970
Address of Lending Office:
231 S. LaSalle Street
Mail Code IL 1-231-12-18
Chicago, IL 60697
Attention: Marilyn Elizalde
Telephone: (312) 828-6388
Telecopy: (312) 828-3950
$60,000,000
13.793%
Bank
Amount of Commitment for Revolving Credit Loans
Ratable Share
Bank Name:
Fleet National Bank
Address for Notices:
115 Perimeter Center Place NE
Suite 500
Atlanta, GA 30346
Attention: Jeff Aycock
Telephone: (770) 390-6583
Telecopy: (770) 390-8434
Address of Lending Office:
115 Perimeter Center Place NE
Suite 500
Atlanta, GA 30346
Attention: Sandy Wheeler
Telephone: (770) 390-6571
Telecopy: (770) 390-8434
$50,000,000
11.494%
Bank Name:
First Union National Bank
Address for Notices:
Commercial Real Estate Group
3rd Floor
2840 Morris Avenue
Union, NJ 07083
Attention: Richard M. Quinn
Telephone: (908) 624-2808
Telecopy: (908) 624-2817
Address of Lending Office:
Commercial Real Estate Group
3rd Floor
2840 Morris Avenue
Union, NJ 07083
Attention: Richard M. Quinn
Telephone: (908) 624-2808
Telecopy: (908) 624-2817
$45,000,000
10.345%
Bank Amount of Commitment for Revolving Credit Loans
Ratable Share
Bank Name:
Guaranty Bank
Address for Notices:
8333 Douglas Avenue
Dallas, TX 75225
Attention: Randy Reid
Telephone: (214) 360-2735
Telecopy: (214) 360-1661
Address of Lending Office:
8333 Douglas Avenue
Dallas, TX 75225
Attention: Jill Fallows
Telephone: (214) 360-1681
Telecopy: (214) 360-1661
$40,000,000
9.195%
Bank Name:
KeyBank, National Association
Address for Notices:
Law Group
127 Public Square
Mail Stop: OH-01-27-0200
Cleveland, OH 44114
Attention: Robert Bowes, Esquire
Telephone: (216) 689-5089
Telecopy: (216) 689-5681
With a copy to:
Key Commercial Real Estate
575 5th Avenue, 38th Floor
New York, NY 10017
Attention: Timothy J. Mertens, V.P.
Telephone: (917) 368-2390
Telecopy: (917) 368-2370
Bank
Amount of Commitment for Revolving Credit Loans
Ratable Share
Address of Lending Office:
Institutional C.R.E. Client Services
66 South Pearl StreetMail Stop: NY-31-66-0567
Albany, NY 12207
Attention: Rebecca Christner, A.V.P.
Telephone: (518) 257-8566
Telecopy: (518) 257-8572 $30,000,000 6.897%
Bank Name:
Bank One, NA
Address for Notices:
One Bank One Plaza
Suite IL 1-0315
Chicago, IL 60670
Attention: Mark Kramer
Telephone: (312) 336-2212
Telecopy: (312) 732-5939
Address of Lending Office:
One Bank One Plaza
Suite IL 1-0315
Chicago, IL 60670
Attention: Bob Rodzon
Telephone: (312) 732-5097
Telecopy: (312) 732-1582
$30,000,000
6.897%
Bank Name:
AmSouth Bank
Address for Notices:
1900 5th Avenue; AST-9
Birmingham, AL 35288
Attention: Ronny Hudspeth
Telephone: (205) 307-4227
Telecopy: (205) 801-0138
Bank Amount of Commitment for Revolving Credit Loans
Ratable Share
Address of Lending Office:
1900 5th Avenue; AST-9
Birmingham, AL 35288
Attention: Wanda Pate
Telephone: (205) 326-4615
Telecopy: (205) 801-0138
$25,000,000
5.747%
Bank Name:
Comerica Bank
Address for Notices:
500 Woodward Avenue
MC 3256
Detroit, MI 48226
Attention: Charles Weddell
Telephone: (313) 222-3323
Telecopy: (313) 222-9295
Address of Lending Office:
500 Woodward Avenue
MC 3256
Detroit, MI 48226
Attention: Betsy Branson
Telephone: (313) 222-5878
Telecopy: (313) 222-3697
$25,000,000
5.747%
Bank Amount of Commitment for Revolving Credit Loans
Ratable Share
Bank Name:
SunTrust Bank
Address for Notices:
303 Peachtree Street NE
3rd Floor, MC 1931
P.O. Box 4418
Atlanta, GA 30302-4418
Attention: Donald Gaudette
Telephone: (404) 658-4925
Telecopy: (404) 588-8505
Address of Lending Office:
303 Peachtree Street NE
3rd Floor, MC 1931
P.O. Box 4418
Atlanta, GA 30302-4418
Attention: Lawanda Griffeth
Telephone: (404) 588-8375
Telecopy: (404) 575-2730
$25,000,000
5.747%
Bank Name:
National City Bank of Pennsylvania
Address for Notices:
One South Broad Street
13th Floor
Philadelphia, PA 19107
Attention: John Gaghan
Telephone: (267) 256-4056
Telecopy: (267) 256-4001
Address of Lending Office:
20 Stanwix Street, 25-143
Pittsburgh, PA 15222-4802
Attention: Janet R. Sabatasso
Telephone: (412) 644-7745
Telecopy: (412) 644-6095
$20,000,000
4.598%
Bank
Amount of Commitment for Revolving Credit Loans
Ratable Share
Bank Name:
Washington Mutual Bank, FA
Address for Notices:
Kris W. Klinger Vice President
Washington Mutual Bank, FA
5950 La Place Court, Suite 205
Carlsbad, CA 92008
Telephone: (972) 705-0821
Telecopy: (972) 705-1481
Address of Lending Office:
3200 Southwest Freeway
Houston, TX 77027
Attention: Monica Rampp
Telephone: (713) 543-3323
Telecopy: (713) 543-7813
$25,000,000
5.747%
Total
$435,000,000
100%
AGENT
Name: Douglas G. Paul, Senior Vice President
Address: PNC Bank, National Association
Two Tower Center, 18th Floor
East Brunswick, New Jersey 08816
Telephone: (732) 220-3566
Telecopy: (732) 220-3744
BORROWER:
Name: K. HOVNANIAN ENTERPRISES, INC.
Address: 10 Route 35, P.O. Box 500
Red Bank, NJ 07701
Attention: Kevin C. Hake
Telephone: (732) 747-7800
Telecopy: (732) 747-6835
GUARANTORS:
Name: (name of Guarantor)
Address: c/o K. Hovnanian Enterprises, Inc.
10 Route 35, P.O. Box 500
Red Bank, NJ 07701
Attention: Kevin C. Hake
Telephone: (732) 747-7800
Telecopy: (732) 747-6835
SCHEDULE 1.1(B) - 8
REVOLVING CREDIT AGREEMENT
by and among
K. HOVNANIAN MORTGAGE, INC.,
THE LENDERS PARTY HERETO,
and
GUARANTY BANK,
As Agent
dated as of June 7, 2002
Table of Contents
ARTICLE I DEFINITIONS 1
ARTICLE II THE CREDITS 26
2.1 Commitment, Sublimits and Types of Advances 26
2.2 Primary Advances 27
2.3 Buy Down Loans 28
2.4 Swingline Loans 28
2.5 Fees 29
2.6 Method of Selecting Types and Interest Periods for New Advances 30
2.7 Conversion and Continuation of Outstanding Advances 30
2.8 Reductions to Aggregate Commitment 31
2.9 Principal Payments 31
2.10 Changes in Interest Rate, etc. 33
2.11 Rates Applicable After Default 33
2.12 Method of Payment 33
2.13 Noteless Agreement; Evidence of Indebtedness 34
2.14 Telephonic Notices 34
2.15 Interest Payment Dates; Interest and Fee Basis 35
2.16 Notification by the Agent 35
2.17 Lending Installations 35
2.18 Non-Receipt of Funds by the Agent 35
ARTICLE III CHANGE IN CIRCUMSTANCES 36
3.1 Yield Protection 36
3.2 Changes in Capital Adequacy Regulations 37
3.3 Availability of Types of Advances 37
3.4 Funding Indemnification 37
3.5 Taxes 37
3.6 Lender Statements; Survival of Indemnity 39
ARTICLE IV CONDITIONS PRECEDENT; WITHHOLDING TAX EXEMPTION 40
4.1 Effectiveness 40
4.2 Each Advance 41
ARTICLE V REPRESENTATIONS AND WARRANTIES 42
5.1 Existence and Standing 42
5.2 Authorization and Validity 42
5.3 No Conflict; Government Consent 42
5.4 Financial Statements 43
5.5 Material Adverse Change 43
5.6 Taxes 43
5.7 Litigation and Contingent Obligations 43
5.8 Subsidiaries 44
5.9 ERISA 44
5.10 Accuracy of Information 44
5.11 Regulation U 44
5.12 Material Agreements 44
5.13 Compliance With Laws 44
5.14 Ownership of Properties 44
5.15 Plan Assets; Prohibited Transactions 45
5.16 Investment Company Act 45
5.17 Public Utility Holding Company Act 45
5.18 GNMA, FHA, VA, FNMA, and FHLMC Eligibility 45
5.19 Approved Investor Commitments 45
ARTICLE VI COVENANTS 46
6.1 Financial Reporting 46
6.2 Use of Proceeds 48
6.3 Notice of Default 48
6.4 Conduct of Business 48
6.5 Taxes 49
6.6 Insurance 49
6.7 Compliance with Laws 49
6.8 Maintenance of Properties 49
6.9 Inspection 49
6.10 Dividends 49
6.11 Indebtedness 50
6.12 Merge 50
6.13 Sale of Assets 50
6.14 Investments and Acquisitions 50
6.15 Liens 51
6.16 Affiliates 51
6.17 Financial Covenants 51
6.18 Compliance with Security Agreement 52
6.19 Servicing Release 52
6.20 Federal Agency Approvals 53
6.21 Approved Investor Commitments 53
6.22 Negative Pledges 53
6.23 MERS 53
ARTICLE VII DEFAULTS 54
ARTICLE VIII COLLATERAL, ACCELERATION AND OTHER REMEDIES 56
8.1 Security and Collateral Agency Agreement 56
8.2 AP Mortgages 56
8.3 Release of Collateral 57
8.4 Settlement and Funding Accounts 57
8.5 Termination 57
8.6 Acceleration 57
8.7 Other Remedies 58
8.8 Application of Proceeds 59
8.9 Preservation of Rights 60
ARTICLE IX AMENDMENTS; WAIVERS; GENERAL PROVISIONS 60
9.1 Amendments and Waivers 60
9.2 Survival of Representations 61
9.3 Governmental Regulation 61
9.4 Headings 61
9.5 Entire Agreement 61
9.6 Several Obligations; Benefits of this Agreement 61
9.7 Expenses; Indemnification 62
9.8 Nonliability of Lenders 62
9.9 Severability of Provisions 63
9.10 Numbers of Documents 63
9.11 Accounting 63
9.12 Confidentiality 63
9.13 Nonreliance 63
9.14 Disclosure 64
ARTICLE X THE AGENT AND THE COLLATERAL AGENT 64
10.1 Appointment; Nature of Relationship 64
10.2 Powers 64
10.3 General Immunity 65
10.4 No Responsibility for Loans, Recitals, etc. 65
10.5 Action on Instructions of Lenders 65
10.6 Employment of Agents and Counsel 65
10.7 Reliance on Documents; Counsel 66
10.8 Agent's Reimbursement and Indemnification 66
10.9 Notice of Default 66
10.10 Rights as a Lender 66
10.11 Lender Credit Decision 67
10.12 Successor Agent 67
10.13 Delegation to Affiliates 67
10.14 Collateral Releases 68
ARTICLE XI SETOFF; RATABLE PAYMENTS 68
11.1 Setoff 68
11.2 68
11.3 Ratable Payments 68
11.4 Custodial Accounts 68
ARTICLE XII ASSIGNMENTS; PARTICIPATIONS; COMMITMENT INCREASES 69
12.1 Successors and Assigns 69
12.2 Participations 69
12.3 Assignments 70
12.4 Commitment Increases 71
12.5 Dissemination of Information 71
12.6 Tax Treatment 72
ARTICLE XIII NOTICES 72
13.1 Notices 72
13.2 Change of Address 72
ARTICLE XIV COUNTERPARTS 72
ARTICLE XV CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF
JURY TRIAL 73
15.1 CHOICE OF LAW 73
15.2 CONSENT TO JURISDICTION 73
15.3 WAIVER OF JURY TRIAL 73
15.4 No Tri-Party Accounts 73
15.5 Limitation on Interest 73
15.6 NO ORAL AGREEMENTS 74
REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT dated as of June 7, 2002 among
K. HOVNANIAN MORTGAGE, INC., a New Jersey corporation (the "Borrower"), the
banks identified on the signature pages hereof (together with any
successors and assigns thereof, hereinafter referred to individually as a
"Lender" and collectively as the "Lenders) and GUARANTY BANK, a federal
savings bank, as Agent for the Lenders.
In consideration of the Advances to be made hereunder by the Lenders
and for other good and valuable consideration, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which
the Borrower or any of its Subsidiaries (i) acquires any going business or
all or substantially all of the assets of any firm, corporation or limited
liability company, or division thereof, whether through purchase of assets,
merger or otherwise or (ii) directly or indirectly acquires (in one
transaction or as the most recent transaction in a series of transactions)
at least a majority (in number of votes) of the securities of a corporation
which have ordinary voting power for the election of directors (other than
securities having such power only by reason of the happening of a
contingency) or a majority (by percentage or voting power) of the
outstanding ownership interests of a partnership or limited liability
company.
"Additional Required Mortgage Documents" means the instruments and
documents described in Schedule "B" to the Security Agreement.
"Advance" means a borrowing hereunder (or conversion or continuation
thereof) consisting of the aggregate amount of the several Loans (other
than Swingline Loans) made on the same Borrowing Date (or date of
conversion or continuation) by some or all of the Lenders to the Borrower
of the same Type and, in the case of Eurodollar Advances, for the same
Interest Period.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such
Person. A Person shall be deemed to control another Person if the
controlling Person owns 10% or more of any class of voting securities (or
other ownership interests) of the controlled Person or possesses, directly
or indirectly, the power to direct or cause the direction of the management
or policies of the controlled Person, whether through ownership of stock,
by contract or otherwise.
"Agent" means Guaranty Bank, with its main office in Dallas, Texas,
in its capacity as contractual representative of the Lenders pursuant to
Article X, and not in its individual capacity as a Lender, and any
successor Agent appointed pursuant to Article X.
"Aggregate Commitment" means, as of any date (i) prior to the
termination of the Bank One Credit Agreement and payment in full of all
obligations thereunder, the amount equal to $110,000,000 minus the
aggregate amount of Loans outstanding under the Bank One Credit Agreement
as most recently communicated to Agent by Bank One as agent under the Bank
One Agreement and (ii) after the termination of the Bank One Credit
Agreement and payment in full of all obligations thereunder, the aggregate
of the Lenders' then-current Commitments under this Agreement, as reduced
or increased from time to time, but in no event shall the Aggregate
Commitment exceed $150,000,000 without the approval of the Borrower, the
Agent and all of the Lenders.
"Agreement" means this credit agreement, as it may be amended or
modified and in effect from time to time.
"Agreement to Pledge" means a written pledge substantially in the
form of Exhibit "E" to this Agreement executed by the Borrower and
delivered by facsimile to the Collateral Agent, specifically identifying
all Mortgage Loans with respect to which the Required Mortgage Documents
are not being delivered on or before the Pledge Date of such Mortgage Loan.
"Alternate Base Rate" means, for any day, a rate of interest per
annum equal to the higher of (i) the Prime Rate for such day and (ii) the
sum of Federal Funds Effective Rate for such day plus 1/2% per annum.
"Alternate Base Rate Advance" means an Advance which bears interest
at the Alternate Base Rate.'
"Alternate Base Rate Loan" means a Primary Loan (or any portion
thereof) which bears interest at the Alternate Base Rate.
"AP Mortgage" means, on any date, any Mortgage Loan which has been
identified in an Agreement to Pledge and for which the Collateral Agent has
not received the Required Mortgage Documents for such Mortgage Loan by such
date.
"Applicable Fee Rate" means, at any time, the percentage rate per
annum at which "Facility Fees are accruing on the Aggregate Commitment
(without regard to usage) at such time as set forth in the Pricing
Schedule.
"Applicable Margin" means, with respect to Advances of any Type at
any time, the percentage rate per annum which is applicable at such time
with respect to Advances of such Type as set forth in the Pricing Schedule.
"Approved Investor" means, as of any time, any of the institutions
listed on Schedule "3" attached hereto and any other institution approved
in writing by the Agent (with prompt notice to the Lenders), such approval
not to be unreasonably withheld, which Approved Investor shall be approved
for the purchase of Non-Conforming Mortgage Loans if, and only if, it has a
"1" following its name and which Approved Investor shall be approved for
the purchase of Securities if, and only if, it has a "2" following its
name; provided that any such institutions listed on Schedule "3" or
previously approved by the Agent may be eliminated as an Approved Investor
(or as an Approved Investor of a specific type) by written notice to the
Borrower from the Agent, which elimination notice shall be given only for
reasonable cause or at the election of the Required Lenders, and in either
case any commitments issued by any such formerly-Approved Investor after
such elimination shall not constitute Approved Investor Commitments, but
commitments of such formerly-Approved Investor existing at the time of such
elimination shall continue to be Approved Investor Commitments.
"Approved Investor Commitment" means a commitment, issued by an
Approved Investor of the required type, to purchase Mortgage Loans, to
exchange Securities for Mortgage Loans or to purchase Securities.
"Approved MBS Custodian" is defined in Paragraph 7(b) of the Security
Agreement.
"ARM Mortgage Loan" means a Mortgage Loan which bears interest at a
rate that may be adjusted at one or more times during the term of such
Mortgage Loan.
"Assignment" means a duly executed assignment for the benefit of the
Lenders of a Mortgage, of the indebtedness secured thereby, and of all
documents and rights related to the Mortgage Loan secured by such Mortgage
in accordance with the requirements of the Security Agreement.
"Authorized Officer" means any of the Vice President, Senior Vice
President, Executive Vice President, President, or Chief Executive Officer
of the Borrower, acting singly.
"Available Deposits" means those free collected balances maintained
in accounts in the name of the Borrower (or held by the Borrower in trust
for third parties) with a Lender (after deducting float and balances
required by such Lender under its normal practices to compensate such
Lender for the maintenance of such accounts and taking into consideration
reserve requirements applicable to such accounts) and which balances are
not included in determining "Available Deposits" under any other
arrangements between such Lender and the Borrower.
"Bank One Credit Agreement" means the Fourth Amended and Restated
Revolving Credit Agreement dated as of July 16, 2001, among the Borrower,
the lenders party thereto and Bank One, NA as agent.
"Basic Eligibility Requirements" means a Pledged Item with respect to
which each of the following statements is accurate and complete:
(i) The Borrower is the legal and equitable owner and holder
of such Pledged Item and has full power and authority to pledge such
Pledged Item. Such Pledged Item and each commitment of a Person to
purchase Mortgage Loans and Securities from the Borrower (including
Approved Investor Commitments) has been duly and validly issued to
the Borrower, and each Pledged Item constitutes Eligible Collateral,
has been duly and validly pledged to the Collateral Agent for the
benefit of the Secured Parties and is subject to no Lien other than
the lien of the Security Agreement in favor of the Agent for the
benefit of the Lenders.
(ii) Each requirement of any federal, state or local law
including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit
opportunity or disclosure laws applicable to such Pledged Item has
been complied with .
(iii) With respect to each Pledged Item which is a Pledged
Mortgage:
(1) it has been duly executed and delivered by the
parties thereto at a closing,
(2) it is valid and enforceable in accordance with its
terms, without defense or offset, subject to bankruptcy and
similar laws and other general restrictions on creditors'
rights and equitable principles (whether raised in an equity
proceeding or an action at law),
(3) the property covered by said Mortgage Loan is free
and clear of all Liens except in favor of the Borrower subject
only to (a) the Lien of current real property taxes and
assessments not yet due and payable; (b) covenants, conditions
and restrictions, rights of way, easements and other matters of
the public record, as of the date of recording, as are
acceptable to mortgage lending institutions generally and
specifically referred to in a lender's title insurance policy
delivered to the originator of said Mortgage Loan and (i)
referred to or otherwise considered in the appraisal made for
the originator of said Mortgage Loan or (ii) which do not
materially adversely affect the appraised value of such
property as set forth in such appraisal; (c) other matters to
which like properties are commonly subject which do not
materially interfere with the benefits of the security intended
to be provided by said Mortgage Loan or the use, enjoyment,
value or marketability of the related property; and (d) a first
Lien to the extent permitted under the Borrowing Base
Sublimits,
(4) it has been correctly described in the Collateral
Transmittal submitted to the Collateral Agent in respect of
such Pledged Mortgage,
(5) it has been fully funded to the mortgagor or to an
escrow or closing agent by wire transfer, transmittal through
the "Automated Clearing House" or any similar private clearing
house for interbank transfers of funds, cashier's check or a
check written against the Borrower's controlled disbursement
account with the Agent, which has been identified as a check in
the related Collateral Transmittal and for which the Agent has
notified the Collateral Agent that such check has been
presented for payment and that good funds are available to fund
the controlled disbursement account to cover such check,
(6) the Collateral Agent has in its possession (other
than with respect to Pledged Mortgages which are then the
subject of an Agreement to Pledge) all Required Mortgage
Documents other than those documents and instruments which are
in the possession of the Borrower pursuant to a Trust Receipt
or in the possession of a Person to whom delivery was made
pursuant to an Investor Transmittal Letter,
(7) it has been or will be promptly duly recorded where
necessary and complies with all applicable state or local
recording, registration and filing laws and regulations,
(8) there are no defenses, counterclaims or offsets of
any nature whatsoever with respect to such Pledged Mortgage or
the indebtedness evidenced and secured thereby or with respect
to any Required Mortgage Document and, other than the related
Required Mortgage Documents and Additional Required Mortgage
Documents, there are no instruments or documents evidencing,
securing or guaranteeing payment of the indebtedness
constituting such Pledged Mortgage,
(9) (a) with respect to Mortgage Loans other than MERS
Mortgages, each Assignment (i) has been duly authorized by all
necessary corporate action by the Borrower, duly executed and
delivered by the Borrower and is the legal, valid and binding
obligation of the Borrower enforceable in accordance with its
terms, subject to bankruptcy and similar laws and other general
restrictions on creditors' rights and equitable principles, and
(ii) complies with all applicable laws including all applicable
recording, filing and registration laws and regulations and is
adequate and legally sufficient for the purpose intended to be
accomplished thereby, including, without limitation, the
assignment of the rights, powers and benefits of the Borrower
as mortgagee, and (b) with respect to MERS Mortgages, the
interest of the Collateral Agent and the Lenders in such
Mortgages has been registered on the MERS System
(10) upon the recordation of each Assignment and
assuming the possession of the Required Mortgage Documents by
the Collateral Agent and filing of Uniform Commercial Code
financing statements in proper form in the applicable filing
offices, the Collateral Agent, for the benefit of the Lenders,
will have a valid and perfected first priority security
interest in such Pledged Item and all proceeds, products and
profits derived therefrom, including, without limitation, all
moneys, goods, insurance proceeds and other tangible or
intangible property received upon liquidation thereof, subject
to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of
creditors' rights generally and to general principles of
equity,
(11) the Borrower has complied with all laws, rules and
regulations in respect of such Pledged Mortgage if it is
insured by FHA or guaranteed by VA and the related insurance or
guarantee is in full force and effect. Such Mortgage Loan
complies in all respects with all applicable requirements for
purchase under the GNMA standard form of selling contract for
FHA insured and VA guaranteed loans and any supplement thereto
then in effect,
(12) the Borrower has received an appraisal on the
property underlying such Pledged Mortgage, which appraisal
shall be in conformity with the applicable requirements of any
law or any governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law), or any
interpretation thereof, including, without limitation, the
provisions of Title XI of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended, reformed or
otherwise modified from time to time, and any rules promulgated
to implement such provisions,
(13) all fire and casualty policies covering the
premises encumbered by each Pledged Mortgage (a) name the
Borrower as the insured under a standard mortgagee clause not
less favorable in coverage to the mortgagee than is customarily
used in the state where such premises is located, (b) are in
full force and effect, and (c) afford insurance against fire
and such other risks as are usually insured against in the
broad form of extended coverage insurance from time to time
available, as well as insurance against flood hazards as
required by FHA or VA,
(14) it is not a revolving credit facility, and
(15) with respect to MERS Loans, (i) the Borrower is in
full compliance with all terms and conditions of membership in
MERS, including the MERSCORP, Inc. "Rules of Membership" most
recently promulgated by MERSCORP, Inc., the "MERS Procedures
Manual" most recently promulgated by MERS, and any and all
other guidelines or requirements set forth by MERS or MERSCORP,
as each of the foregoing may be modified from time to time,
including, but in no way limited to compliance with guidelines
and procedures set forth with respect to technological
capabilities, drafting and recordation of Mortgages,
registration of Mortgages on the MERS System, including
registration of the interest of the Collateral Agent and the
Lenders in such Mortgages and membership requirements and (ii)
the Borrower employs officers who have the authority, pursuant
to a corporate resolution from MERS, to execute assignments of
mortgage in the name of MERS in the event deregistration from
the MERS System is necessary or desirable.
(iv) There shall be no breach of the covenants contained in
Paragraph 12 of the Security Agreement and there shall be no breach
of any of the following covenants (the sole remedy for which shall be
the removal of such Pledged Item as Eligible Collateral):
(1) The Borrower shall not (a) amend or modify, or
waive any of the terms and conditions of, or settle or
compromise any claim in respect of, any Pledged Item or any
rights related to any of the foregoing, if such amendment,
modification or waiver materially and adversely affects the
Collateral Value of such Pledged Item, or impairs the
marketability of such Pledged Item or (b) release any security
or obligor, or, through any other activity or inactivity, cause
any Pledged Mortgage which shall have been eligible for
purchase to become ineligible for purchase in accordance with
the Approved Investor Commitment related to such Pledged
Mortgage.
(2) The Borrower shall not sell, assign, transfer or
otherwise dispose of, or grant any option with respect to, or
pledge or otherwise encumber (except pursuant to the Security
Agreement), any of the Collateral or any interest therein,
except as provided in Section 8.3 with respect to releases of
Pledged Items.
(3) The Borrower is the servicer for and shall service
all Pledged Mortgages in accordance with the requirements of
the Approved Investor Commitments. The Borrower shall service
all Mortgage Loans which are the subject of Pledged Securities
in accordance with the standard requirements of the Federal
Agency issuing or guaranteeing such Securities and all
applicable FHA and VA requirements.
(4) The Borrower shall hold all escrow funds collected
in respect of Pledged Items in trust, without commingling the
same with any other fund, and apply the same for the purposes
for which such funds were collected provided that such
obligation with respect to Pledged Mortgages shall not arise
until 30 days after the origination or acquisition of the
applicable Mortgage Loan.
(5) The Borrower shall observe and perform all of its
obligations in connection with each Approved Investor
Commitment related to any Pledged Mortgage or Pledged Security.
Within forty-eight (48) hours after a request therefor by the
Agent, a copy of each Approved Investor Commitment certified by
the Borrower, or if requested by the Agent at any time after a
Default has occurred, the originals of such Approved Investor
Commitments shall be delivered to the Agent.
(6) The Borrower shall promptly notify the Agent and
the Collateral Agent if and when the Borrower receives any
partial or full prepayment (which term excludes the principal
portion of scheduled monthly payments made on a Mortgage Loan)
arising from or relating to any Pledged Mortgage and hold the
same in trust, as security for the Lenders, until such Mortgage
Loan is removed from the Borrowing Base in accordance with this
Agreement or, if a Default has occurred and is continuing under
this Agreement, then immediately remit to the Agent such
prepayments (and all interest and earnings thereon or with
respect thereto).
(7) The Borrower shall do, execute, acknowledge and
deliver, or cause to be done, executed, acknowledged and
delivered, all such other acts, instruments and transfers
(including, without limitation, Assignments) as the Agent or
the Collateral Agent may reasonably request from time to time
in order to create and maintain a perfected first priority
security interest in the Collateral in favor of the Lenders and
to create, maintain and preserve the security and benefits
intended to be afforded by this Agreement, subject to no prior
or equal security interest, lien, charge or encumbrance, or
agreement purporting to grant to any Person a security interest
in the Collateral.
(8) The Borrower shall promptly notify the Agent and
the Collateral Agent of the occurrence of any event which would
cause any Eligible Collateral to become Ineligible Collateral.
"Borrower" means K. Hovnanian Mortgage, Inc., a New Jersey
corporation, and its successors and assigns.
"Borrowing Base" means, as of any date, subject to the Borrowing Base
Sublimits, the sum of the amounts determined by applying the following
percentages to the Collateral Values of the following categories of
Eligible Collateral, without duplication as any asset is converted from one
category to another, as described below (and the Borrower, by including any
Pledged Item in any computation of the Borrowing Base, shall be deemed to
represent and warrant to the Agent, the Collateral Agent and the Lenders
that such Pledged Item constitutes Eligible Collateral):
(i) ninety-eight percent (98%) of the Collateral Value of
Eligible Conforming Mortgage Loans and Eligible Securities;
(ii) ninety-six percent (96%) of the Collateral Value of
Eligible Non-Conforming Mortgage Loans;
(iii) ninety-eight percent (98%) of the Collateral Value of
Eligible Jumbo Mortgage Loans;
(iv) ninety-five percent (95%) of the Collateral Value of
Eligible Oversize Jumbo Mortgage Loans; and
(v) ninety percent (90%) of the Collateral Value of Eligible
Aged Conforming Mortgage Loans.
In connection with the Borrowing Base, the Agent is hereby authorized by
the Lenders to grant temporary waivers of strict compliance by the Borrower
with the eligibility requirements regarding qualification of any Collateral
as Eligible Collateral or with the Lending Sublimits and Borrowing Base
Sublimits when the Agent deems it appropriate, in its sole discretion, (i)
as to all matters (other than (x) any requirement that a Mortgage Loan be
covered by an Approved Investor Commitment, (y) those described in the
definition "Basic Eligibility Requirement" (except that temporary waivers
may be granted for any of clauses (iii)(6), (9) or (10) or (iv) of such
definition) or (z) those described in the definition of "Residential
Mortgage Loan"), if the aggregate amount of deviation from strict
compliance, based on the Collateral Value so included in the Borrowing Base
and the amount of excess permitted over the Lending Sublimits or Borrowing
Base Sublimits does not exceed $5,000,000 at any time (provided, however,
that the duration of any such temporary waiver shall not exceed twenty (20)
days with respect to any AP Mortgage unless the note related to such
mortgage has been delivered to the Collateral Agent), or (ii) as to any
matter, up to any amount for up to three (3) Business Days, if the
satisfaction of such eligibility requirements or sublimits cannot be
independently determined because of events beyond the reasonable control of
the Borrower (i.e. natural disasters, transmission failures, etc.),
provided that, if such determination cannot be made for more than one (1)
Business Day, the Borrower certifies in writing that all such eligibility
requirements and sublimits are in fact satisfied.
"Borrowing Base Certificate" means a system generated report,
initially in the form attached hereto as Exhibit "G," prepared by the
Collateral Agent to reflect the Collateral Value Determination at the times
required by (and as such term is defined in) the Security Agreement, the
form of which report may be modified from time to time by the Collateral
Agent.
"Borrowing Base Sublimits" is defined in Section 2.1.3.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.6.
"Business Day" means (i) with respect to any borrowing, payment or
rate selection of Eurodollar Advances, a day (other than a Saturday or
Sunday) on which banks generally are open in Dallas, Texas and New York,
New York for the conduct of substantially all of their commercial lending
activities, interbank wire transfers can be made on the Fedwire system and
dealings in United States dollars are carried on in the London interbank
market and (ii) for all other purposes, a day (other than a Saturday or
Sunday) on which banks generally are open in Dallas, Texas for the conduct
of substantially all of their commercial lending activities and interbank
wire transfers can be made on the Fedwire system.
"Buy-Down Agreement" means a written agreement between the Borrower
and a Lender setting forth the terms and conditions under which such Lender
has agreed to a reduced interest rate on account of Fed Funds Loans
outstanding hereunder based upon Available Deposits maintained by the
Borrower with such Lender.
"Buy-Down Lender" is defined in Section 2.3.
"Buy-Down Rate" means 1.375%.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with GAAP.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as
a liability on a balance sheet of such Person prepared in accordance with
GAAP.
"Cash Equivalent Investments" means (i) short-term obligations of, or
fully guaranteed by, the United States of America, (ii) commercial paper
rated A-I or better by S&P or P-1 or better-by Moody's, (iii) demand
deposit accounts maintained in the ordinary course of business, and (iv)
certificates of deposit issued by and time deposits with commercial banks
(whether domestic or foreign) having capital and surplus in excess of $
100,000,000; provided in each case that the same provides for payment of
both principal and interest (and not principal alone or interest alone) and
is not subject to any contingency regarding the payment of principal or
interest.
"Change in Control" means (i) the acquisition by any Person, or two
or more Persons acting in concert, of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of 50% or more of the outstanding shares
of voting stock of the Parent; or (ii) Parent shall cease to own, free and
clear of all Liens or other encumbrances, at least 100% of the outstanding
shares of voting stock of the Borrower on a fully diluted basis.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Collateral" means all right, title and interest of the Borrower, of
every kind and nature, in and to all of the following property, assets and
rights of the Borrower wherever located, whether now existing or hereafter
arising, and whether now or hereafter owned, acquired by or accruing or
owing to the Borrower, and all proceeds and products thereof:
(i) all Pledged Mortgages and Pledged Securities, whether
Eligible Collateral or Ineligible Collateral, including all Required
Mortgage Documents related thereto;
(ii) any commitments or other agreements issued by any private
mortgage insurer or by the FHA or VA to insure or guarantee any
Pledged Mortgage;
(iii) all Approved Investor Commitments to purchase Pledged
Securities or Pledged Mortgages (or any Securities to be issued based
on such Pledged Mortgages) from the Borrower;
(iv) any options to sell or purchase Securities, future
contracts, or any other interest rate protection products which
directly or indirectly protect the Borrower against reductions in
value of such Pledged Mortgages or Pledged Securities due to changes
in mortgage interest rates;
(v) the Settlement Account, the Funding Account and all
uncollected deposits into the Settlement Account and the Funding
Account, together with any Custodian Settlement Accounts then in
existence with Approved MBS Custodians, as described in Paragraph
7(c) of the Security Agreement, and all uncollected deposits in such
accounts;
(vi) all property related to the foregoing, including without
limitation, the right to service Pledged Mortgages while owned by the
Borrower, all accounts and general intangibles of whatsoever kind so
related and all documents or instruments delivered to the Collateral
Agent in respect of any Pledged Item, including, without limitation,
the right to receive all insurance proceeds and condemnation awards
which may be payable in respect of the premises encumbered by any
Pledged Mortgage; and
(vii) all proceeds and products of any of the foregoing.
"Collateral Agent" means Guaranty Bank in its capacity as contractual
representative of the Lenders pursuant to the Security Agreement, and any
successor Collateral Agent appointed pursuant to paragraph 17 of the
Security Agreement.
"Collateral Transmittal" means a transmittal from the Borrower to the
Collateral Agent in electronic form (or in written form delivered by fax)
or in the event that the Borrower is unable - due to a system failure or
other event beyond the Borrower's control - to transmit such information
electronically) and, if required by the Collateral Agent, written form
containing the following information for the following submissions or
special treatment of different types of Collateral: (i) the information
described on Exhibit "D" for each AP Mortgage covered by any Agreement to
Pledge, (ii) the information described on Exhibit "D" (other than the entry
thereon for "AP Status Code") for each Pledged Mortgage not covered by an
Agreement to Pledge, (iii) change of any Pledged Mortgage from wet to dry
(open) status, open to shipped status, shipped to paid and any cancellation
of wet status, (iv) whether the Mortgage Loan is to be funded by wire or
check or (v) such information as may be required from time to time by the
Collateral Agent for any Pledged Security.
"Collateral Value" means, with respect to each asset included in
Eligible Collateral on any given day, a value determined as follows:
(ii) Each Security shall be valued based upon the Collateral
Value of the underlying Pledged Mortgages as otherwise
determined hereunder; and
(iii) Each Pledged Mortgage shall be valued at the lowest of
(A) the unpaid principal balance of such Mortgage Loan on
its Pledge Date (or the unpaid principal balance on its
conversion date in the case of Conversion Mortgage
Loans), or (B) the net acquisition cost (including any
discounts and excluding any servicing released premium)
of such Mortgage Loan, if acquired by the Borrower, or
(C) the weighted average purchase price (expressed as a
percentage of par) committed to under those Approved
Investor Commitments which could cover such Mortgage Loan
applied to the unpaid principal balance of such Mortgage
Loan on its Pledge Date (or the unpaid principal balance
on its conversion date in the case of Conversion Mortgage
Loans) or (D) market value, as determined by the Agent
(in cooperation with the Collateral Agent), based upon
whole loan prices currently available, as and when the
Agent, in its sole discretion (with no requirement to do
so unless directed to do so by the Required Lenders),
chooses to calculate market value. The values described
in (A), (B) and (C) of the preceding sentence shall be as
determined by the Borrower as of the Pledge Date of the
applicable Pledged Mortgage and reported to the
Collateral Agent.
"Commitment" shall mean, with respect to each Lender, the commitment
of such Lender to make Primary Loans in an aggregate principal amount at
any time outstanding not to exceed such Lender's Commitment Amount.
"Commitment Amount" shall mean, as of any date and with respect to
each Lender, the amount set forth opposite the name of such Lender on
Schedule "2" as its "Commitment Amount" on such date, as such Schedule 2
may be revised in accordance with Section 2.8 or Section 12.4.
"Commitment Percentage" means, for each Lender as of any date, the
percentage of the Aggregate Commitment represented by such Lender's
Commitment, as it may be amended from time to time, which initially shall
be as set forth on Schedule "2".
"Conforming Mortgage Loan" means a first or second priority
Residential Mortgage Loan which (i) either is insured by the FHA or
guaranteed by the VA or which fully conforms to all underwriting and other
requirements for sale to FNMA, FHLMC or GNMA, and (ii) if said Mortgage
Loan is a first priority Residential Mortgage Loan and has a loan-to-value
ratio which is greater than eighty percent (80%), said Mortgage Loan is
covered by a policy of private mortgage insurance acceptable to FNMA and
the Agent; provided that no such insurance shall be required for second
lien Residential Mortgage Loans, and (iii) if said Mortgage Loan is a
second priority Residential Mortgage Loan, (A) said Mortgage Loan was made
contemporaneously with a first priority Residential Mortgage Loan to the
same mortgagee and for the same real estate and improvements, and (B) said
Mortgage Loan, together with said first Lien Mortgage Loan has a combined
loan-to-value ratio which is not greater than one hundred percent (100%).
"Consolidated Tangible Net Worth" means, as of any date of
determination thereof, the Net Worth less the book value of any assets of
the Borrower and its consolidated Subsidiaries which would be treated as
intangibles under GAAP including, without limitation, good-will, research
and development costs, trade-marks, trade names, copyrights, patents and
unamortized debt discount and expenses.
"Contingent Obligation" of a Person means any agreement, undertaking
or arrangement by which such Person assumes, guarantees, endorses,
contingently agrees to purchase or provide funds for the payment of, or
otherwise becomes or is contingently liable upon, the obligation or
liability of any other Person, or agrees to maintain the net worth or
working capital or other financial condition of any other Person, or
otherwise assures any creditor of such other Person against loss,
including, without limitation, any comfort letter, operating agreement,
take-or-pay contract or the obligations of any such Person as general
partner of a partnership with respect to the liabilities of the
partnership.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower or any of its
Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Conversion/Continuation Notice" is defined in Section 2.7.
"Conversion Mortgage Loan" means a Mortgage Loan which is originated
as an ARM Mortgage Loan, sold to an Approved Investor and subsequently
repurchased by the Borrower after an election by the obligor thereunder to
convert to a fixed rate loan.
"Coverage Requirement" means, as of any date, the aggregate unpaid
principal amount then outstanding under this Agreement
"Custodian Settlement Accounts" is defined in the Security Agreement.
"Default" means an event described in Article VII.
"Effective Date" is defined in Section 4.1.
"Electronic Tracking Agreement" shall mean the Electronic Tracking
Agreement dated the date hereof among the Agent, MERS, MERSCORP, the
Collateral Agent and the Borrower.
"Eligible Aged Conforming Mortgage Loan" shall mean an Eligible
Mortgage Loan that (i) has been included in the Borrowing Base for more
than 90 days after its Pledge Date and not more than 180 days after its
Pledge Date, and (ii) would be an Eligible Conforming Mortgage Loan if such
loan had been included in the Borrowing Base for not more than 90 days
after its Pledge Date.
"Eligible Collateral" means, as of any date, all Eligible Conforming
Mortgage Loans, Eligible Jumbo Mortgage Loans, Eligible Oversize Jumbo
Mortgage Loans, Eligible Non-Conforming Mortgage Loans, Eligible Aged
Conforming Mortgage Loans and Eligible Securities.
"Eligible Conforming Mortgage Loan" means an Eligible Mortgage Loan
which: (i) is a Conforming Mortgage Loan; and (ii) is subject to an
Approved Investor Commitment.
"Eligible Jumbo Mortgage Loan" means an Eligible Mortgage Loan which:
(i) is a Jumbo Mortgage Loan; and (ii) is subject to an Approved Investor
Commitment.
"Eligible Mortgage Loan" means any Pledged Mortgage:
(i) which meets the Basic Eligibility Requirements;
(ii) which has no monthly installment of principal and/or
interest which is more than 29 days past due;
(iii) which has been included in the Borrowing Base for not
more than ninety (90) days after its Pledge Date unless it is an
Eligible Aged Mortgage Loan;
(iv) which has a note date (or, in the case of Conversion
Mortgage Loan, a conversion date) which is one hundred twenty (120)
days or less prior to its Pledge Date;
(v) for which, if it is an AP Mortgage:
(1) the Borrower expects such AP Mortgage to close on
the Pledge Date and become a valid lien securing actual
indebtedness by funding to the order of the mortgagor
thereunder, has not learned of any information to the contrary
and has not received any returned proceeds of such AP Mortgage
from the escrow or closing agent for such Pledged Mortgage;
(2) if an AP Mortgage is not closed and funded as
required pursuant to clause (v) (1) above, the Borrower shall
so notify the Collateral Agent as soon as the Borrower becomes
aware of that fact but in any event no later than 12:00 noon
the next Business Day, unless the AP Mortgage has closed and
funded by that time, and the Collateral Agent shall delete said
AP Mortgage from the Borrowing Base;
(3) if an AP Mortgage was previously included in the
Borrowing Base and was subsequently deleted as required
pursuant to clause (v) (2) above, such AP Mortgage has not been
submitted for inclusion in the Borrowing Base for a total of
more than three times;
(4) the Collateral Agent has received the Required
Mortgage Documents within seven (7) Business Days after the
date of the related Agreement to Pledge;
(5) the Collateral Value attributable to all AP
Mortgages included in any category of the Borrowing Base does
not exceed forty percent (40%) of the Aggregate Commitment
during the first and last three Business Days in any calendar
month, and
(6) the Collateral Value attributable to all AP
Mortgages included in any category of the Borrowing Base does
not exceed thirty percent (30%) of the Aggregate Commitment for
any day other than the first and last three Business Days of
any calendar month;
(vi) which, if subject to an Investor Transmittal Letter or
Trust Receipt and if said Pledged Mortgage was:
(1) withdrawn by the Borrower for purposes of
correcting clerical or other non-substantive documentation
problems: (i) the promissory note and other documents relating
to said Pledged Mortgage were returned to the Collateral Agent
within fifteen calendar days from the date of withdrawal, (ii)
said Pledged Mortgage was released to the Borrower pursuant to
a Trust Receipt and (iii) the Collateral Value of said Pledged
Mortgage when added to the Collateral Value of all other
Pledged Mortgages which have been similarly released to the
Borrower does not exceed $1,000,000; or
(2) shipped by the Collateral Agent directly to an
Approved Investor for purchase pursuant to an Investor
Transmittal Letter which is a "Whole Loan Sale Transmittal
Letter" substantially in the form of Exhibit "4" to the
Security Agreement, the full purchase price therefor has been
received by the Collateral Agent (or said Pledged Mortgage has
been returned to the Collateral Agent) within forty-five (45)
calendar days (or sixty (60) calendar days for deliveries to
such Approved Investors as the Agent may have specifically
approved for extended Investor Transmittal Letters) from the
date of shipment by the Collateral Agent; or
(3) shipped by the Collateral Agent directly to a
custodian for purposes of formation of a pool supporting a
Security, the Security is issued and sold and the purchase
price therefor has been received by the Collateral Agent (or
said Pledged Mortgage has been returned to the Collateral
Agent) within forty-five (45) days (or sixty (60) days for
deliveries to such Approved Investors as the Agent may have
specifically approved for extended Investor Transmittal
Letters) from the date of shipment by the Collateral Agent; and
(vii) which has not previously been included in the Borrowing
Base, then shipped to an investor and returned, for whatever reason,
to the Collateral Agent.
"Eligible Non-Conforming Mortgage Loan" means an Eligible Mortgage
Loan which: (i)is a Non-Conforming Mortgage Loan; (ii) is subject to an
Approved Investor Commitment issued by an Approved Investor; and (iii) has
an unpaid principal balance on the applicable Pledge Date less than or
equal to $350,000.
"Eligible Oversize Jumbo Mortgage Loan" means an Eligible Mortgage
Loan which: (i)is an Oversize Jumbo Mortgage Loan; and (ii)is subject to
an Approved Investor Commitment specifically identified as covering such
Mortgage Loan.
"Eligible Security" means any Pledged Security: (i) which is covered
by an Approved Investor Commitment; and (ii) for which the Collateral Agent
shall have received such evidence as may be required under the Security
Agreement to confirm the existence of the security interest in favor of the
Collateral Agent for the benefit of the Lenders in such Pledged Security.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and other governmental
restrictions relating to (i) the protection of the environment, (ii) the
effect of the environment on human health, (iii) emissions, discharges or
releases of pollutants, contaminants, hazardous substances or wastes into
surface water, ground water or land, or (iv) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, hazardous substances or wastes or the clean-up or
other remediation thereof
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which bears interest at a
Eurodollar Rate.
"Eurodollar Base Rate" means with respect to a Eurodollar Advance for
the relevant Interest Period, the rate appearing on Bloomberg Professional
(or, if not available, any other nationally recognized trading screen
reporting on-line trading in eurodollars) as the eurodollar rate for
deposits in dollars at 10:00 a.m. (Dallas time) two Business Days prior to
the first day of such Interest Period, having a maturity equal to such
Interest Period. In the event that such rate ceases to be published,
Eurodollar Base Rate shall mean a comparable rate of interest reasonably
selected by Lender.
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar
Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar
Base Rate applicable to such Interest Period, divided by (b) one minus the
Reserve Requirement (expressed as a decimal) applicable to such Interest
Period, plus (ii) the Applicable Margin.
"Excluded Taxes" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net
income, and franchise taxes imposed on it, by (i) the jurisdiction under
the laws of which such Lender or the Agent is incorporated or organized or
(ii) the jurisdiction in which the Agent's or such Lender's principal
executive office or such Lender's applicable Lending Installation is
located.
"Exhibit" refers to an exhibit to this Agreement, unless another
document is specifically referenced.
"Federal Agency" means FHLMC, FNMA, GNMA, FHA or VA.
"Federal Funds Effective Rate" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published for such day (or, if such
day is not a Business Day, for the immediately preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations at
approximately 10 a.m. (Dallas time) on such day on such transactions
received by the Agent from three Federal funds brokers of recognized
standing selected by the Agent in its sole discretion.
"Federal Funds Funding Rate" means, with respect to any Fed Funds
Loan for any day, the rate per annum equal to the consensus (or if no
consensus exists, the arithmetic average) of the rates at which reserves
are offered by first-class banks to other first-class banks (at
approximately 10:00 a.m. (Dallas time)) on such day (or if such day is not
a Business Day, on the immediately preceding Business Day) on overnight
federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, based on quotes received by the Agent
from three federal funds brokers of recognized standing selected by the
Agent in its sole discretion.
"Federal Funds Rate" means, for any day, an interest rate per annum
equal to the Federal Funds Funding Rate for such day plus the Applicable
Margin.
"Fed Funds Advance" means an Advance which bears interest at the
Federal Funds Rate.
"Fed Funds Loan" means any Loan made as a part of a Fed Funds
Advance.
"Fees" is defined in Section 2.5.
"FHA" means the Federal Housing Administration or other agency,
corporation or instrumentality of the United States to which the powers and
duties of the Federal Housing Administration have been transferred.
"FHA-Approved Mortgagee" means an institution that is approved by the
FHA to act as a servicer and mortgagee of record with respect to a Mortgage
Loan insured by the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation or other
agency, corporation or instrumentality of the United States to which the
powers and duties of the Federal Home Loan Mortgage Corporation have been
transferred.
"FHLMC-Approved Lender" means an institution that is approved by the
FHLMC to act as a lender in connection with the origination of any Mortgage
Loan purchased by the FHLMC.
"FHLMC Security" means a security representing an undivided
fractional interest in a pool of Mortgage Loans, which security is issued
and guaranteed as to full and timely payment of interest and full
collection of principal by FHLMC.
"FNMA" means the Federal National Mortgage Association or other
agency, corporation or instrumentality of the United States to which the
powers and duties of the Federal National Mortgage Association have been
transferred.
"FNMA-Approved Lender" means an institution that is approved by the
FNMA to act as a lender in connection with the origination of any Mortgage
Loan purchased by the FNMA.
"FNMA Security" means a security representing an undivided fractional
interest in a pool of Mortgage Loans, which security is issued and
guaranteed as to full and timely payment of principal and interest by FNMA.
"Funding Account" means the account established pursuant to Section
8.4.
"GAAP" means generally accepted accounting principles as in effect
from time to time, consistently applied.
"GAAP Carrying Value" means, with respect to any asset of the
Borrower, the value at which such asset is carried on the books of the
Borrower in accordance with GAAP after excluding capitalized items. Any
changes in the methodology used for adjusting such book value shall be
subject to the prior approval of the Agent.
"GNMA" means the Government National Mortgage Association or other
agency, corporation or instrumentality of the United States as to which the
powers and duties of the Governmental National Mortgage Association have
been transfer-red.
"GNMA Security" means a security representing an undivided fractional
interest in a pool of Mortgage Loans, which security is issued by the
Borrower and guaranteed as to full and timely payment of principal and
interest by GNMA without regard as to whether the Borrower collects any
payments on such Mortgage Loans.
"Ineligible Collateral" means any Pledged Item that does not at the
time constitute Eligible Collateral.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price
of Property or services (other than accounts payable arising in the
ordinary course of such Person's business payable on terms customary in the
trade), (iii) obligations, whether or not assumed, secured by Liens or
payable out of the proceeds or production from Property now or hereafter
owned or acquired by such Person, (iv) obligations which are evidenced by
notes, acceptances, or other instruments, (v) Capitalized Lease
Obligations, (vi) Contingent Obligations, (vii) Letters of Credit, (viii)
obligations of such Person to purchase securities or other Property arising
out of or in connection with the sale of the same or substantially similar
securities or Property, (ix) Net Mark-to-Market Exposure under Rate
Management Transactions and (x) any other obligation for borrowed money
which in accordance with GAAP would be shown as a liability on the
consolidated balance sheet of such Person.
"Interest Period" means, with respect to a Eurodollar Advance, a
period of one, two or three-months commencing on a Business Day, all as
selected by the Borrower pursuant to this Agreement. An Interest Period of
one, two or three months shall end on the day which corresponds numerically
to such date one, two or three months thereafter, provided, however, that
if there is no such numerically corresponding day in such next, second or
third succeeding month, such Interest Period shall end on the last Business
Day of such next, second or third succeeding month. If an Interest Period
would otherwise end on a day which is not a Business Day, such Interest
Period shall end on the next succeeding Business Day, provided, however,
that if with respect to a one, two or three month Interest Period said next
succeeding Business Day falls in a new calendar month, such Interest Period
shall end on the immediately preceding Business Day.
"Interim Funder Category" shall mean the category of the same name on
the MERS System that reflects the security interest of inter alia, mortgage
warehouse lenders, in the Mortgage Loans that have been pledged by
borrowers of such mortgage warehouse lender.
"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in
the ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in
the trade) or contribution of capital by such Person; stocks, bonds, mutual
funds, partnership interests, notes, debentures or other securities owned
by such Person; any deposit accounts and certificate of deposit owned by
such Person; and structured notes, derivative financial instruments and
other similar instruments or contracts owned by such Person.
"Investor Transmittal Letter" means either a "Whole Loan Sale
Transmittal Letter" or a "Warehouse-Related MBS Transmittal Letter"
substantially in the form of Exhibits "4" and "5" to the Security
Agreement.
"Jumbo Mortgage Loan" means a Conforming Mortgage Loan except for
size, but which has an original principal balance of less than or equal to
$650,000.
"Keep-Well" means that certain Keep-Well Agreement of even date
herewith executed by the Parent in favor of the Agent, for the ratable
benefit of the Lenders, as it may be amended or modified and in effect from
time to time.
"Lenders" means the lending institutions listed on the signature
pages of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent,
the office, branch, subsidiary or affiliate of such Lender or the Agent
listed on the signature pages hereof or on a Schedule or otherwise selected
by such Lender or the Agent pursuant to Section 2.17.
"Lending Sublimits" is defined in Section 2.1.1.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon
which such Person is an account party or for which such Person is in any
way liable.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, Capitalized Lease or other
title retention agreement).
"Loan" means a Primary Loan or a Swingline Loan and "Loans" means all
Primary Loans and all Swingline Loans (or any conversion or continuation
thereof).
"Loan Documents" means this Agreement, any Notes issued pursuant to
Section 2.15, the Security Agreement, the Buy-Down Agreements, the Keep-
Well, the Subordination Agreement and the other documents and agreements
contemplated hereby and executed by the Borrower or another Person in favor
of the Agent or any Lender.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of
operations, or prospects of the Borrower and its Subsidiaries taken as a
whole or of the Parent, (ii) the ability of the Parent or the Borrower to
perform its obligations under the Loan Documents to which it is a party, or
(iii) the validity or enforceability of any of the Loan Documents or the
rights or remedies of the Agent or the Lenders thereunder.
"Material Indebtedness" is defined in Section 7.5.
"MERS" shall mean the Mortgage Electronic Registration System, Inc.
"MERSCORP" shall mean MERSCORP, Inc.
"MERS Loan" shall mean any Mortgage Loan made by the Borrower which
is secured by a MERS Mortgage.
"MERS Member" shall mean any entity which is a member of MERS, in
good standing and in compliance with all rules, regulations, procedures and
requirements set forth by MERS, including, but not limited to the payment
of membership dues.
"MERS Mortgage" shall mean any Mortgage registered to the Borrower on
the MERS System.
"MERS System" shall mean the Mortgage Electronic Registration System
established by MERS.
"Moody's" means Moody's Investors Service, Inc. or any successor to
its business.
"Mortgage" means a mortgage, deed of trust, security deed or similar
instrument purporting to create a first or second lien or similar interest
in real estate and improvements thereon.
"Mortgage Loan" means a loan of money evidenced by a Mortgage Note
and secured by a Mortgage.
"Mortgage Note" means a note evidencing the indebtedness secured by a
Mortgage.
"Multi-employer Plan" means a Plan maintained pursuant to a
collective bargaining agreement or any other arrangement to which the
Borrower or any member of the Controlled Group is a party to which more
than one employer is obligated to make contributions.
"Net Income" means, as of any date of determination thereof, the net
income of the Borrower and the consolidated Subsidiaries, on a consolidated
basis, as determined in accordance with GAAP.
"Net Mark-to-Market Exposure" of a Person means, as of any date of
determination, the excess (if any) of all unrealized losses over all
unrealized profits of such Person arising from Rate Management
Transactions. "Unrealized losses" means the fair market value of the cost
to such Person of replacing such Rate Management Transactions as of the
date of determination (assuming the Rate Management Transactions were to be
terminated as of that date), and "unrealized profits" means the fair market
value of the gain to such Person of replacing such Rate Management
Transactions as of the date of determination (assuming such Rate Management
Transactions were to be terminated as of that date).
"Net Worth" means as of any date of determination thereof, the net
worth of the Borrower and its Subsidiaries on a consolidated basis as
determined in accordance with GAAP.
"Non-Conforming Mortgage Loan" means a first priority Residential
Mortgage Loan that (i) does not fully conform to the underwriting criteria
for sale to FNMA or FHLMC with respect to credit quality, (ii) meets the
general underwriting guidelines established in Exhibit "H" hereto, and
(iii)does not have a loan-to-value ratio which is greater than one hundred
percent (100%).
"Non-U.S. Lender" is defined in Section 3.5(iv).
"Note" means any promissory note issued at the request of a Lender
pursuant to Section 2.13 substantially the form of Exhibit "A" attached
hereto, including any amendment, modification, renewal or replacement of
any such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the
Lenders or to any Lender, the Agent, the Collateral Agent or any
indemnified party arising under the Loan Documents.
"Operating Cash Flow" means, for any period, (i) the sum of the
following items for the Borrower and its consolidated Subsidiaries for such
period (with terms in quotes having the meanings given such terms in the
Borrower's consolidated financial statements): "net income", "net losses on
interest rate contracts" and other similar hedging instruments, "provision
for loan losses", "depreciation and amortization of good will", the
increase in deferred (but not current) taxes, and other non-cash losses or
deductions included in the computation of net income; minus (ii) the sum of
the following items for the Borrower and its consolidated Subsidiaries for
such period (with terms in quotes having the meanings given such terms in
the Borrower's consolidated financial statements): the decrease in
deferred (but not current) taxes and other non-cash gains included in the
computation of "net income".
"Other Taxes" is defined in Section 3.5(ii).
"Overnight Transaction Loan Effective Rate" means, as of any day, a
fluctuating rate of interest per annum determined by the Agent as its
overnight transaction loan rate for such day.
"Overnight Transaction Loan Rate" means, with respect to a Swingline
Loan, a rate equal to the sum of (i) the Overnight Transaction Loan
Effective Rate plus (ii) the Applicable Margin.
"Oversize Jumbo Loans" means a Conforming Mortgage Loan except for
size, but which has an original principal balance in excess of $650,000,
but less than or equal $1,250,000.
"Parent" means Hovnanian Enterprises, Inc., and its successors and
assigns.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each calendar month.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, limited liability company, enterprise, trust or
other entity or organization, or any government or political subdivision or
any agency, department or instrumentality thereof
"Plan" means an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Code as to which the Borrower or any member of the Controlled
Group may have any liability.
"Pledge Date" means the date on which a Mortgage Loan or Security is
first delivered in pledge to the Collateral Agent or is otherwise made
subject to a security interest in favor of the Agent or Collateral Agent
for the benefit of the Lenders, provided that (i) the date of delivery of a
Mortgage Loan covered by an Agreement to Pledge shall be deemed to be the
date of delivery of such Agreement to Pledge even after subsequent delivery
of the related Required Mortgage Documents, (ii) the "Pledge Date" for all
Collateral previously held by the Collateral Agent under the Prior
Facilities shall be deemed to be the date on which such Collateral was
first delivered to the Collateral Agent under the Prior Facilities even
though such date is prior to the date of this Agreement and (iii) any AP
Mortgage which has been deleted and resubmitted as permitted pursuant to
clause (v)(3) of the definition of Eligible Mortgage Loan, shall have a
Pledge Date which is the date of the original Agreement to Pledge first
submitted.
"Pledged Item" means any Pledged Mortgage or Pledged Security.
"Pledged Mortgage" all Mortgage Loans that are from time to time
delivered (or, in the case of AP Mortgages, are committed to be delivered)
to the Collateral Agent pursuant to this Agreement and the Security
Agreement.
"Pledged Security" all Securities that are from time to time
delivered to the Collateral Agent pursuant to this Agreement and the
Security Agreement.
"Pricing Schedule" means the Schedule attached hereto identified as
Schedule "1".
"Primary Advance" means a Eurodollar Advance, a Fed Funds Advance or
an Alternate Base Rate Advance.
"Primary Loan" means a Loan (other than a Swingline Loan) consisting
of a portion of a Primary Advance.
"Prime Rate" means a rate per annum equal to the prime rate of
interest announced from time to time by Guaranty Bank or by its parent
(which is not necessarily the lowest rate charged to any customer),
changing when and as said prime rate changes.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Rate Management Transaction" means any transaction (including an
agreement with respect thereto) now existing or hereafter entered into
between the Borrower and any Person which is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or
equity index swap, equity or equity index option, bond option, interest
rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, forward transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of
these transactions) or any combination thereof, whether linked to one or
more interest rates, foreign currencies, commodity prices, equity prices or
other financial measures.
"Rate Management Obligations" of a Person means any and all
obligations of such Person, whether absolute or contingent and howsoever
and whensoever created, arising, evidenced or acquired (including all
renewals, extensions and modifications thereof and substitutions therefor),
under (i) any and all Rate Management Transactions, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any
Rate Management Transactions.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor
thereto or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of
the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing
or carrying margin stocks applicable to member banks of the Federal Reserve
System.
"Reportable Event" means a reportable event as defined in Section
4043 of ERISA and the regulations issued under such section, with respect
to a Plan, excluding, however, such events as to which the PBGC has by
regulation waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event, provided, however,
that a failure to meet the minimum funding standard of Section 412 of the
Code and of Section 302 of ERISA shall be a Reportable Event regardless of
the issuance of any such waiver of the notice requirement in accordance
with either Section 4043(a) of ERISA or Section 412(d) of the Code.
"Reports" is defined in Section 9.7.
"Required Lenders" means Lenders in the aggregate having at least 66
2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been
terminated, Lenders in the aggregate holding at least 66 2/3% of the
aggregate unpaid principal amount of the outstanding Advances.
"Required Mortgage Documents" means the instruments and documents
described in Schedule "A" to the Security Agreement, as applicable to a
particular Mortgage Loan, which are required to be delivered to the
Collateral Agent.
"Reserve Requirement" means, with respect to the Eurodollar Rate
applicable to an Interest Period, the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed under Regulation D on eurocurrency liabilities.
"Residential Mortgage Loan" means a Mortgage Loan secured by a
Mortgage on a Single Family Residence.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. or any successor to its business.
"Schedule" refers to a specific schedule to this Agreement, unless
another document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Obligations" means, collectively, (i) the Obligations and
(ii) all Rate Management Obligations owing to one or more Lenders.
"Secured Parties" is defined in Paragraph 1 of the Security
Agreement.
"Security or Securities" means any FHLMC Security, FNMA Security or
GNMA Security.
"Security Agreement" means the Fourth Amended and Restated Security
and Collateral Agency Agreement as of even date herewith, substantially in
the form of Exhibit "I" attached hereto, by and among the Borrower, the
Agent, and the Collateral Agent, pursuant to which a security interest is
created in favor of the Collateral Agent for the Lenders under this
Agreement in certain Collateral to be pledged pursuant to this Agreement,
as the same may, from time to time, be further supplemented, modified or
amended.
"Settlement Account" means the account established pursuant to
Section 8.4.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member
of the Controlled Group.
"Single Family Residence" means a one to four family dwelling unit,
which may be a condominium unit but which shall not be a mobile home,
manufactured housing or a dwelling unit in a cooperative apartment
building.
"Subordination Agreement" means that certain Subordination Agreement
of even date herewith made by Parent in favor of the Agent for the benefit
of the Lenders.
"Subsidiary" of a Person means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at
the time be owned or controlled, directly or indirectly, by such Person or
by one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, limited liability company,
association, joint venture or similar business organization more than 50%
of the ownership interests having ordinary voting power of which shall at
the time be so owned or controlled. Unless otherwise expressly provided,
all references herein to a "Subsidiary" shall mean a Subsidiary of the
Borrower.
"Substantial Portion" means, with respect to the Property of the
Borrower and its Subsidiaries, Property which (i) represents more than 10%
of the consolidated assets of the Borrower and its Subsidiaries as would be
shown in the consolidated financial statements of the Borrower and its
Subsidiaries as at the beginning of the twelve-month period ending with the
month in which such determination is made, or (ii) is responsible for more
than 10% of the consolidated net sales or of the consolidated net income of
the Borrower and its Subsidiaries as reflected in the financial statements
referred to in clause (i) above.
"Swingline Amount" means $3,000,000.
"Swingline Commitment" means the obligation of the Swingline Lender
under Section 2.4 to make Swingline Loans.
"Swingline Lender" means Guaranty Bank in its capacity as Swingline
Lender under this Agreement.
"Swingline Loan" has the meaning ascribed to such term in Section
2.4.1.
"Swingline Obligations" has the meaning ascribed to such term in
Section 2.4.2.
"Swingline Rate" means for any day, the Overnight Transaction Loan
Rate.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities
with respect to the foregoing, but excluding Excluded Taxes.
"Termination Date" means June 6, 2003 or any earlier date on which
the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to the terms hereof
"Total Liabilities" means as of any date of determination thereof,
all liabilities (as such term is used under GAAP) of the Borrower and the
other consolidated Subsidiaries determined on a consolidated basis.
"Transferee" is defined in Section 12.5.
"Trust Receipt" means a trust receipt substantially in the form of
Exhibit "T' to the Security Agreement.
"Type" means, with respect to any Advance, its nature as an Alternate
Base Rate Advance, Eurodollar Advance or Fed Funds Advance.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to
such benefits, all determined as of the then most recent valuation date for
such Plans using PBGC actuarial assumptions for single employer plan
terminations.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"VA" means the Veterans Administration or other agency, corporation
or instrumentality of the United States as to which the powers and duties
of the Veterans Administration have been transferred.
"VA-Approved Lender" means an institution that is approved by the VA
to act as a lender in connection with the origination of any Mortgage Loan
guaranteed by the VA.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-
Owned Subsidiaries of such Person, or by such Person and one or more
Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited
liability company, association, joint venture or similar business
organization 100% of the ownership interests having ordinary voting power
of which shall at the time be so owned or controlled.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
1.2 Commitment, Sublimits and Types of Advances
1.2.1 Commitment and Lending Sublimits.
From and including the date of this Agreement and prior to the
Termination Date, each Lender severally agrees, on the terms and conditions
set forth in this Agreement (including the lending sublimits (the "Lending
Sublimits") set forth below), to make Primary Loans to the Borrower from
time to time; provided that, on any date, after giving effect to such
Primary Loans and all other Loans that the Borrower has requested be made
on such date under this Agreement:
(1) the sum of (i) the aggregate principal balance then
outstanding of all Loans then held by such Lender plus (ii)
such Lender's Commitment Percentage of the then-outstanding
Swingline Loans shall not exceed the amount of such Lender's
then-current Commitment Amount;
(2) the aggregate principal balance of all outstanding
Swingline Loans held by the Swingline Lender on the date shall
not exceed the Swingline Amount; and
(3) the Coverage Requirement, on such date, shall not
exceed the lesser of the Aggregate Commitment or the then-
current Borrowing Base.
Subject to the terms of this Agreement, the Borrower may borrow, repay and
reborrow Primary Loans at any time prior to the Termination Date. The
Commitments of the Lenders and the Swingline Commitment of the Swingline
Lender to lend hereunder shall expire on the Termination Date.
1.2.2 Borrowing Base Sublimits by Category. The maximum amount
that can be credited toward the Borrowing Base from certain categories of
Eligible Collateral shall be limited so that the Borrowing Base value
determined under:
(i) clause (iii) of the definition thereof
(Eligible Non-Conforming Mortgage Loans) shall not exceed
five percent (5%) of the Aggregate Commitment;
(ii) clause (iv) of the definition thereof
(Eligible Jumbo Mortgage Loans) shall not exceed thirty
percent (30%) of the Aggregate Commitment; and
(iii) clause (v) of the definition thereof
(Eligible Oversize Jumbo Mortgage Loans) shall not exceed
five percent (5%) of the Aggregate Commitment.
1.2.3 Borrowing Base Sublimits by Asset Type. The maximum
amount that can be credited toward the Borrowing Base from certain types of
Collateral, regardless of category, shall be limited (collectively with the
limits set forth in Section 2.1.2, the "Borrowing Base Sublimits") so that
the Borrowing Base value attributable to:
(i) Eligible Conforming Aged Mortgage Loans shall
not exceed one and one half percent (1.5%) of the
Aggregate Commitment; and
(ii) Pledged Mortgages having a second lien
priority shall not exceed five percent (5%) of the
Aggregate Commitment.
1.2.4 Types of Advances. Each Advance hereunder shall consist
of one or more Primary Advances requested by the Borrower in accordance
with Sections 2.6. Primary Advances shall be available as provided in
Section 2.1 and Swingline Loans shall be available as provided in Section
2.4.
1.3 Primary Advances. Subject to the terms and conditions herein
(including the Lending Sublimits) the Borrower may request Primary Advances
from the Lenders on a pro rata basis in accordance with each such Lender's
Commitment Percentage. Primary Advances shall accrue interest at the
Eurodollar Rate, the Federal Funds Rate or the Alternate Base Rate, as
selected by the Borrower in accordance with Sections 2.6 and 2.7.
1.4 Buy Down Loans. Notwithstanding anything contained in this
Agreement, the Borrower and any individual Lender (a "Buy-Down Lender") may
notify the Agent in writing (which notice shall be given at least five (5)
Business Days prior to the end of any calendar month) that the Borrower and
such Buy-Down Lender have entered into a Buy-Down Agreement with respect to
all Fed Funds Loans from time to time outstanding and held by such Buy-Down
Lender, and, that, pursuant to said Buy-Down Agreement, the interest rate
applicable to such Fed Funds Loans during any interest calculation period
shall be the Buy-Down Rate and shall be based on the assumption that the
Borrower shall maintain sufficient Available Deposits with such Buy-Down
Lender. The Agent shall (until otherwise notified by the Borrower and Buy-
Down Lender to the contrary) accrue interest on such Fed Funds Loans at the
Buy-Down Rate and the Borrower shall pay such interest in accordance with
Section 2.18. The Agent shall have no obligation to verify the amount of
any Available Deposits supporting the pricing of such Fed Funds Loans held
by any Buy-Down Lender, including without limitation, any deficiency fees
or other amounts payable to such Lender by the Borrower under the
applicable Buy-Down Agreement. The Borrower shall pay all deficiency fees
or other amounts payable under its Buy-Down Agreement with each Buy-Down
Lender directly to such Buy-Down Lender within ten (10) calendar days of
receipt of a billing statement from such Buy-Down Lender. Any Buy-Down
Lender may elect not to make demand for the payment of deficiency fees
accruing in respect of any shortage of Available Deposits from time to time
and it is expressly agreed and understood that: (1) any such deficiency fee
shall not, by reason of such failure of such Buy-Down Lender or otherwise,
be deemed to have been waived by such Buy-Down Lender (except as such
waiver is expressly acknowledged in writing by such Buy-Down Lender from
time to time), and (2) all deficiency fees accrued and unpaid hereunder and
not so expressly waived, whether or not previously declared due and owing
by any such Buy-Down Lender, shall automatically be due and payable in full
upon the Termination Date.
1.5 Swingline Loans.
1.5.1 Swingline Loans. Subject to the terms and conditions
hereof, the Swingline Lender, in its sole discretion, may make loans (each
a "Swingline Loan" and collectively, the "Swingline Loans") to the Borrower
from time to time during the period from and including the date of this
Agreement and prior to the Termination Date, provided, however, that at no
time shall the Swingline Lender make a Swingline Loan if, immediately after
giving effect thereto, (i) the aggregate outstanding principal amount of
all Swingline Loans would exceed the Swingline Amount, or (ii) the
aggregate outstanding principal amount of all Swingline Loans and the
aggregate outstanding principal amount of all Primary Loans would exceed
either (A) the Aggregate Commitment, or (B) the Borrowing Base. All
Swingline Loans shall bear interest at the Swingline Rate.
1.5.2 Swingline Take-Out. By no later than 11:00 a.m., on (i)
the last Business Day of each calendar week or (ii) any Business Day
immediately succeeding any day upon which the Swingline Lender shall so
demand, the Agent shall notify each Lender of the aggregate outstanding
principal balance of the Swingline Loans as of the commencement of business
of the Agent on such Business Day (the "Swing Line Obligations") and,
subject only to its receipt of such notice and regardless of whether any
Default shall have occurred and be continuing, whether the Commitments
shall have been reduced or terminated or any other matter whatsoever, each
Lender shall (i) make a loan to the Borrower in an amount equal to its
Commitment Percentage of such Swing Line Obligations, and (ii) make the
amount of such loan available to the Agent for the account of the Borrower
at the Office not later than 1:00 p.m., on such Business Day, in funds
immediately available to the Agent at such office. The funds so made
available to the Agent on such Business Day in respect of such loans will
then be disbursed by the Agent directly to the Swingline Lender as payment
in respect of the Swing Line Obligations. Notwithstanding anything to the
contrary contained in this Agreement, to the extent that the Swingline
Lender, in its capacity as a Lender hereunder, shall be required to fund
its Commitment Percentage of any Swingline Loan take-out under this Section
2.4.2, the Swingline Lender and the Agent shall net out the funding thereof
against the payments to be received by the Swingline Lender in respect of
such take-out.
1.5.3 Swingline Loans to Pay Amounts Due to the Swingline
Lender. If any amounts are advanced by the Swingline Lender to cover
checks or wire transfers from Borrower accounts maintained with the
Swingline Lender when there are insufficient funds in such accounts to
cover the applicable check or wire transfer and sufficient funds are not
deposited in the applicable account before the close of business on the day
on which the applicable check or wire transfer request is honored, then the
Borrower shall be deemed to have requested, and the Swingline Lender may
(but shall not be obligated to) elect to make, a Swingline Loan to pay such
overdraft amount; provided, however, that the Swingline Lender shall not
make any such Swingline Loan if, after giving effect thereto, (x) the
Coverage Requirement would exceed the Borrowing Base or (y) the aggregate
principal balance of all outstanding Loans under this Agreement would
exceed the Aggregate Commitment.
1.5.4 Indemnification of Swingline Lender. The Lenders agree to
reimburse and indemnify the Swingline Lender ratably in proportion to their
respective Commitments (or, if the Commitments have been terminated, in
proportion to their Commitments immediately prior to such termination) from
and against any and all losses, liabilities (including liabilities for
penalties), actions, suits, judgments, demands, costs and expenses
(including, without limitation, reasonable attorneys' fees and
disbursements) arising out of or in connection with the Swingline,
(including the foregoing in respect of losses, liabilities or other
obligations suffered by the Swingline Lender resulting from its own
negligence and excluding the foregoing in respect of losses, liabilities
and other obligations resulting from its own gross negligence or willful
misconduct). If a Lender does not make available to the Swingline Lender
when due such Lender's Commitment Percentage of any such loss, liability,
judgment, cost or expense, such Lender shall be required to pay on demand
interest thereon for the account of the Swingline Lender at a rate of
interest per annum equal to the Federal Funds Funding Rate from the date
such Lender's payment is due until the date such payment is received by the
Swingline Lender.
1.6 Fees. The Borrower shall pay the following fees (the "Fees"):
1.6.1 Facility Fees. A facility fee based on the Aggregate
Commitment from time to time from and after the date hereof, calculated at
the Applicable Fee Rate, expressed as a per diem rate on the actual
Aggregate Commitment for each day during the preceding full or partial
calendar quarter, payable in arrears, on the last day of each calendar
quarter and on the Termination Date. This fee shall be paid to the Agent
and allocated among the Lenders on a pro rata basis in accordance with
their respective Commitments during such quarter.
1.6.2 Agent Fees. Any fees payable to the Agent pursuant to the
Borrower's letter agreement with the Agent of even date herewith.
1.6.3 Collateral Agent Fees. Any fees payable to Collateral
Agent for its services rendered pursuant to the Security Agreement as
agreed to by the Borrower and charged by Collateral Agent from time to
time.
1.6.4 Fees Payable in connection with Buy-Down Loans. The
Borrower shall pay any fees and other charges when due to any Buy-Down
Lender under a Buy-Down Agreement as described in Section 2.3.
1.7 Method of Selecting Types and Interest Periods for New Advances.
The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable to each Advance from
time to time. The Borrower shall give the Agent irrevocable notice (a
"Borrowing Notice") not later than (i) 10:00 a.m. (Dallas time) on the
Borrowing Date of each Alternate Base Rate Advance or Fed Funds Advance,
(ii)3:00 p.m. (Dallas time) on the proposed Borrowing Date for each
Swingline Loan, and (iii) 2:00 p.m. (Dallas time) at least three Business
Days before the Borrowing Date for each Eurodollar Advance, specifying:
(a) the Borrowing Date, which shall be a Business Day, of such
Advance,
(b) the aggregate amount of such Advance, which shall not be less
than (1)$2,000,000 for any Eurodollar Advance,(2) $600,000 for
any Alternate Base Rate Advance or Fed Funds Advance, or (3)
$100,000 for any Swingline Loan,
(c) except in the case of a Swingline Loan, the Type of Advance
selected, and
(d) in the case of each Eurodollar Advance, the Interest Period
applicable thereto, and
Not later than noon (Dallas time) on each Borrowing Date, with respect to
all Advances other than Swingline Loans, each Lender shall make available
its Loan or Loans comprising such Advance, in funds immediately available
in Dallas to the Agent at its address specified pursuant to Article XIII;
provided that Swingline Loans may be made available up to the close of
business. The Agent will make the funds so received from the Lenders
available to the Borrower at the Agent's aforesaid address.
1.8 Conversion and Continuation of Outstanding Advances. An Alternate
Base Rate Advance shall continue as an Alternate Base Rate Advance unless
and until such Alternate Base Rate Advance is converted into another Type
of Advance. A Fed Funds Advance shall continue as a Fed Funds Advance
unless and until (a) such Advance is converted into a different Type of
Advance in accordance with the terms hereof or (b) the Borrower has paid
any such Fed Funds Advance prior to 10:00 a.m. (Dallas time) on any
Business Day or the Borrower has given notice by 10:00 a.m. (Dallas time)
that it intends to pay and has paid any such Fed Funds Advance prior to
12:00 noon (Dallas time) on any Business Day. A Swingline Loan shall
continue as a Swingline Loan unless and until the Borrower has paid any
Swingline Loan prior to 3:00 p.m. (Dallas time) on any Business Day. Each
Eurodollar Advance shall continue as a Eurodollar Advance until the end of
the then applicable Interest Period therefor, at which time such Eurodollar
Advance shall be automatically converted into an Alternate Base Rate
Advance unless the Borrower shall have given the Agent a
Conversion/Continuation Notice requesting that, at the end of such Interest
Period, such Eurodollar Advance either continue as a Eurodollar Advance for
the same or another Interest Period or be converted into an Advance of
another Type. Swingline Loans may be repaid out of new Advances hereunder
but may not be converted directly to a Type of Advance. The Borrower may
elect from time to time to convert all or any part of an Advance of any
Type into any other Type or Types of Advances; provided that any
conversion of any Eurodollar Advance shall be made on, and only on, the
last day of the Interest Period applicable thereto. The Borrower shall
give the Agent irrevocable notice (a "Conversion/Continuation Notice") of
each conversion of an Alternate Base Rate Advance or Fed Funds Advance or
conversion or continuation of a Eurodollar Advance not later than (i) 10:00
a.m. (Dallas time) on the date of the requested conversion, in the case of
a conversion into an Alternate Base Rate Advance or Fed Funds Advance or
(ii) 10:00 a.m. (Dallas time) at least three Business Days prior to the
date of the requested conversion into or continuation of a Eurodollar
Advance, specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation,
(ii) the aggregate amount (which meets the minimums set forth
in Section 2.8(c)) and Type of the Advance which is to be converted
or continued, and
(iii) the amount and Type(s) of Advance(s) into which such
Advance is to be converted or continued and, in the case of a
conversion into or continuation of a Eurodollar Advance, the duration
of the Interest Period applicable thereto.
1.9 Reductions to Aggregate Commitment. The Borrower may from time to
time permanently reduce the Aggregate Commitment in whole, or in part
ratably among the Lenders in integral multiples of $5,000,000, upon at
least three Business Days' written notice to the Agent, which notice shall
specify the amount of any such reduction. On or before the effective date
of any such reduction, the Borrower shall, if necessary, repay sufficient
Loans to prevent the remaining outstanding Loans hereunder, after giving
effect to such permanent reduction, from exceeding the Lending Sublimits.
Upon any reduction of the Aggregate Commitment, upon the election of any
Swingline Lender, the reduction in such Lender's Commitment may be
allocated either solely to such Lender's Primary Commitment or in part to
its Primary Commitment and in part to its Swingline Commitment on a pro
rata basis.
1.10 Principal Payments.
1.10.1 Optional Principal Payments. The Borrower may from time
to time pay, without penalty or premium, all outstanding Alternate Base
Rate Advances or Fed Funds Advances, or, in a minimum aggregate amount of
$1,000,000, any portion of the outstanding Alternate Base Rate Advances or
Fed Funds Advances upon prior written notice to the Agent (and if a Fed
Funds Advance, within the timeframe described below). The Borrower may
from time to time pay, subject to the payment of any funding
indemnification amounts required by Section 3.4 but without penalty or
premium, all outstanding Eurodollar Advances, or, in a minimum aggregate
amount of $1,000,000 or any integral multiple of $500,000 in excess
thereof, any portion of the outstanding Eurodollar Advances upon three
Business Days' prior notice to the Agent. Fed Funds Advances and Swingline
Loans may be paid on any Business Day provided that the Borrower has given
the Agent written notice of such repayment on the date of such intended
payment by (i) 10:00 a.m. (Dallas time) for Fed Funds Advances and (ii)noon
(Dallas time) for Swingline Loans. All optional principal payments shall
be applied to the Swingline Loans or the Type of Advance designated by the
Borrower when making such payment, provided that any payments received
during the continuance of a Default or Unmatured Default shall be applied
first to Swingline Loans and then on a pro rata basis to all Advances then
outstanding. Payments so allocated to an Advance shall be distributed to
the Lenders holding the Loans comprising such Advance on a pro rata basis
in accordance with the respective unpaid principal balances of such Loans,
with such payments applied first to accrued interest and thereafter to
principal.
1.10.2 Required Payments Related to Borrowing Base. On any date
that the Coverage Requirement is in excess of the then-current Borrowing
Base, the Borrower shall, prior to the close of business on such date,
either deliver sufficient Eligible Collateral to eliminate such excess or
make a mandatory payment to the Agent for the benefit of the Lenders in the
amount of such excess. Any such payment shall be allocated as directed by
the Borrower unless a Default or Unmatured Default then exists in which
case such payment shall be allocated first to the Swingline Loans and then
to on a pro rata basis to all Advances then outstanding. Payments so
allocated to an Advance shall be distributed to the Lenders holding the
Loans comprising such Advance on a pro rata basis in accordance with the
respective unpaid principal balances of such Loans, with such payments
applied first to accrued interest and thereafter to principal.
1.10.3 Settlement Account Payments. Prior to the occurrence of
a Default, to the extent the amounts in the Settlement Account are not
needed to keep the Borrowing Base equal to or greater than the Coverage
Requirement, the Borrower may withdraw or otherwise direct the application
of such amounts. Upon the occurrence of a Default (and during the
continuance thereof), the Agent may declare a portion of the principal
balance of the Loans, equal to any amounts then on deposit in the
Settlement Account and any deposits made in the Settlement Account during
the continuance of such Default, to be due and payable without demand
(unless previously declared due and payable). Such amount shall be
withdrawn from the Settlement Account by the Agent and shall be applied to
the Obligations.
1.10.4 Final Payment on Termination Date. Any outstanding
Advances and all other unpaid Obligations, unless required to be paid
earlier pursuant to the terms hereof, shall be paid in full by the Borrower
on the Termination Date.
1.11 Changes in Interest Rate, etc. Each Alternate Base Rate Advance
shall bear interest on the outstanding principal amount thereof, for each
day from and including the date such Advance is made or is automatically
converted from a Eurodollar Advance into an Alternate Base Rate Advance
pursuant to Section 2.7, to but excluding the date it is paid or is
converted into a Eurodollar Advance pursuant to Section 2.7 hereof, at a
rate per annum equal to the Alternate Base Rate for such day. Changes in
the rate of interest on that portion of any Advance maintained as an
Alternate Base Rate Advance will take effect simultaneously with each
change in the Alternate Base Rate. The interest rate on each Swingline
Loan or Fed Funds Advance shall be recalculated daily for each day that
such Swingline Loan or Fed Funds Advance is continued under Section 2.7.
Each Eurodollar Advance shall bear interest on the outstanding principal
amount thereof from and including the first day of the Interest Period
applicable thereto to (but not including) the last day of such Interest
Period at the interest rate determined by the Agent as applicable to such
Eurodollar Advance based upon the Borrower's selections under Section 2.6
and 2.7 and otherwise in accordance with the terms hereof. Not more than
six (6) different Interest Periods may be in effect at any time and no
Interest Period may end after the Termination Date.
1.12 Rates Applicable After Default. Notwithstanding anything to
the contrary contained in Section 2.8 or 2.9, during the continuance of a
Default or Unmatured Default the Required Lenders may, at their option, by
notice to the Borrower (which notice may be revoked at the option of the
Required Lenders notwithstanding any provision of Section 9.1 requiring
unanimous consent of the Lenders to reductions in interest rates), declare
that no Advance may be made as, converted into or continued as a Eurodollar
Advance. During the continuance of a Default the Required Lenders may, at
their option, by notice to the Borrower (which notice may be revoked at the
option of the Required Lenders notwithstanding any provision of Section 9.1
requiring unanimous consent of the Lenders to reductions in interest rates)
declare that (i)each Eurodollar Advance shall bear interest for the
remainder of the applicable Interest Period at the rate otherwise
applicable to such Interest Period plus 2% per annum and (ii) each Advance
(other than those under clause (i) above) and each Swingline Loan shall
bear interest at a rate per annum equal to the Alternate Base Rate plus 2%
per annum; provided that, during the continuance of a Default under Section
7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above
shall be applicable to all Advances and Swingline Loans without any
election or action on the part of the Agent or any Lender.
1.13 Method of Payment. All payments of the Obligations hereunder
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article XIII, or at any other Lending Installation of the Agent specified
in writing by the Agent to the Borrower, on the date when due by (i) noon
(Dallas time) with respect to all Advances other than Swingline Loans and
(ii) 4:00 p.m. (Dallas time) with respect to Swingline Loans and all such
payments shall be applied in accordance with Section 2.9.1.
Notwithstanding the foregoing, if the Borrower fails to give the Agent
notice of repayment of a Fed Funds Advance before 10:00 a.m. (Dallas time)
on the Business Day that the Borrower intends to repay such Fed Funds
Advance, any payment of such Fed Funds Advance received by the Agent on
such Business Day shall be deemed to have been received by the Agent at the
opening of business on the following Business Day. Each payment delivered
to the Agent for the account of any Lender shall be delivered promptly by
the Agent to such Lender in the same type of funds that the Agent received
at its address specified pursuant to Article XIII or at any Lending
Installation specified in a notice received by the Agent from such Lender.
The Agent is hereby authorized to charge the account of the Borrower
maintained with Bank One for each payment of principal, interest and fees
as it becomes due hereunder.
1.14 Noteless Agreement; Evidence of Indebtedness.
(i) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender
from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.
(ii) Subject to Section 2.3, the Agent shall also maintain
accounts in which it will record (a) the amount of each Loan made
hereunder, the Type thereof and the Interest Period with respect
thereto, (b) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each Lender
hereunder and (c) the amount of any sum received by the Agent
hereunder from the Borrower and each Lender's share thereof.
(iii) The entries maintained in the accounts maintained
pursuant to paragraphs (i) and (ii) above shall be prima facie
evidence of the existence and amounts of the Obligations therein
recorded; provided, however, that the failure of the Agent or any
Lender to maintain such accounts or any error therein shall not in
any manner affect the obligation of the Borrower to repay the
Obligations in accordance with their terms.
(iv) Any Lender may request that its Loans be evidenced by a
Note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a Note payable to the order of such Lender.
Thereafter, the Loans evidenced by such Note and interest thereon
shall at all times (including after any assignment pursuant to
Section 12.3) be represented by one or more Notes payable to the
order of the payee named therein or any assignee pursuant to Section
12.3, except to the extent that any such Lender or assignee
subsequently returns any such Note for cancellation and requests that
such Loans once again be evidenced as described in paragraphs (i) and
(ii) above.
1.15 Telephonic Notices. The Borrower hereby authorizes the Lenders
and the Agent to extend, convert or continue Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by
any person or persons the Agent or any Lender in good faith believes to be
acting on behalf of the Borrower, it being understood that the foregoing
authorization is specifically intended to allow Borrowing Notices and
Conversion/Continuation Notices to be given telephonically. The Borrower
agrees to deliver promptly to the Agent a written confirmation, if such
confirmation is requested by the Agent or any Lender, of each telephonic
notice signed by an Authorized Officer. If the written confirmation
differs in any material respect from the action taken by the Agent and the
Lenders, the records of the Agent and the Lenders shall govern absent
manifest error.
1.16 Interest Payment Dates; Interest and Fee Basis. Subject to
Section 2.3, interest shall be payable in accordance with the following
provisions. Interest accrued on each Advance other than a Eurodollar
Advance shall be payable on each Payment Date, commencing with the first
such date to occur after the date hereof and at maturity. Interest accrued
on each Eurodollar Advance shall be payable on the last day of its
applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest
accrued on each Eurodollar Advance having an Interest Period longer than
three months shall also be payable on the last day of each three-month
interval during such Interest Period. Interest and Fees shall be
calculated for actual days elapsed on the basis of a 360-day year.
Interest shall be payable for the day an Advance is made but not for the
day of any payment on the amount paid if payment is received at the place
of payment prior to the time required for payment as set forth in Section
2.14. If any payment of principal of or interest on an Advance shall
become due on a day which is not a Business Day, such payment shall be made
on the next succeeding Business Day and, in the case of a principal
payment, such extension of time shall be included in computing interest in
connection with such payment.
1.17 Notification by the Agent. Promptly after receipt thereof, the
Agent will notify each Lender of the contents of each Aggregate Commitment
reduction notice, Borrowing Notice, Conversion/Continuation Notice, and
repayment notice received by it hereunder. Promptly upon determination
thereof, the Agent will notify each Lender making a portion of any
Eurodollar Advance and the Borrower of the interest rate applicable to each
Eurodollar Advance. When any Fed Funds Advances or Alternate Base Rate
Advances are outstanding or have been requested, the Agent will give each
Lender making or holding any such Loans and the Borrower prompt notice of
each change in such rates.
1.18 Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to
any such Lending Installation and the Loans and any Notes issued hereunder
shall be deemed held by each Lender for the benefit of such Lending
Installation. Each Lender may, by written notice to the Agent and the
Borrower in accordance with Article XIII, designate replacement or
additional Lending Installation through which Loans will be made by it and
for whose account Loan payments are to be made.
1.19 Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which
it is scheduled to make payment to the Agent of (i) in the case of a
Lender, the proceeds of a Loan or an Advance or (ii) in the case of the
Borrower, a payment of principal (including but not limited to situations
in which the Borrower informs the Agent that the Agent will be receiving
proceeds of Collateral on a specific date and that the Borrower intends to
use such proceeds to make a payment of principal), interest or Fees to the
Agent for the account of the Lenders, that it does not intend to make such
payment, the Agent may assume that such payment has been made. The Agent
may, but shall not be obligated to, make the amount of such payment
available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the
date such amount was so made available by the Agent until the date the
Agent recovers such amount at a rate per annum. equal to (x) in the case
of payment due from a Lender, the Federal Funds Effective Rate for such day
for the first three days and, thereafter, the interest rate applicable to
the relevant Loan or (y) in the case of payment due from the Borrower, the
interest rate applicable to the relevant Loan.
ARTICLE III
CHANGE IN CIRCUMSTANCES
1.20 Yield Protection. If, on or after the date of this Agreement,
the adoption of any law or any governmental or quasi-governmental rule,
regulation, policy, guideline or directive (whether or not having the force
of law), or any change in the interpretation or administration thereof by
any governmental or quasi-governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender or applicable Lending Installation
with any request or directive (whether or not having the force of law) of
any such authority, central bank or comparable agency:
(i) subjects any Lender or any applicable Lending
Installation to any Taxes or changes the basis of taxation of
payments (other than with respect to Excluded Taxes) to any Lender in
respect of its Eurodollar Loans, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Lender or any applicable Lending Installation (other
than reserves and assessments taken into account in determining the
interest rate applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending
Installation of making, funding or maintaining its Eurodollar Loans
or reduces any amount receivable by any Lender or any applicable
Lending Installation in connection with its Eurodollar Loans, or
requires any Lender or any applicable Lending Installation to make
any payment calculated by reference to the amount of its Eurodollar
Loans held or interest received by it, by an amount deemed material
by such Lender,
and the result of any of the foregoing is to increase the cost to such
Lender or applicable Lending Installation of making or maintaining its
Eurodollar Loans or Commitment or to reduce the return received by such
Lender or applicable Lending Installation in connection with such
Eurodollar Loans or Commitment, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender such additional amount or
amounts as will compensate such Lender for such increased cost or reduction
in an amount received.
1.21 Changes in Capital Adequacy Regulations. If a Lender
determines the amount of capital required or expected to be maintained by
such Lender, any Lending Installation of such Lender or any corporation
controlling such Lender is increased as a result of a Change, then, within
15 days of demand by such Lender, the Borrower shall pay such Lender the
amount necessary to compensate for any shortfall in the rate of return on
the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans or its Commitment to make Loans
hereunder (after taking into account such Lender's policies as to capital
adequacy). "Change" means (i) any change after the date of this Agreement
in the Risk-Based Capital Guidelines or (ii) any adoption of or change in
any other law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of
law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or any Lending
Installation or any corporation controlling any Lender. "Risk-Based
Capital Guidelines" means (i) the risk-based capital guidelines in effect
in the United States on the date of this Agreement, including transition
rules, and (ii) the corresponding capital regulations promulgated by
regulatory authorities outside the United States implementing the July 1988
report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
1.22 Availability of Types of Advances. If any Lender determines
that maintenance of its Eurodollar Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation, or directive, whether
or not having the force of law, or if the Required Lenders determine that
(i) deposits of a type and maturity appropriate to match fund Eurodollar
Advances or Fed Funds Advances are not available or (ii) the interest rate
applicable to a Type of Advance does not accurately reflect the cost of
making or maintaining such Advance, then the Agent shall suspend the
availability of the affected Type of Advance and require any Advances of
the affected Type to be repaid or converted to Alternate Base Rate
Advances, subject to the payment of any funding indemnification amounts
required by Section 3.4.
1.23 Funding Indemnification. If any payment of a Eurodollar
Advance occurs on a date which is not the last day of the applicable
Interest Period, whether because of acceleration, prepayment or otherwise,
or a Eurodollar Advance is not made, continued or converted on the date
specified by the Borrower for any reason other than default by the Lenders,
the Borrower will indemnify each Lender for any loss or cost incurred by it
resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits acquired to fund or maintain the
Eurodollar Advance.
1.24 Taxes.
(i) All payments by the Borrower to or for the account of any
Lender or the Agent hereunder or under any Note shall be made free
and clear of and without deduction for any and all Taxes. If the
Borrower shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to any Lender or the Agent, (a)
the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to
additional sums payable under this Section 3.5) such Lender or the
Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (b) the
Borrower shall make such deductions, (c) the Borrower shall pay the
full amount deducted to the relevant authority in accordance with
applicable law and (d) the Borrower shall furnish to the Agent the
original copy of a receipt evidencing payment thereof within 30 days
after such payment is made.
(ii) In addition, the Borrower hereby agrees to pay any
present or future stamp or documentary taxes and any other excise or
property taxes, charges or similar levies which arise from any
payment made hereunder or under any Note or from the execution or
delivery of, or otherwise with respect to, this Agreement or any Note
("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the Agent and
each Lender for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed on amounts
payable under this Section 3.5) paid by the Agent or such Lender and
any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto. Payments due under this
indemnification shall be made within 30 days of the date the Agent or
such Lender makes demand therefor pursuant to Section 3.6.
(iv) Each Lender that is not incorporated under the laws of
the United States of America or a state thereof (each a "Non-U.S.
Lender") agrees that it will, not less than ten Business Days after
the date of this Agreement, (i) deliver to each of the Borrower and
the Agent two duly completed copies of United States Internal Revenue
Service Form W-BEN or W-8ECI, certifying in either case that such
Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes,
and (ii) deliver to each of the Borrower and the Agent a United
States Internal Revenue Form W-8 or W-9, as the case may be, and
certify that it is entitled to an exemption from United States backup
withholding tax. Each Non-U.S. Lender further undertakes to deliver
to each of the Borrower and the Agent (x) renewals or additional
copies of such form (or any successor form) on or before the date
that such form expires or becomes obsolete, and (y) after the
occurrence of any event requiring a change in the most recent forms
so delivered by it, such additional forms or amendments thereto as
may be reasonably requested by the Borrower or the Agent. All forms
or amendments described in the preceding sentence shall certify that
such Lender is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such
forms inapplicable or which would prevent such Lender from duly
completing and delivering any such form or amendment with respect to
it and such Lender advises the Borrower and the Agent that it is not
capable of receiving payments without any deduction or withholding of
United States federal income tax.
(v) For any period during which a Non-U.S. Lender has failed
to provide the Borrower with an appropriate form pursuant to clause
(iv), above (unless such failure is due to a change in treaty, law or
regulation, or any change in the interpretation or administration
thereof by any governmental authority, occurring subsequent to the
date on which a form originally was required to be provided), such
Non-U.S. Lender shall not be entitled to indemnification under this
Section 3.5 with respect to Taxes imposed by the United States;
provided that, should a Non-U.S. Lender which is otherwise exempt
from or subject to a reduced rate of withholding tax become subject
to Taxes because of its failure to deliver a form required under
clause (iv), above, the Borrower shall take such steps as such Non-
U.S. Lender shall reasonably request to assist such Non-U.S. Lender
to recover such Taxes.
(vi) Any Lender that is entitled to an exemption from or
reduction of withholding tax with respect to payments under this
Agreement or any Note pursuant to the law of any relevant
jurisdiction or any treaty shall deliver to the Borrower (with a copy
to the Agent), at the time or times prescribed by applicable law,
such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without
withholding or at a reduced rate.
(vii) If the U.S. Internal Revenue Service or any other
governmental authority of the United States or any other country or
any political subdivision thereof asserts a claim that the Agent did
not properly withhold tax from amounts paid to or for the account of
any Lender (because the appropriate form was not delivered or
properly completed, because such Lender failed to notify the Agent of
a change in circumstances which rendered its exemption from
withholding ineffective, or for any other reason), such Lender shall
indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax, withholding therefor, or otherwise,
including penalties and interest, and including taxes imposed by any
jurisdiction on amounts payable to the Agent under this subsection,
together with all costs and expenses related thereto (including
attorneys fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent). The obligations of the
Lenders under this Section 3.5(vii) shall survive the payment of the
Obligations and termination of this Agreement.
1.25 Lender Statements; Survival of Indemnity. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to reduce any liability
of the Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid
the unavailability of a Type of Advance under Section 3.3, so long as such
designation is not, in the judgment of such Lender, disadvantageous to such
Lender. Each Lender shall deliver a written statement of such Lender to
the Borrower (with a copy to the Agent) as to the amount due, if any, under
Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such
amount and shall be final, conclusive and binding on the Borrower in the
absence of manifest error. Determination of amounts payable under such
Sections in connection with a Eurodollar Loan shall be calculated as though
each Lender funded its Eurodollar Loan through the purchase of a deposit of
the type and maturity corresponding to the deposit used as a reference in
determining the Eurodollar Rate or the Purchase Price applicable to such
Loan, whether in fact that is the case or not. Unless otherwise provided
herein, the amount specified in the written statement of any Lender shall
be payable on demand after receipt by the Borrower of such written
statement. The obligations of the Borrower under Sections 3.1, 3.2, 3.4
and 3.5 shall survive payment of the Obligations and termination of this
Agreement.
ARTICLE II
CONDITIONS PRECEDENT; WITHHOLDING TAX EXEMPTION
1.26 Effectiveness. This Agreement shall not be effective and no
Lender shall be required to make the initial Advance hereunder until a date
(the "Effective Date") upon which the Borrower has furnished or caused to
be furnished to the Agent (with sufficient copies for the Lenders) the
following:
(i) Copies of the articles or certificate of incorporation of
the Borrower, together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental officer in
its jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary
of the Borrower, of its by-laws and of its Board of Directors'
resolutions and of resolutions or actions of any other body
authorizing the execution of the Loan Documents to which the Borrower
is a party.
(iii) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by name and
title and bear the signatures of the Authorized Officers and any
other officers of the Borrower authorized to sign the Loan Documents
to which the Borrower is a party, upon which certificate the Agent
and the Lenders shall be entitled to rely until informed of any
change in writing by the Borrower.
(iv) A certificate, signed by the chief financial officer of
the Borrower, stating that on the initial Borrowing Date no Default
or Unmatured Default has occurred and is continuing.
(v) A written opinion of the Borrower's and the Parent's
counsel, addressed to the Lenders in substantially the form of
Exhibit "B" hereto.
(vi) Any Notes requested by a Lender pursuant to Section 2.13
payable to the order of each such requesting Lender.
(vii) A fully executed Security Agreement.
(viii) Copies of the articles or certificate of
incorporation of the Parent, together with all amendments, and a
certificate of good standing, each certified by the appropriate
governmental officer in its jurisdiction of incorporation.
(ix) Copies, certified by the Secretary or Assistant Secretary
of the Parent, of its by-laws and of its Board of Directors'
resolutions and of resolutions or actions of any other body
authorizing the execution of the Loan Documents to which the Parent
is a party.
(x) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Parent, which shall identify by name and
title and bear the signatures of the Authorized Officers and any
other officers of the Parent authorized to sign the Loan Documents to
which the Parent is a party, upon which certificate the Agent and the
Lenders shall be entitled to rely until informed of any change in
writing by the Parent.
(xi) The Keep-Well and the Subordination Agreement executed by
the Parent.
(xii) Payment of all Fees due and payable on or before the
Effective Date.
(xiii) Establishment of the Settlement Account and the
Funding Account.
(xiv) Copy of each form of Approved Investor Commitment that
the Borrower currently utilizes for any Mortgage Loan that is not a
Conforming Mortgage Loan.
(xv) An Electronic Tracking Agreement with MERS.
(xvi) An amendment to the Bank One Agreement duly executed and
delivered by the appropriate parties in form and substance
satisfactory to Lenders consistent with Section 6.24 of this
Agreement.
(xvii) Such other documents as any Lender or its counsel
may have reasonably requested.
1.27 Each Advance. The Lenders shall not be required to make any
Advance (other than an Advance that, after giving effect thereto and to the
application of the proceeds thereof, does not increase the aggregate amount
of outstanding Advances), unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V
are true and correct as of such Borrowing Date except to the extent
any such representation or warranty is stated to relate solely to an
earlier date, in which case such representation or warranty shall
have been true and correct on and as of such earlier date.
(iii) All legal matters incident to the making of such Advance
shall be satisfactory to the Lenders and their counsel.
Each Borrowing Notice with respect to each such Advance shall
constitute a representation and warranty by the Borrower that each Pledged
Item included in the Borrowing Base constitutes Eligible Collateral, and
that after giving effect to the amount of the Advance being requested, (a)
the conditions contained in Sections 4.2(i) and (ii) have been satisfied,
(b) the Borrower has provided the Collateral Agent with the true and
correct information including the GAAP Carrying Values (correctly
calculated in accordance with the provisions of this Agreement) necessary
to calculate the Collateral Value for all Eligible Collateral, (c) the then
current Borrowing Base is equal to or greater than the Coverage Requirement
and (d) no Lending Sublimit has been exceeded. Any Lender may require a
duly completed compliance certificate in substantially the form of Exhibit
"F hereto as a condition to making an Advance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
1.28 Existence and Standing. Each of the Parent, Borrower and the
Subsidiaries is a corporation, partnership (in the case of Subsidiaries
only) or limited liability company duly and properly incorporated or
organized, as the case may be, validly existing and (to the extent such
concept applies to such entity) in good standing under the laws of its
jurisdiction of incorporation or organization and has all requisite
authority to conduct its business in each jurisdiction in which its
business is conducted.
1.29 Authorization and Validity. Each of Borrower and the Parent
has the power and authority and legal right to execute and deliver the Loan
Documents to which it is a party and to perform its obligations thereunder.
The execution and delivery by each of the Borrower and the Parent of the
Loan Documents to which it is a party and the performance of its
obligations thereunder have been duly authorized by proper corporate
proceedings, and the Loan Documents to which each of the Borrower and the
Parent is a party constitute legal, valid and binding obligations of the
Borrower or the Parent, as applicable enforceable against the Borrower or
the Parent, as applicable in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
1.30 No Conflict; Government Consent. Neither the execution and
delivery by the Borrower of the Loan Documents to which it is a party, nor
the consummation of the transactions therein contemplated, nor compliance
with the provisions thereof will violate (i) any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on the Parent,
Borrower or any of their respective Subsidiaries or (ii) the Borrower's or
any Subsidiary's articles or certificate of incorporation, partnership
agreement, certificate of partnership, articles or certificate of
organization, by-laws, or operating or other management agreement, as the
case may be, or (iii)the provisions of any indenture, instrument or
agreement to which the Borrower or any of their respective Subsidiaries is
a party or is subject, or by which it, or their respective Property, is
bound, or conflict with or constitute a default thereunder, or result in,
or require, the creation or imposition of any Lien in, of or on the
Property of the Parent, Borrower or their respective Subsidiary pursuant to
the terms of any such indenture, instrument or agreement. No order,
consent, adjudication, approval, license, authorization, or validation of,
or filing, recording or registration with, or exemption by, or other action
in respect of any governmental or public body or authority, or any
subdivision thereof, which has not been obtained by the Parent, Borrower or
any of their respective Subsidiaries, is required to be obtained by the
Parent, Borrower or any of their respective Subsidiaries in connection with
the execution and delivery of the Loan Documents, the borrowings under this
Agreement, the payment and performance by the Borrower of the Obligations
or the legality, validity, binding effect or enforceability of any of the
Loan Documents (other than filings to perfect the Liens granted pursuant to
the Security Agreement).
1.31 Financial Statements. The April 30, 2002 and the October 31,
2001 consolidated financial statements of the Borrower and its Subsidiaries
heretofore delivered to the Lenders were prepared in accordance with GAAP
in effect on the date such statements were prepared and fairly present the
consolidated financial condition and operations of the Borrower and its
Subsidiaries at such date and the consolidated results of their operations
for the period then ended (subject to normal year-end adjustments for the
October 31, 2001 financial statements).
1.32 Material Adverse Change. Since October 31, 2001, there has
been no change in the business, Property, prospects, condition (financial
or otherwise) or results of operations of the Borrower and its Subsidiaries
which could reasonably be expected to have a Material Adverse Effect.
1.33 Taxes. The Parent, Borrower and the Subsidiaries have filed
all United States federal tax returns and all other tax returns which are
required to be filed and have paid all taxes due pursuant to said returns
or pursuant to any assessment received by the Parent, Borrower or any of
the Subsidiaries, except such taxes, if any, as are being contested in good
faith by appropriate proceedings and as to which adequate reserves have
been provided in accordance with GAAP and as to which no Lien exists. The
United States income tax returns of the Parent, Borrower and the
Subsidiaries have been audited by the Internal Revenue Service through the
fiscal year ended December 31, 2001. No tax liens have been filed and no
claims are being asserted with respect to any such taxes. The charges,
accruals and reserves on the books of the Borrower and the Subsidiaries in
respect of any taxes or other governmental charges are adequate.
1.34 Litigation and Contingent Obligations. There is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or,
to the knowledge of any of their officers, threatened against or affecting
the Borrower or any of its Subsidiaries which could reasonably be expected
to have a Material Adverse Effect or which seeks to prevent, enjoin or
delay the making of any Loans. Other than any liability incident to any
litigation, arbitration or proceeding which could not reasonably be
expected to have a Material Adverse Effect, the Borrower has no material
contingent obligations not provided for or disclosed in the financial
statements referred to in Section 5.4.
1.35 Subsidiaries. Schedule "4" hereto contains an accurate list of
all Subsidiaries of the Borrower as of the date of this Agreement, setting
forth their respective jurisdictions of organization and the percentage of
their respective capital stock or other ownership interests owned by the
Borrower or other Subsidiaries. All of the issued and outstanding shares
of capital stock or other ownership interests of such Subsidiaries have
been (to the extent such concepts are relevant with respect to such
ownership interests) duly authorized and issued and are fully paid and non-
assessable.
1.36 ERISA. The Unfunded Liabilities of all Single Employer Plans
do not in the aggregate exceed $250,000. Neither the Borrower nor any
other member of the Controlled Group has incurred, or is reasonably
expected to incur, any withdrawal liability to Multi-employer Plans in
excess of $250,000 in the aggregate. Each Plan complies in all material
respects with all applicable requirements of law and regulations, no
Reportable Event has occurred with respect to any Plan, neither the
Borrower nor any other members of the Controlled Group has withdrawn from
any Plan or initiated steps to do so, and no steps have been taken to
reorganize or terminate any Plan.
1.37 Accuracy of Information. No information, exhibit or report
furnished by the Parent, Borrower or any of the Subsidiaries to the Agent
or to any Lender in connection with the negotiation of, or compliance with,
the Loan Documents contained any material misstatement of fact or omitted
to state a material fact or any fact necessary to make the statements
contained therein not misleading.
1.38 Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of the value of those assets of the Borrower and
its Subsidiaries which are subject to any limitation on sale, pledge, or
other restriction hereunder.
1.39 Material Agreements. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any charter or
other corporate restriction which could reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary is in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in (i) any agreement to
which it is a party, which default could reasonably be expected to have a
Material Adverse Effect or (ii) any agreement or instrument evidencing or
governing Indebtedness.
1.40 Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality
or agency thereof, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property except for any
failure to comply with any of the foregoing which could not reasonably be
expected to have a Material Adverse Effect.
1.41 Ownership of Properties. Except as set forth on Schedule "5"
hereto, on the date of this Agreement, the Borrower and its Subsidiaries
will have good title, free of all Liens other than those permitted by
Section 6.15, to all of the Property and assets reflected in the financial
statements provided to the Agent as owned by the Borrower and its
Subsidiaries.
1.42 Plan Assets; Prohibited Transactions. The Borrower is not an
entity deemed to hold "plan assets" within the meaning of 29 C.F.R. S
2510.3-101 of an employee benefit plan (as defined in Section 3(3) of
ERISA) which is subject to Title I of ERISA or any plan (within the meaning
of Section 4975 of the Code), and neither the execution of this Agreement
nor the making of Loans hereunder gives rise to a prohibited transaction
within the meaning of Section 406 of ERISA or Section 4975 of the Code.
The Borrower is an "operating company" as defined in 29 CRR 2510-101 (c)
and "benefit plan investors" (as defined in 29 C.F.R. S 2510.3-101(f)) do
not own 25% or more of the value of any class of equity interests in the
Borrower.
1.43 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of
1940, as amended.
1.44 Public Utility Holding Company Act. Neither the Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
1.45 GNMA, FHA, VA, FNMA, and FHLMC Eligibility. The Borrower is:
(i) an FHA-Approved Mortgagee in good standing, a VA-Approved Lender, a
FHLMC-Approved Lender and a FNMA-Approved Lender and meets all eligible
requirements of law and governmental regulation so as to be eligible to
originate, purchase, hold and service Mortgage Loans insured by FHA or
supporting any Security; (ii) an approved seller and servicer in good
standing of Mortgage Loans to each Federal Agency; and (iii) an approved
issuer and servicer in good standing of Securities for FHLMC, FNMA and GNMA
and meets all FHLMC, FNMA and GNMA requirements, requirements of law and
governmental regulations so as to be able to issue Securities and to
originate and service the Mortgage Loans that secure such Securities.
1.46 Approved Investor Commitments. The forms of Approved Investor
Commitment with respect to Mortgage Loans, other than Conforming Mortgage
Loans, which were delivered to the Agent on the Effective Date are still
valid and currently in use and, except to the extent new forms or changes
to the existing forms of Approved Investor Commitment have been delivered
to the Agent, represent the only forms of Approved Investor Commitment used
by the Borrower for such purposes.
ARTICLE II
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
1.47 Financial Reporting. The Borrower will maintain, for itself
and each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to
the Lenders:
(i) Within 90 days after the close of each of its fiscal
years, an unqualified audit report certified by independent certified
public accountants, acceptable to the Lenders, prepared in
accordance with GAAP on a consolidated and consolidating basis
(consolidating statements need not be certified by such accountants)
for itself and the Subsidiaries, including balance sheets as of the
end of such period, related profit and loss and changes in
shareholders' equity statements, and a statement of cash flows,
accompanied by (a) any management letter prepared by said accountants
and (b) a certificate of said accountants that, in the course of
their examination necessary for their certification of the foregoing,
they have obtained no knowledge of any Default or Unmatured Default,
or if, in the opinion of such accountants, any Default or Unmatured
Default shall exist, stating the nature and status thereof.
(ii) Within 45 days after the close of the first three
quarterly periods of each of its fiscal years, for itself and its
Subsidiaries, consolidated and consolidating unaudited balance sheets
as at the close of each such period and consolidated and
consolidating profit and loss statements (showing a breakout of
servicing sales gains attributed to servicing originated in prior
periods), a statement of changes in shareholders equity and a
statement of cash flows for the period from the beginning of such
fiscal year to the end of such quarter, all certified (subject to
normal year-end adjustments) by its chief financial officer.
(iii) Together with the financial statements required under
Sections 6.1(i) and (ii), a compliance certificate in substantially
the form of Exhibit "F" hereto signed by its chief financial officer
showing the calculations necessary to determine compliance with this
Agreement as currently in effect (regardless of whether this
Agreement was in effect at the date for which such financial
statements were prepared) and that no Default or Unmatured Defaults
exists, or if any Default or Unmatured Default exists, stating the
nature and status thereof.
(iv) Within thirty (30) days after the end of each month
(other than a month which is the last month of a fiscal quarter or
year), (1)consolidated unaudited balance sheets and income statements
of the Borrower and its Subsidiaries as of the end of such month,
(2)a report setting forth the Leverage Ratio (as defined in Section
6.17.2 hereof) and Cumulative Cash Flow (as defined Section 6.17.4
hereof) as of the end of such month, each certified as to fairness of
presentation, GAAP and consistency by the chief financial officer of
the Borrower.
(v) As soon as available but in any event within forty-five
(45) days after the end of each calendar quarter, a production
information report detailing geographic mix of all retail and
correspondent production for the reference quarter and year-to-day.
(vi) As soon as available but in any event within fifteen (15)
days after the end of each month, a secondary marketing report for
such month reasonably satisfactory to the Agent including, without
limitation, the following information:
i) Commitment Position - detailing investor,
type, original principal amount, rate, price/yield,
and expiration date.
ii) Pipeline Position - amount and rate of price
committed loans in pipeline, future contracts,
hedged positions, repurchase agreements, and profit
& loss.
(vii) As soon as available, but in any event within ninety (90)
days after the beginning of each fiscal year of the Borrower, a copy
of the plan and forecast (including a projected consolidated summary
balance sheet and income statement) of the Borrower for such fiscal
year.
(viii) Within five (5) Business Days of submission thereof
by the Borrower, copies of all documents submitted in connection with
any audits by any of FNMA, FHLMC or GNMA; within ten (10) Business
Days of receipt thereof by the Borrower, copies of all compliance and
audit reports received from any of FNMA, FHLMC or GNMA; and promptly
upon receipt, a copy of any notice from (i) any Federal Agency to the
effect that it is or is contemplating withdrawing its approval of the
Borrower as a FHA-Approved Mortgagee, FHLMC-Approved Lender, FNMA-
Approved Lender or VA-Approved Lender or as an approved seller and
servicer for FNMA, FHLMC or GNMA or (ii) any private mortgage insurer
which insures any of the Collateral to the effect that it is
contemplating withdrawing its approval of the Borrower as an approved
originator of insured Mortgage Loans.
(ix) At any time that the Borrower has a Single Employer Plan,
within 270 days after the close of each fiscal year, a statement of
the Unfunded Liabilities of each Single Employer Plan, certified as
correct by an actuary enrolled under ERISA.
(x) As soon as possible and in any event within 10 days after
the Borrower knows that any Reportable Event has occurred with
respect to any Plan, a statement, signed by the chief financial
officer of the Borrower, describing said Reportable Event and the
action which the Borrower proposes to take with respect thereto.
(xi) As soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of (a) any notice or claim to the
effect that the Borrower or any of its Subsidiaries is or may be
liable to any Person as a result of the release by the Borrower, any
of its Subsidiaries, or any other Person of any toxic or hazardous
waste or substance into the environment, and (b) any notice alleging
any violation of any federal, state or local environmental, health or
safety law or regulation by the Borrower or any of its Subsidiaries,
which, in either case, could reasonably be expected to have a
Material Adverse Effect.
(xv) Promptly upon the furnishing thereof to the shareholders
of the Borrower or the Parent, copies of all financial statements,
reports and proxy statements so furnished.
(xv) Promptly upon the filing thereof, copies of all
registration statements and annual, quarterly, monthly or other
regular reports which the Parent, the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission.
(xvi) Such other information (including non-financial
information) as the Agent or any Lender may from time to time
reasonably request.
1.48 Use of Proceeds. The Borrower will, and will cause each of the
Parent and each Subsidiary to, only use the proceeds of the Advances for
the purposes of the funding or purchasing of Mortgage Loans, of paying
interest, Fees, expenses and other Obligations and of repaying outstanding
Advances. The Borrower will not, nor will it permit any Subsidiary to, use
any of the proceeds of the Advances to purchase or carry any "margin stock"
(as defined in Regulation U) or to make any Acquisition (other than those
permitted by Section 6.14) or to make any Acquisition for which the board
of directors of the Person being acquired has not consented to such
Acquisition.
1.49 Notice of Default. The Borrower will, and will cause the
Parent and each Subsidiary to, give prompt notice in writing to the Lenders
of the occurrence of any Default or Unmatured Default and of any other
development, financial or otherwise, which could reasonably be expected to
have a Material Adverse Effect.
1.50 Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is
presently conducted and to do all things necessary to remain duly
incorporated or organized, validly existing and (to the extent such concept
applies to such entity) in good standing as a domestic corporation,
partnership or limited liability company in its jurisdiction of
incorporation or organization, as the case may be, and maintain all
requisite authority to conduct its business in each jurisdiction in which
its business is conducted. The Borrower will adhere in all material
respects to customary practices and standards in the industry insofar as
adherence to such practices and standards would require the Borrower to
cause obligors whose indebtedness is secured by Pledged Mortgages to comply
with their obligations under such Pledged Mortgages with respect to the
real estate securing such indebtedness, including without limitation, the
payment of all taxes and insurance premiums related thereto and maintenance
of such real estate in compliance with all laws.
1.51 Taxes. The Borrower will, and will cause each Subsidiary to,
timely file complete and correct United States federal and applicable
foreign, state and local tax returns required by law and pay when due all
taxes, assessments and governmental charges and levies upon it or its
income, profits or Property, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate
reserves have been set aside in accordance with GAAP.
1.52 Insurance. The Borrower will, and will cause each Subsidiary
to, maintain with financially sound and reputable insurance companies
insurance on all their Property in such amounts and covering such risks as
is consistent with sound business practice, and the Borrower will furnish
to any Lender upon request full information as to the insurance carried.
The Borrower will at all times, upon request of the Agent, furnish to the
Agent copies of its, and each of its Subsidiaries', current Mortgage
Bankers Blanket Bond and of its, and each of its Subsidiaries', insurance
policy containing errors and omissions coverage or mortgage impairment
coverage, and such Bonds and policies, to the extent possible, shall each
provide that it is not cancelable without thirty (30) days prior written
notice to the Agent.
1.53 Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject,
including, without limitation, all Environmental Laws.
1.54 Maintenance of Properties. The Borrower will, and will cause
each Subsidiary to, do all things necessary to maintain, preserve, protect
and keep its Property in good repair, working order and condition, and
make all necessary and proper repairs, renewals and replacements so that
its business carried on in connection therewith may be properly conducted
at all times.
1.55 Inspection. The Borrower will, and will cause each Subsidiary
to, permit the Agent, the Collateral Agent and the Lenders, by their
respective representatives and agents, to inspect any of the Property,
books and financial records of the Borrower and each Subsidiary, to examine
and make copies of the books of accounts and other financial records of the
Borrower and each Subsidiary, and to discuss the affairs, finances and
accounts of the Borrower and each Subsidiary with, and to be advised as to
the same by, their respective officers at such reasonable times and
intervals as the Agent, the Collateral Agent or any Lender may designate.
1.56 Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends or make any distributions on
its capital stock (other than dividends payable in its own capital stock)
or redeem, repurchase or otherwise acquire or retire any of its capital
stock at any time outstanding, except that (i) any Subsidiary may declare
and pay dividends or make distributions to the Borrower or to a Wholly-
Owned Subsidiary and (ii) provided that (a) no Default then exists
hereunder, (b) the applicable action would not cause a Default to exist and
(c) the applicable action is not likely to cause Leverage Ratio as of the
end of a month to exceed the limits specified in Section 6.17.2 hereof
regardless of the thirty (30) day period for Parent to inject additional
capital into the Borrower to reduce the Leverage Ratio, the Borrower may
declare and pay dividends or make distributions.
1.57 Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) The Loans.
(ii) Indebtedness arising under Rate Management Transaction
related to the Loans having a Net Mark to Market Exposure not
exceeding $2,000,000.
(iii) Other Indebtedness not exceeding $250,000.
1.58 Merge. The Borrower will not, nor will it permit any
Subsidiary to, merge or consolidate with or into any other Person, except
that a Subsidiary may merge into the Borrower or a Wholly-Owned Subsidiary.
1.59 Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any
other Person, except:
(i) Sales of Mortgage Loans and Securities in the ordinary
course of business.
(ii) Leases, sales or other dispositions of its Property that,
together with all other Property of the Borrower and its Subsidiaries
previously leased, sold or disposed of (other than Mortgage Loans and
Securities in the ordinary course of business) as permitted by this
Section during the twelve-month period ending with the month in which
any such lease, sale or other disposition occurs, do not constitute a
Substantial Portion of the Property of the Borrower and its
Subsidiaries.
1.60 Investments and Acquisitions. The Borrower will not, nor will
it permit any Subsidiary to, make or suffer to exist any Investments
(including without limitation, loans and advances to, and other Investments
in, Subsidiaries), or commitments therefor, or to create any Subsidiary or
to become or remain a partner in any partnership or joint venture, or to
make any Acquisition of any Person, except:
(i) Cash Equivalent Investments.
(ii) Existing Investments in Subsidiaries and other
Investments in existence on the date hereof and described in Schedule
"4" hereto.
(iii) Investments in the ordinary course of the Borrower's
mortgage banking business to purchase: (a) Mortgage Loans,
collateralized mortgage obligations and Securities (and in connection
with commitments to purchase the same); (b) servicing rights and
mortgage servicing contracts of another Person engaged in mortgage-
related businesses; and (c) real estate acquired by foreclosure.
(iv) Investments in the ordinary course of the Borrower's
mortgage banking business to enter into Rate Hedging Agreements to
the extent permitted pursuant to Section 6.11.
(v) Subject in each case to approval by Required Lenders,
Acquisitions of and Investments in Homebuyer's Mortgage, Inc. and any
other company engaged in the mortgage banking business which Borrower
wishes to acquire.
1.61 Liens. The Borrower will not, nor will it permit any
Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the
Property of the Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or
levies on its Property if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside
on its books".
(ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more than
60 days past due.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character
and which do not in any material way affect the marketability of the
same or interfere with the use thereof in the business of the
Borrower or the Subsidiaries.
(v) Liens existing on the date hereof and described in
Schedule "5" hereto.
(vi) Liens in favor of the Agent and the Collateral Agent, for
the benefit of the Lenders, granted pursuant to the Security
Agreement.
1.62 Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation,
the purchase or sale of any Property or service) with, or make any payment
or transfer to, any Affiliate (other than the occurrence of Indebtedness by
the Borrower or any Subsidiary to the Parent) except in the ordinary course
of business and pursuant to the reasonable requirements of the Borrower's
or such Subsidiary's business and upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than the Borrower or such
Subsidiary would obtain in a comparable arms-length transaction.
1.63 Financial Covenants.
1.63.1 Current Ratio. The Borrower will not permit, at any
time, the ratio of current assets to current liabilities of the Borrower
and its Subsidiaries on a consolidated basis to fall below 1.0 to 1.0, as
determined in accordance with GAAP. For purposes of determining this
ratio, current assets include cash (including restricted cash), mortgage
loans held for sale, accounts receivable, investment securities, and any
other assets which are expected to be converted into cash within a twelve
month period.
1.63.2 Leverage Ratio. The Borrower will not permit, as of the
end of any calendar month, the ratio of Total Liabilities to Consolidated
Tangible Net Worth to exceed 10.0 to 1.0 (the "Leverage Ratio"). If the
Borrower's Leverage Ratio as of the end of a month exceeds the respective
limits then Parent will inject sufficient capital into the Borrower to
reduce the Leverage Ratio to the permitted level within 30 days after the
end of such month, in which case no Default or Unmatured Default shall be
deemed to have occurred, provided that no dividends or distributions shall
be made by the Borrower during such thirty (30) day period as provided in
Section 6.10. Such injection may at Parent's option be in the form of
subordinated debt which shall at all times be subject to the terms of the
Subordination Agreement (which shall not have been revoked or cancelled) or
capital, and shall be completed no later than thirty days after the end of
the month. If the injection of capital is in the form of subordinated debt
such debt shall not be counted as a liability of the Borrower for purposes
of determining the Leverage Ratio. The Borrower shall supply Agent no
later than 45 days after the end of each month with a certificate
certifying that the Leverage Ratio did not exceed the specified limit for
such month or that the required injection of capital was made within thirty
days after the end of such month.
1.63.3 Net Worth. At all times, maintain a Consolidated
Tangible Net Worth of at least Six Million Dollars ($6,000,000).
1.63.4 Minimum Cash Flow. Permit, as of the end of any calendar
month ending after the date hereof, the Borrower's and its consolidated
Subsidiaries' consolidated cumulative Net Income (positive or negative) for
the twelve calendar month period ending on, and including, the last day of
such calendar month, minus the Borrower's and its consolidated
Subsidiaries' consolidated non-cash revenues and plus non-cash expenses
("Cumulative Cash Flow"), as determined in accordance with GAAP, for the
twelve calendar month period ending on, and including, the last day of such
calendar month to be less than zero.
1.64 Compliance with Security Agreement. The Borrower will not fail
to perform in any material respect any of its obligations under the
Security Agreement or enter into similar security agreements for Mortgage
Loans not included in Collateral with any Person other than the Collateral
Agent. The Borrower will direct the Collateral Agent to ship Collateral
only to Approved Investors or otherwise consistent with the provisions of
the Loan Documents.
1.65 Servicing Release. All Mortgage Loans sold by the Borrower
shall be sold on a servicing released basis, unless otherwise specifically
approved in writing by the Agent in its sole discretion.
1.66 Federal Agency Approvals. The Borrower (i)will maintain its
status as a FHA Approved Mortgagee, remain eligible to obtain VA guaranties
of Mortgage Loans and remain approved by each Federal Agency as a
seller/servicer and (ii)will not permit any Federal Agency to withdraw its
approval of the Borrower.
1.67 Approved Investor Commitments. The Borrower shall maintain
Approved Investor Commitments which cover all Pledged Mortgages and Pledged
Securities and perform all of its obligations in connection with such
Approved Investor Commitments.
1.68 Negative Pledges. The Borrower shall not enter into any
agreement pursuant to which it agrees (i)not to grant a lien to third
parties unless such provision allows for the lien of the Agent, the
Collateral Agent and the Lenders contemplated under the Loan Documents or
(ii)to grant another creditor a pari passu security interest in and to the
Collateral when a security interest is granted to the Agent, the Collateral
Agent and the Lenders pursuant to the Loan Documents.
1.69 MERS.
(i) The Borrower shall, (a) at all times, maintain its status
as a MERS Member, (b) at all times remain in full compliance all
terms and conditions of membership in MERS, including the MERSCORP,
Inc. "Rules of Membership" most recently promulgated by MERSCORP,
Inc., the "MERS Procedures Manual" most recently promulgated by MERS,
and any and all other guidelines or requirements set forth by MERS or
MERSCORP, as each of the foregoing may be modified from time to time,
including, but in no way limited to compliance with guidelines and
procedures set forth with respect to technological capabilities,
drafting and recordation of Mortgages, registration of Mortgages on
the MERS System, including registration of the interest of the Agent
and the Lenders in such mortgages and membership requirements, (c)
promptly, upon the request of the Agent, execute and deliver to the
Agent an assignment of mortgage, in blank, with respect to any MERS
Mortgage that the Agent determines shall be removed from the MERS
System and (d) at all time, upon the Registration of any Mortgage on
the MERS System, designate the Collateral Agent, as agent for the
Agent, in the Interim Funder category.
(ii) The Borrower shall not de-register or attempt to de-
register any Mortgage from the MERS System unless the Borrower has
complied with the requirements set forth in the Electronic Tracking
Agreement and the requirements hereof and the Security Agreement
relating to a release of Collateral.
1.70 Borrower and Lenders agree that no new advances shall be made
under the Bank One Agreement after the date hereof and such Persons hereby
authorize Bank One, NA, and Bank One, NA hereby agrees, to notify Agent of
the amount outstanding under the Bank One Agreement on each Business Day
until the Bank One Agreement is terminated.
ARTICLE II
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
1.71 Any representation or warranty made or deemed made by or on
behalf of the Borrower or any of its Subsidiaries to the Lenders or the
Agent under or in connection with this Agreement, any Loan, or any
certificate or information delivered in connection with this Agreement or
any other Loan Document shall be materially false on the date as of which
made (it being understood that if any of the representations and warranties
made pursuant to the definition of "Borrowing Base" are not true and
correct as of any date with respect to any Pledged Item, such Pledged Item
shall be removed from Eligible Collateral as the sole remedy for such
failure).
1.72 Nonpayment of principal of any Loan when due (including but not
limited to payments required pursuant to Section 2.11.2 and Section
2.11.4), or nonpayment of interest upon any Loan or of any Fee or other
obligations under any of the Loan Documents within five days after the same
becomes due.
1.73 The breach by the Borrower of any of the terms or provisions of
Article VI Section 6.2, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.17, 6.19,
6.20, 6.21 or 6.22; provided, however, that if the Borrower breaches
Section 6.21 as a result of an Approved Investor withdrawing or failing to
perform its obligations under a commitment covering a Pledged Mortgage or
Pledged Security, then Borrower shall have twenty-four hours to cure such
breach.
1.74 The breach by the Borrower (other than a breach which
constitutes a Default under another Section of this Article VII) of any of
the terms or provisions of this Agreement which is not remedied within
fifteen days after the earlier to occur of (i)receipt of written notice
from the Agent or any Lender of such breach or (ii)the date that the
Borrower obtains knowledge of such breach.
1.75 Failure of the Borrower or any of its Subsidiaries to pay when
due (beyond any applicable notice and cure period) any Indebtedness
aggregating in excess of $250,000 ("Material Indebtedness"); or the default
by the Borrower or any of its Subsidiaries in the performance beyond the
applicable grace period with respect thereto, if any of any term, provision
or condition contained in any agreement under which any such Material
Indebtedness was created or is governed, or any other event shall occur or
condition exist, the effect of which default or event is to cause, or to
permit the holder or holders of such Material Indebtedness to cause, such
Material Indebtedness to become due prior to its stated maturity; or any
Material Indebtedness of the Borrower or any of its Subsidiaries shall be
declared to be due and payable or required to be prepaid or repurchased
(other than by a regularly scheduled payment) prior to the stated maturity
thereof, or the Borrower or any of its Subsidiaries or Parent shall not
pay, or admit in writing its inability to pay, its debts generally as they
become due.
1.76 The Borrower, Parent or any of the Subsidiaries shall (i) have
an order for relief entered with respect to it under the Federal bankruptcy
laws as now or hereafter in effect, (ii)make an assignment for the benefit
of creditors, (iii)apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any Substantial Portion of its Property,
(iv)institute any proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, (v)take any
corporate, partnership or other action to authorize or effect any of the
foregoing actions set forth in this Section 7.6 or (vi)fail to contest in
good faith any appointment or proceeding described in Section 7.7.
1.77 Without the application, approval or consent of the Borrower or
any of its Subsidiaries, or Parent a receiver, trustee, examiner,
liquidator or similar official shall be appointed for the Borrower or any
of its Subsidiaries or Parent or any Substantial Portion of its Property,
or a proceeding described in Section 7.6(iv) shall be instituted against
the Borrower or any of its Subsidiaries or Parent and such appointment
continues undischarged or such proceeding continues undismissed or unstayed
for a period of 30 consecutive days.
1.78 Any court, government or governmental agency shall condemn,
seize or otherwise appropriate, or take custody or control of all or any
portion of the Property of the Borrower and its Subsidiaries or Parent
which, when taken together with all other Property of the Borrower and its
Subsidiaries or Parent so condemned, seized, appropriated, or taken custody
or control of, during the twelve-month period ending with the month in
which any such action occurs, constitutes a Substantial Portion.
1.79 The Borrower or any of its Subsidiaries shall fail within 60
days to pay, bond or otherwise discharge one or more (i) judgments or
orders for the payment of money in excess of $250,000 the aggregate, or
(ii) non-monetary judgments or orders which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect,
which judgments, in any case, is/are not stayed on appeal or otherwise
being appropriately contested in good faith.
1.80 Any Change in Control shall occur.
1.81 The occurrence of any "default", as defined in any Loan
Document (other than this Agreement) or the breach of any of the terms or
provisions of any Loan Document (other than this Agreement), which default
or breach continues beyond any period of grace therein provided.
1.82 The Security Agreement shall for any reason fail to create a
valid and perfected first priority security interest in any collateral
purported to be covered thereby, except as permitted by the terms of the
Security Agreement, or the Security Agreement shall fail to remain in full
force or effect or any action shall be taken to discontinue or to assert
the invalidity or unenforceability of the Security Agreement, or the
Borrower shall fail to comply with any of the terms or provisions of the
Security Agreement.
1.83 The Unfunded Liabilities of all Single Employer Plans shall
exceed in the aggregate $250,000 or any Reportable Event shall occur in
connection with any Plan.
1.84 The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multi-employer Plan that it has
incurred withdrawal liability to such Multi-employer Plan in an amount
which, when aggregated with all other amounts required to be paid to Multi-
employer Plans by the Borrower or any other member of the Controlled Group
as withdrawal liability (determined as of the date of such notification),
exceeds $250,000.
1.85 The Borrower or any of its Subsidiaries shall (i)be the subject
of any proceeding or investigation pertaining to the release by the
Borrower or any of its Subsidiaries or any other Person of any toxic or
hazardous waste or substance into the environment, or (ii)violate any
Environmental Law, which, in the case of an event described in clause (i)
and (ii), could reasonably be expected to have a Material Adverse Effect.
1.86 The Keep-Well or the Subordination Agreement shall fail to
remain in full force or effect or any action shall be taken to discontinue
or to assert the invalidity or unenforceability of the Keep-Well or the
Subordination Agreement, or the Parent shall fail to comply with any of the
terms or provisions of the Keep-Well or the Subordination Agreement, or the
Parent shall deny that it has any further liability under any the Keep-
Well, or shall give notice to such effect.
1.87 The representations and warranties set forth in "Section 5.15
Plan Assets; Prohibited Transactions" shall at any time not be true and
correct.
1.88 The Borrower and/or the Parent shall terminate its existence or
suspend or discontinue its business; or
1.89 The Parent shall be in default under any document evidencing or
relating to any Indebtedness of Parent greater than $1,000,000, beyond any
applicable notice and cure period provided in the documents evidencing such
Indebtedness; or
1.90 A change occurs, or is reasonably likely to occur, in the
Borrower's or Parent's business condition (financial or otherwise),
operations, properties or prospects, or ability to repay amounts owed to
the Agent and Lenders under the Loan Documents which could reasonably be
expected to have a Material Adverse Effect.
ARTICLE II
COLLATERAL, ACCELERATION AND OTHER REMEDIES
1.91 Security and Collateral Agency Agreement. Pursuant to the
Security Agreement, a security interest in and a continuing lien upon the
Collateral has been created in favor of the Collateral Agent for the
benefit of the Lenders.
1.92 AP Mortgages. The Borrower agrees that while it is in
possession of any Required Mortgage Documents for an AP Mortgage, it will
hold same in trust and as agent and bailee for the Collateral Agent,
without authority to make any other disposition thereof, or of the proceeds
thereof, except as may be otherwise permitted in writing by the Collateral
Agent. The Borrower assumes the responsibility for loss or destruction of
any such Required Mortgage Documents until the same are delivered to the
Collateral Agent.
1.93 Release of Collateral. Upon the request of the Borrower
delivered from time to time to the Agent and the Collateral Agent in
connection with the proposed sale of any Collateral, the Agent shall
authorize the Collateral Agent to release Collateral specified in such
notice from the lien of this Agreement, if, but only if, (i) at the time of
such release no Default shall have occurred and then be continuing, (ii)
the Borrowing Base, after giving effect to such release, is at least equal
to the Coverage Requirement or any payment under Section 2.9 which may be
required as a result of such release has been made and (iii) the release of
such Collateral will not create a violation of any Lending Sublimit or
Borrowing Base Sublimit.
1.94 Settlement and Funding Accounts. There is hereby established
with the Agent, for the benefit of the Lenders, a "cash collateral" account
of the Borrower, Account #3801990619 ("Settlement Account") into which
shall be deposited all cash proceeds from the sale of any Pledged Item and
which account shall be pledged as Collateral. All such cash proceeds shall
be deposited directly into the Settlement Account by the applicable
investor or purchaser of each Pledged Item and the Borrower agrees to give
notice of such to each such investor or purchaser. Only the Agent shall
have access to the Settlement Account. All amounts in the Settlement
Account shall be applied as described in Section 2.9.3. There is also
hereby established with the Agent, for the benefit of the Lenders, a second
account of the Borrower, Account #3801990627 ("Funding Account") into which
shall be deposited all Advances and from which all AP Mortgages shall be
funded (by wire transfer from such Funding Account) and which account shall
be pledged as Collateral.
1.95 Termination. If all Commitments under this Agreement shall
have expired or been terminated pursuant to the express terms hereof and no
Obligations shall be outstanding, the Agent shall promptly deliver or cause
to be delivered all cash standing to the credit of the Settlement Account
and Pledged Items to the Borrower. The receipt by the Borrower of any cash
in the Settlement Account and of all Pledged Items returned or delivered to
the Borrower pursuant to any provision of this Agreement, together with
UCC3 termination statements executed by the Agent, shall be a complete and
full acquittance for the Pledged Items so delivered.
1.96 Acceleration. If any Default described in Section 7.6 or 7.7
occurs with respect to the Borrower, the obligations of the Lenders to make
Loans hereunder shall automatically terminate and the Obligations shall
immediately become due and payable without any election or action on the
part of the Agent or any Lender. If any other Default occurs, the Required
Lenders (or the Agent with the consent of the Required Lenders) may
(i)terminate or suspend the obligations of the Lenders to make Loans
hereunder and they shall, upon notice to the Borrower, terminate or be
suspended, and/or (ii)declare the Obligations to be due and payable,
whereupon the Obligations shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which the
Borrower hereby expressly waives.
1.97 Other Remedies.
(i) Unless a Default shall have occurred and then be
continuing, the Borrower shall be entitled to receive and collect
directly all sums payable to the Borrower in respect of the
Collateral except proceeds from the sale thereof.
(ii) Upon the occurrence of a Default, the Agent and the
Collateral Agent, on behalf of the Lenders, shall be entitled to all
the rights and remedies hereunder and in the Security Agreement,
subject to the limitations and requirements of Paragraph 16 thereof,
and all other rights or remedies at law or in equity existing or
conferred upon the Lenders by other jurisdictions or other applicable
law.
(iii) Following the occurrence and during the continuance of a
Default or an Unmatured Default, no Lender shall be obligated to fund
any Loan hereunder.
(iv) Following the occurrence a Default, the Borrower agrees
that the Borrower and the Agent shall, if the Agent shall request
implement certain procedures with respect to the Borrower's funding
of AP Mortgages, all at the Borrower's sole expense. Such procedures
may include, but are not limited to: (i) reducing the advance rate
against any Eligible Collateral for purposes of determining the
Collateral Value component of the Borrowing Base, (ii) requiring that
wire transfers from the Funding Account only be released upon the
secondary authorization of the Agent, (iii) requiring the closing
agents for such AP Mortgages to enter into escrow or other agreements
regarding the monies used to fund such AP Mortgages, and (iv)
requiring the Borrower to provide the Agent and the Lenders with such
information regarding the funding of such AP Mortgages as the Agent
may reasonably request. The Borrower, at its expense, shall from
time to time execute and deliver to the Agent or the Collateral Agent
all such assignments, certificates, supplemental documents, and
financing statements, and shall do all other acts or things, as the
Agent may reasonably request in order to more fully implement such
procedures.
(v) The Borrower waives, to the extent permitted by law, any
right to require the Agent or any Lender to (i) proceed against any
Person, (ii) proceed against or exhaust any of the Collateral or
pursue its rights and remedies as against the Collateral in any
particular order or (iii) pursue any other remedy in its power.
(vi) The Agent on behalf of the Lenders may, but shall not be
obligated to, advance any sums or do any act or thing necessary to
uphold and enforce the lien and priority of, or the security intended
to be afforded by, any Pledged Item, including, without limitation,
payment of delinquent taxes or assessments and insurance premiums.
The Borrower shall provide any and all information required by the
Agent to administer this Agreement or collect on the Collateral. All
advances, charges, costs and expenses, including reasonable attorneys
fees, incurred or paid by the Agent in exercising any right, power or
remedy conferred by this Agreement, or in the enforcement hereof (or
by any Lender acting on instruction of the Required Lenders in the
enforcement hereof), together with interest thereon at the rate per
annum of 2% plus the Alternate Base Rate from the time of payment
until repaid, shall become a part of the Obligations.
(vii) Following the occurrence of a Default and the
acceleration of the Obligations the Agent shall be entitled to
receive and collect all sums payable to the Borrower in respect of
the Collateral and (a) the Agent, at the request of the Required
Lenders, may in its own name or in the name of the Borrower or
otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for
any of the Collateral, (b) the Borrower shall receive and hold in
trust for the Lenders any amounts thereafter received by the Borrower
upon or in respect of any of the Collateral, advising the Agent as to
the source of such funds and, if the Agent so requests at the
direction of the Required Lenders, forthwith paying such amounts to
the Agent, and (c) any and all amounts so received and collected by
the Agent either directly or from the Borrower shall be deposited in
the Settlement Account.
1.98 Application of Proceeds. After a Default and acceleration of
the Obligations, the proceeds of any sale or enforcement of all or any part
of the Collateral pursuant to the Security Agreement and the balance of any
moneys in the Settlement Account and the Funding Account shall be applied
by the Agent:
FIRST, to the payment of all costs and expenses of such sale or
enforcement, including reasonable compensation to the Agent's agents
and counsel, and all expenses, liabilities and advances made or
incurred by the Agent or any Lender acting on instructions of the
Required Lenders in connection therewith;
SECOND, to the payment of all costs and expenses incurred by
the Collateral Agent under the Security Agreement;
THIRD, to the payment of the outstanding principal balance of,
and all accrued and unpaid interest on and Fees attributable to, all
Loans under this Agreement, ratably according to the amount so due to
each Lender;
FOURTH, to the extent proceeds remain after application under
the preceding subparagraphs, to the payment of all remaining
Obligations, until such amounts are paid in full; and
FIFTH, to the payment to the Borrower, or to its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
The Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with
this Agreement. If the proceeds of any such sale are insufficient to cover
the costs and expenses of such sale, as aforesaid, and the payment in full
of the Obligations, the Borrower shall remain liable for any deficiency.
1.99 Preservation of Rights. No delay or omission of the Lenders or
the Agent to exercise any right under the Loan Documents shall impair such
right or be construed to be a waiver of any Default or an acquiescence
therein, and the making of a Loan notwithstanding the existence of a
Default or the inability of the Borrower to satisfy the conditions
precedent to such Loan shall not constitute any waiver or acquiescence.
Any single or partial exercise of any such right shall not preclude other
or further exercise thereof or the exercise of any other right, and no
waiver, amendment or other variation of the terms, conditions or provisions
of the Loan Documents whatsoever shall be valid unless in writing signed by
the Lenders required pursuant to Section 9.1, and then only to the extent
in such writing specifically set forth. All remedies contained in the Loan
Documents or by law afforded shall be cumulative and all shall be available
to the Agent and the Lenders until the Obligations have been paid in full.
ARTICLE II
AMENDMENTS; WAIVERS; GENERAL PROVISIONS
1.100 Amendments and Waivers. Other than (a) Commitment increases
pursuant to Section 12.4 (which may be accomplished solely by the Borrower,
the Agent and the subject Lender) and (b) temporary waivers of Collateral
eligibility permitted pursuant to the definition of "Borrowing Base" (which
may be accomplished solely by the Agent), the Required Lenders (or the
Agent with the consent in writing of the Required Lenders) and the Borrower
may enter into agreements supplemental hereto for the purpose of adding or
modifying any provisions to the Loan Documents or changing in any manner
the rights of the Lenders or the Borrower hereunder or waiving any Default
hereunder; provided, however, that no such supplemental agreement shall,
without the consent of each Lender directly or indirectly affected thereby:
(i) Extend the final maturity of any Loan or postpone
any regularly scheduled payment of principal of any Loan
or forgive all or any portion of the principal amount
thereof, or reduce the rate or extend the time of payment
of interest or fees thereon.
(ii) Reduce the percentage specified in the definition
of Required Lenders.
(iii) Extend the Termination Date, or reduce the amount
of or extend the payment date for the mandatory payments
required under Section 2.9, or increase the amount of the
Aggregate Commitment or of the Commitment of any Lender
hereunder (other than in accordance with Section 12.4).
(iv) Amend this Section 9.1.
(v) Release any guarantor of any Advance or, except as
provided herein or in the Security Agreement, release any
Collateral.
(vi) Amend the definition of "Borrowing Base" or
"Collateral Value".
(vii) Permit the Borrower to assign its rights under this
Agreement or amend or waive any restriction on the
Borrower's ability to assign its rights or obligations
under any of the Loan Documents.
(viii) Amend or waive any Lending Sublimits or Borrowing
Base Sublimits.
(ix) Amend or waive any provision herein regarding the
indemnification of the Agent, the Collateral Agent or any
Lender.
(x) Amend or waive any provision herein regarding the
allocation among the Lenders of any payments or proceeds
received by the Agent hereunder.
No amendment of any provision of this Agreement relating to the Agent or
the Collateral Agent shall be effective without the written consent of the
Agent or the Collateral Agent, as the case may be. In addition, the
consent of the Collateral Agent shall be required for the effectiveness of
any amendment referred to in Section 9.1 (iv), (v), (vi), (viii) and/or
(ix) above. The Agent may waive payment of the fee required under Section
12.3.2 without obtaining the consent of any other party to this Agreement.
1.101 Survival of Representations. All representations and
warranties of the Borrower contained in this Agreement shall survive the
making of the Loans herein contemplated.
1.102 Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Lender shall be obligated to extend
credit to the Borrower in violation of any limitation or prohibition
provided by any applicable statute or regulation.
1.103 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of
any of the provisions of the Loan Documents.
1.104 Entire Agreement. The Loan Documents embody the entire
agreement and understanding among the Borrower, the Agent, the Collateral
Agent and the Lenders and supersede all prior agreements and understandings
among the Borrower, the Agent and the Lenders relating to the subject
matter thereof, other than the fee letter described in Section 2.5.2 and
any other agreement entered into in connection with the fees described in
Section 2.5.3.
1.105 Several Obligations; Benefits of this Agreement. The
respective obligations of the Lenders hereunder are several and not joint
and no Lender shall be the partner or agent of any other (except to the
extent to which the Agent is authorized to act as such). The failure of
any Lender to perform any of its obligations hereunder shall not relieve
any other Lender from any of its obligations hereunder. This Agreement
shall not be construed so as to confer any right or benefit upon any Person
other than the parties to this Agreement and their respective successors
and assigns, provided, however, that the parties hereto expressly, agree
that the Collateral Agent shall enjoy the benefits of the provisions of
Sections 9.1, 9.7 and 9.8 to the extent specifically set forth therein and
shall have the right to enforce such provisions on its own behalf and in
its own name to the same extent as if it were a party to this Agreement.
1.106 Expenses; Indemnification. (i)The Borrower shall reimburse the
Agent, the Arranger and the Collateral Agent for any costs, internal
charges and out-of-pocket expenses (including reasonable attorneys' fees
and time charges of attorneys for the Agent and the Collateral Agent, which
attorneys may be employees of the Agent or the Collateral Agent) paid or
incurred by the Agent or the Collateral Agent in connection with the
preparation, negotiation, execution, delivery, syndication, review,
amendment, modification, and administration of the Loan Documents. The
Borrower also agrees to reimburse the Agent, the Collateral Agent and the
Lenders for any costs, internal charges and out-of-pocket expenses
(including attorneys' fees and time charges of attorneys for the Agent, the
Collateral Agent and the Lenders, which attorneys may be employees of the
Agent, the Collateral Agent or the Lenders) paid or incurred by the Agent,
the Collateral Agent or any Lender in connection with the collection and
enforcement of the Loan Documents. Expenses being reimbursed by the
Borrower under this Section include, without limitation, costs and expenses
incurred in connection with the Reports described in the following
sentence. The Borrower acknowledges that from time to time Guaranty Bank
may prepare and may distribute to the Lenders (but shall have no obligation
or duty to prepare or to distribute to the Lenders) certain audit reports
(the "Reports") pertaining to the Borrower's assets for internal use by
Guaranty Bank from information furnished to it by or on behalf of the
Borrower, after Guaranty Bank has exercised its rights of inspection
pursuant to this Agreement.
(ii) The Borrower hereby further agrees to indemnify the
Agent, the Collateral Agent and each Lender, their respective affiliates,
and each of their directors, officers and employees against all losses,
claims, damages, penalties, judgments, liabilities and expenses (including,
without limitation, all expenses of litigation or preparation therefor
whether or not the Agent, the Collateral Agent, any Lender or any affiliate
is a party thereto) which any of them may pay or incur arising out of or
relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Loan hereunder, including the foregoing
to the extent that they result from the negligence of the party seeking
indemnification but excluding the foregoing to the extent that they are
determined in a final and non-appealable judgment by a court of competent
jurisdiction to have resulted from the gross negligence or willful
misconduct of the party seeking indemnification. The obligations of the
Borrower under this Section 9.7 shall survive the termination of this
Agreement.
1.107 Nonliability of Lenders. The relationship between the Borrower
on the one hand and the Lenders, the Agent and the Collateral Agent on the
other hand shall be solely that of borrower and lender. Neither the Agent,
the Collateral Agent nor any Lender shall have any fiduciary
responsibilities to the Borrower. Neither the Agent, the Collateral Agent
nor any Lender undertakes any responsibility to the Borrower to review or
inform the Borrower of any matter in connection with any phase of the
Borrower's business or operations. The Borrower agrees that neither the
Agent, the Collateral Agent nor any Lender shall have liability to the
Borrower (whether sounding in tort, contract or otherwise) for losses
suffered by the Borrower in connection with, arising out of, or in any way
related to, the transactions contemplated and the relationship established
by the Loan Documents, or any act, omission or event occurring in
connection therewith, unless it is determined in a final and non-appealable
judgment by a court of competent jurisdiction that such losses resulted
from the gross negligence or willful misconduct of the party from which
recovery is sought. Neither the Agent, the Collateral Agent nor any Lender
shall have any liability with respect to, and the Borrower hereby waives,
releases and agrees not to sue for, any special, indirect or consequential
damages suffered by the Borrower in connection with, arising out of, or in
any way related to the Loan Documents or the transactions contemplated
thereby.
1.108 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable,
or invalid without affecting the remaining provisions in that jurisdiction
or the operation, enforceability, or validity of that provision in any
other jurisdiction, and to this end the provisions of all Loan Documents
are declared to be severable.
1.109 Numbers of Documents. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Agent with
sufficient counterparts so that the Agent may furnish one to each of the
Lenders.
1.110 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP, except that
any calculation or determination which is to be made on a consolidated
basis shall be made for the Borrower and all its Subsidiaries, including
those Subsidiaries, if any, which are unconsolidated on the Borrower's
audited financial statements.
1.111 Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this
Agreement in confidence, except for disclosure (i) to its Affiliates and to
other Lenders and their respective Affiliates, (ii) to legal counsel,
accountants, and other professional advisors to such Lender or to a
Transferee, (iii) to regulatory officials, (iv) to any Person as requested
pursuant to or as required by law, regulation, or legal process, (v) to any
Person in connection with any legal proceeding to which such Lender is a
party, (vi) to such Lender's direct or indirect contractual counterparties
in swap agreements or to legal counsel, accountants and other professional
advisors to such counterparties, (vii)permitted by Section 12.5 and (viii)
to rating agencies if requested or required by such agencies in connection
with a rating of such lender or an Affiliate of such Lender.
1.112 Nonreliance. Each Lender hereby represents that it is not
relying on or looking to any margin stock (as defined in Regulation U of
the Board of Governors of the Federal Reserve System) for the repayment of
the Loans provided for herein.
1.113 Disclosure. The Borrower and each Lender hereby (i)
acknowledge and agree that Bank One and/or its Affiliates from time to time
may hold investments in, make other loans to or have other relationships
with the Parent, the Borrower and their respective Affiliates, and (ii)
waive any liability of Guaranty Bank or such Affiliate to the Parent, the
Borrower or any Lender, respectively, arising out of or resulting from such
investments, loans or relationships other than liabilities arising out of
the gross negligence or willful misconduct of Guaranty Bank or its
Affiliates.
ARTICLE II
THE AGENT AND THE COLLATERAL AGENT
1.114 Appointment; Nature of Relationship. Guaranty Bank is hereby
appointed by each of the Lenders as its contractual representative (herein
referred to as the "Agent") hereunder and under each other Loan Document,
and each of the Lenders irrevocably authorizes the Agent to act as the
contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent is
hereby authorized to enter into the Security Agreement thereby appointing
the Collateral Agent to act on behalf of the Lenders and all obligations of
the Lenders under the Security Agreement shall be binding upon each Lender
as if such Lender had executed the Security Agreement. The Agent agrees to
act as such contractual representative upon the express conditions
contained in this Article X. Notwithstanding the use of the defined term
"Agent" throughout the Agreement, it is expressly understood and agreed
that the Agent shall have not have any fiduciary responsibilities to any
Lender by reason of this Agreement or any other Loan Document and that the
Agent is merely acting as the representative of the Lenders with only those
duties as are expressly set forth in this Agreement and the other Loan
Documents. In its capacity as the Lenders' contractual representative, the
Agent (i) does not hereby assume any fiduciary duties to any of the
Lenders, (ii) is a "representative" of the Lenders within the meaning of
the term "secured party" as defined in the Illinois Uniform Commercial Code
as in effect from time to time and (iii) is acting as an independent
contractor, the rights and duties of which are limited to those expressly
set forth in this Agreement and the other Loan Documents. Each of the
Lenders hereby agrees to assert no claim against the Agent on any agency
theory or any other theory of liability for breach of fiduciary duty, all
of which claims each Lender hereby waives.
1.115 Powers. The Agent shall have and may exercise such powers
under the Loan Documents as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably
incidental thereto. The Agent shall have no implied duties to the Lenders,
or any obligation to the Lenders to take any action thereunder except any
action specifically provided by the Loan Documents to be taken by the
Agent.
1.116 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders
or any Lender for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith, whether sounding in tort, contract or otherwise except to the
extent such action or inaction is determined in a final non-appealable
judgment by a court of competent jurisdiction to have arisen from the gross
negligence or willful misconduct of such Person.
1.117 No Responsibility for Loans, Recitals, etc. Neither the Agent
nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into, or verify (i)
any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of
any of the covenants or agreements of any obligor under any Loan Document,
including, without limitation, any agreement by an obligor to furnish
information directly to each Lender; (iii) the satisfaction of any
condition specified in Article IV, except receipt of items required to be
delivered solely to the Agent; (iv) the existence or possible existence of
any Default or Unmatured Default; (v) the validity, enforceability,
effectiveness, sufficiency or genuineness of any Loan Document or any other
instrument or writing furnished in connection therewith; (vi) the value,
sufficiency, creation, perfection or priority of any Lien in any collateral
security; or (vii) the financial condition of the Borrower or any guarantor
of any of the Obligations or of any of the Borrower's or any such
guarantor's respective Subsidiaries. The Agent shall have no duty to
disclose to the Lenders information that is not required to be furnished by
the Borrower to the Agent at such time, but is voluntarily furnished by the
Borrower to the Agent (either in its capacity as Agent or in its individual
capacity).
1.118 Action on Instructions of Lenders. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder
and under any other Loan Document in accordance with written instructions
signed by the Required Lenders, and such instructions and any action taken
or failure to act pursuant thereto shall be binding on all of the Lenders.
The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement or any other Loan Document unless it shall be
requested in writing to do so by the Required Lenders. The Agent shall be
fully justified in failing or refusing to take any action hereunder and
under any other Loan Document unless it shall first be indemnified to its
satisfaction by the Lenders pro rata against any and all liability, cost
and expense that it may incur by reason of taking or continuing to take any
such action.
1.119 Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or
through employees, agents, and attorneys-in-fact and shall not be
answerable to the Lenders, except as to money or securities received by it
or its authorized agents, for the default or misconduct of any such agents
or attorneys-in-fact selected by it with reasonable care. The Agent shall
be entitled to advice of counsel concerning the contractual arrangement
between the Agent and the Lenders and all matters pertaining to the Agent's
duties hereunder and under any other Loan Document.
1.120 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons,
and, in respect to legal matters, upon the opinion of counsel selected by
the Agent, which counsel may be employees of the Agent.
1.121 Agent's Reimbursement and Indemnification. The Lenders agree
to reimburse and indemnify the Agent ratably in proportion to their
respective Commitments (or, if the Commitments have been terminated, in
proportion to their Commitments immediately prior to such termination) (i)
for any amounts not reimbursed by the Borrower for which the Agent is
entitled to reimbursement by the Borrower under the Loan Documents, (ii)
for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents (including, without limitation, for any
expenses incurred by the Agent in connection with any dispute between the
Agent and any Lender or between two or more of the Lenders) and (iii) for
any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of the Loan Documents or any
other document delivered in connection therewith or the transactions
contemplated thereby (including, without limitation, for any such amounts
incurred by or asserted against the Agent in connection with any dispute
between the Agent and any Lender or between two or more of the Lenders), or
the enforcement of any of the terms of the Loan Documents or of any such
other documents, provided that (i) no Lender shall be liable for any of the
foregoing to the extent any of the foregoing is found in, a final non-
appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of the Agent and (ii) any
indemnification required pursuant to Section 3.5(vii) shall,
notwithstanding the provisions of this Section 10.8, be paid by the
relevant Lender in accordance with the provisions thereof The obligations
of the Lenders under this Section 10.8 shall survive payment of the
Obligations and termination of this Agreement.
1.122 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Unmatured Default
hereunder unless the Agent has received written notice from a Lender or the
Borrower referring to this Agreement describing such Default or Unmatured
Default and stating that such notice is a "notice of default". In the
event that the Agent receives such a notice, the Agent shall give prompt
notice thereof to the Lenders.
1.123 Rights as a Lender. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other
Loan Document with respect to its Commitment and its Loans as any Lender
and may exercise the same as though it were not the Agent, and the term
"Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless
the context otherwise indicates, include the Agent in its individual
capacity. The Agent and its Affiliates may accept deposits from, lend
money to, and generally engage in any kind of trust, debt, equity or other
transaction, in addition to those contemplated by this Agreement or any
other Loan Document, with the Borrower or any of its Subsidiaries in which
the Borrower or such Subsidiary is not restricted hereby from engaging with
any other Person. The Agent, in its individual capacity, is not obligated
to be or remain a Lender.
1.124 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent, the Arranger or any
other Lender and based on the financial statements prepared by the Borrower
and such other documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and the
other Loan Documents. Each Lender also acknowledges that it will,
independently and without reliance upon the Agent, the Arranger or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan
Documents.
1.125 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to
be effective upon the appointment of a successor Agent or, if no successor
Agent has been appointed, forty-five days after the retiring Agent gives
notice of its intention to resign. Upon any such resignation, the Required
Lenders shall have the right to appoint, on behalf of the Borrower and the
Lenders, a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders within thirty days after the resigning
Agent's giving notice of its intention to resign, then the resigning Agent
may appoint, on behalf of the Borrower and the Lenders, a successor Agent.
Notwithstanding the previous sentence, the Agent may at any time without
the consent of the Borrower or any Lender, appoint any of its Affiliates
which is a commercial bank as a successor Agent hereunder. If the Agent
has resigned and no successor Agent has been appointed, the Lenders may
perform all the duties of the Agent hereunder and the Borrower shall make
all payments in respect of the Obligations to the applicable Lender and for
all other purposes shall deal directly with the Lenders. No successor
Agent shall be deemed to be appointed hereunder until such successor Agent
has accepted the appointment. Any such successor Agent shall be a
commercial bank having capital and retained earnings of at least
$100,000,000. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
resigning Agent. Upon the effectiveness of the resignation of the Agent,
the resigning Agent shall be discharged from its duties and obligations
hereunder and under the Loan Documents. After the effectiveness of the
resignation of an Agent, the provisions of this Article X shall continue in
effect for the benefit of such Agent in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and
under the other Loan Documents. In the event that there is a successor to
the Agent by merger, or the Agent assigns its duties and obligations to an
Affiliate pursuant to this Section 10.12, then the term "'Prime Rate" as
used in this Agreement shall mean the prime rate, base rate or other
analogous rate of the new Agent.
1.126 Delegation to Affiliates. The Borrower and the Lenders agree
that the Agent may delegate any of its duties under this Agreement to any
of its Affiliates. Any such Affiliate (and such Affiliate's directors,
officers, agents and employees) which performs duties in connection with
this Agreement shall be entitled to the same benefits of the
indemnification, waiver and other protective provisions to which the Agent
is entitled under Articles IX and X.
1.127 Collateral Releases. The Lenders hereby empower and authorize
the Agent to execute and deliver to the Borrower on their behalf any
agreements, documents or instruments as shall be necessary or appropriate
to effect any releases of Collateral which shall be permitted by the terms
hereof or of any other Loan Document or which shall otherwise have been
approved by the Required Lenders (or, if required by the terms of Section
9.1, all of the Lenders) in writing.
ARTICLE II
SETOFF; RATABLE PAYMENTS
1.128 Setoff. In addition to, and without limitation of, any rights
of the Lenders under applicable law,
1.129 If the Borrower becomes insolvent, however evidenced, or any
Default occurs, any and all deposits (including all account balances,
whether provisional or final and whether or not collected or available) and
any other Indebtedness at any time held or owing by any Lender or any
Affiliate of any Lender to or for the credit or account of the Borrower may
be offset and applied toward the payment of the Obligations owing to such
Lender, whether or not the Obligations, or any part hereof, shall then be
due.
1.130 Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it upon its Loans (other than payments
received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion
than that received by any other Lender, such Lender agrees, promptly upon
demand, to purchase a portion of the Loans held by the other Lenders so
that after such purchase each Lender will hold its ratable proportion of
Loans. If any Lender, whether in connection with setoff or amounts which
might be subject to setoff or otherwise, receives collateral or other
protection for its Obligations or such amounts which may be subject to
setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral
ratably in proportion to their Loans. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments
shall be made.
1.131 Custodial Accounts. The Borrower agrees that funds received
and held by the Borrower as custodian for FNMA, GNMA or other mortgage
pools which are deposited into accounts with any Lender shall be clearly
identified as custodial accounts, and each Lender agrees that each
provision of the foregoing subsections of this Article XI shall not apply
to such custodial accounts. The Borrower shall not deposit any of its
general funds in any custodial accounts or otherwise commingle funds in any
custodial accounts.
ASSIGNMENTS; PARTICIPATIONS; COMMITMENT INCREASES
1.132 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower
and the Lenders and their respective successors and assigns, except that
(i) the Borrower shall not have the right to assign its rights or
obligations under the Loan Documents and (ii) and assignment by any Lender
must be made in compliance with Section 12.3. The parties to this
Agreement acknowledge that clause (ii) of this Section 12.1 relates only to
absolute assignments and does not prohibit assignments creating security
interests, including, without limitation, any pledge or assignment by any
Lender of all or any portion of its rights under this Agreement and any
Note to a Federal Reserve Bank; provided, however, that no such pledge or
assignment creating a security interest shall release the transferor Lender
from its obligations hereunder unless and until the parties hereto have
complied with the provisions of Section 12.3. The Agent may treat the
Person which made any Loan or which holds any Note as the owner thereof for
all purposes hereof unless and until such Person complies with Section
12.3, provided, however, that the Agent may in its discretion (but shall
not be required to) follow instructions from the Person which made any Loan
or which holds any Note to direct payments relating to such Loan or Note to
another Person. Any assignee of the rights to any Loans or any Note agrees
by acceptance of such transfer or assignment to be bound by all the terms
and provisions of the Loan Documents. Any request, authority or consent of
any Person, who at the time of making such request or giving such authority
or consent is the owner of the Rights to any Loan (whether or not a Note
has been issued in evidence thereof), shall be conclusive and binding on
any subsequent holder, or assignee of the rights to such Loan.
1.133 Participations.
1.133.1 Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held by
such Lender, any Commitment of such Lender or any other interest of such
Lender under the Loan Documents. In the event of any such sale by a Lender
of participating interests to a Participant, such Lender's obligations
under the Loan Documents shall remain unchanged, such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, such Lender shall remain the owner of its Loans and the holder
of any Note issued to it in evidence thereof for all purposes under the
Loan Documents, all amounts payable by the Borrower under this Agreement
shall be determined as if such Lender had not sold such participating
interests, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents.
1.133.2 Voting Rights. Each Lender shall retain the sole right
to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than
any amendment, modification or waiver with respect to any Loan or
Commitment in which such Participant has an interest which forgives
principal, interest or fees or reduces the interest rate or fees payable
with respect to any such Loan or Commitment, extends the Termination Date,
postpones any date fixed for any regularly-scheduled payment of principal
of, or interest or fees on, any such Loan or Commitment, releases any
guarantor of any such Loan or releases all or substantially all of the
Collateral (other than as expressly permitted pursuant to the Loan
Documents).
1.133.3 Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in Section
11.1 in respect of its participating interest in amounts owing under the
Loan Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under the Loan Documents,
provided that each Lender shall retain the right of setoff provided in
Section 11.1 with respect to the amount of participating interests sold to
each Participant. The Lenders agree to share with each Participant, and
each Participant, by exercising the right of setoff provided in Section
11.1, agrees to share with each Lender, any amount received pursuant to the
exercise of its right of setoff, such amounts to be shared in accordance
with Section 11.2 as if each Participant were a Lender.
1.134 Assignments.
1.134.1 Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time
assign to one or more banks or other entities ("Purchasers") all or any
part of its rights and obligations under the Loan Documents. Such
assignment shall be substantially in the form of Exhibit "J' hereto or in
such other form as may be agreed to by the parties thereto. The consent of
the Borrower and the Agent shall be required prior to an assignment
becoming effective with respect to a Purchaser which is not a Lender or an
Affiliate thereof, provided, however, that if a Default has occurred and is
continuing, the consent of the Borrower shall not be required. Such
consent shall not be unreasonably withheld or delayed. Each such
assignment shall (unless it is to a Lender or an Affiliate thereof or each
of the Borrower and the Agent otherwise consents) be in an amount not less
than the lesser of (i) $10,000,000 or (ii) the remaining amount of the
assigning Lender's Commitment (calculated as at the date of such
assignment).
1.134.2 Effect; Effective Date. Upon (i) delivery to the Agent
of a notice of assignment, substantially in the form attached as Annex "I"
to Exhibit "J' hereto (a "Notice of Assignment"), together with any
consents required by Section 12.3.1, and (ii) payment of a $3,500 fee to
the Agent for processing such assignment, such assignment shall become
effective on the effective date specified in such Notice of Assignment.
The Notice of Assignment shall contain a representation by the Purchaser to
the effect that none of the consideration used to make the purchase of the
Commitment and Loans under the applicable assignment agreement are "plan
assets" as defined under ERISA and that the rights and interests of the
Purchaser in and under the Loan Documents will not be "plan assets" under
ERISA. On and after the effective date of such assignment, such Purchaser
shall for all purposes be a Lender party to this Agreement and any other
Loan Document executed by or on behalf of the Lenders and shall have all
the rights and obligations of a Lender under the Loan Documents, to the
same extent as if it were an original party hereto, and no further consent
or action by the Borrower, the Lenders or the Agent shall be required to
release the transferor Lender with respect to the percentage of the
Aggregate Commitment and Loans assigned to such Purchaser. Upon the
consummation of any assignment to a Purchaser pursuant to this Section
12.3.2, the transferor Lender, the Agent and the Borrower shall, if the
transferor Lender or the Purchaser desires that its Loans be evidenced by
Notes, make appropriate arrangements so that new Notes or, as appropriate
replacement Notes are issued to such transferor Lender and new Notes or, as
appropriate, replacement Notes, are issued to such Purchaser, in each case
in principal amounts reflecting their respective Commitments, as adjusted
pursuant to such assignment. In addition, within a reasonable time after
the effective date of any assignment, the Agent shall, and is hereby
authorized and directed to, revise Schedule "2' reflecting the revised
commitments and percentages of each of the Lenders and shall distribute
such revised Schedule "2' to each of the Lenders and the Borrower,
whereupon such revised Schedule shall replace the old Schedule and become
part of this Agreement.
1.135 Commitment Increases.
1.135.1 Increases to Aggregate Commitment. The Borrower shall
have the right to increase the Aggregate Commitment by obtaining additional
Commitments, either from one or more of the Lenders or another lending
institution provided that (A) the Agent has approved the identity of any
such new Lender, such approval not to be unreasonably withheld, (B) any
such new Lender assumes all of the rights and obligations of a "Lender"
hereunder, and (C) the procedure described in Section 12.4.2 has been
complied with, provided further that the Aggregate Commitment shall not at
any time exceed $150,000,000 without the approval of the Agent and all of
the Lenders.
1.135.2 Procedure for Increases and Addition of New Lenders.
This Agreement permits certain increases in a Lender's Commitment and the
admission of new Lenders providing new Commitments, none of which require
any consents or approvals from the other Lenders. Any amendment hereto for
such an increase or addition shall be in the form attached hereto as
Exhibit "K" and shall only require the written signatures of the Agent, the
Borrower and the Lender(s) being added or increasing their Commitment,
subject only to the approval of all Lenders if any such increase would
cause the Aggregate Commitment to exceed $150,000,000. In addition, within
a reasonable time after the effective date of any increase, the Agent
shall, and is hereby authorized and directed to, revise Schedule "2"
reflecting such increase and shall distribute such revised Schedule to each
of the Lenders and the Borrower, whereupon such revised Schedule shall
replace the old Schedule and become part of this Agreement. On the
Business Day following any such increase, all outstanding Fed Funds
Advances and Alternate Base Rate Advances shall be reallocated among the
Lenders (including any newly added Lenders) in accordance with the Lenders'
respective revised Primary Commitment Percentages. Eurodollar Advances
shall not be reallocated among the Lenders prior to the expiration of the
applicable Interest Period in effect at the time of any such increase.
1.136 Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Person
acquiring an interest in the Loan Documents by operation of law (each a
"Transferee") and any prospective Transferee any and all information in
such Lender's possession concerning the creditworthiness of the Borrower
and its Subsidiaries, including without limitation any information
contained in any Reports; provided that each Transferee and prospective
Transferee agrees to be bound by Section 9.12 of this Agreement.
1.137 Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the
transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer, to comply with the provisions of Section
3.5(iv).
NOTICES
1.138 Notices. Except as otherwise permitted by Section 2.6 with
respect to borrowing notices, all notices, requests and other
communications to any party hereunder shall be in writing (including bank
wire, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower, the Agent or any Lender, at its
address or facsimile number set forth on the signature pages hereof, (y) in
the case of the Collateral Agent, at its address or facsimile number set
forth on the signature pages of the Security Agreement or (z) in the case
of any party, at such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower
in accordance with the provisions of this Section 13.1. Each such notice,
request or other communication shall be effective (i) if given by facsimile
transmission., when transmitted to the facsimile number specified in this
Section and confirmation of receipt is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in this Section; provided
that notices to the Agent under Article 11 shall not be effective until
received.
1.139 Change of Address. The Borrower, the Agent, the Collateral
Agent and any Lender may each change the address for service of notice upon
it by a notice in writing to the other parties hereto.
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower, the
Agent and the Lenders and each party has notified the Agent by facsimile
transmission or telephone, that it has taken such action.
CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL
1.140 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING
A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE
STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.
1.141 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
TEXAS STATE COURT SITTING IN DALLAS IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT
MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO
BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR
ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN
DALLAS, TEXAS.
1.142 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE)
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT
OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
1.143 No Tri-Party Accounts. Section 346 of the Texas Finance Code
(which regulates certain revolving loan accounts and revolving triparty
accounts) shall not apply to this Agreement or the other loan documents.
1.144 Limitation on Interest. Agent, Lenders, and Borrower, and any
other parties to the Loan Documents intend to contract in strict compliance
with applicable usury law from time to time in effect. In furtherance
thereof such Persons stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to
create a contract to pay, for the use, forbearance or detention of money,
interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. Neither Borrower
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for
unearned interest thereon or shall ever be required to pay interest thereon
in excess of the maximum amount that may be lawfully charged under
applicable law from time to time in effect, and the provisions of this
section shall control over all other provisions of the Loan Documents which
may be in conflict or apparent conflict herewith. Lenders expressly
disavow any intention to charge or collect excessive unearned interest or
finance charges in the event the maturity of any Obligation is accelerated.
If (a) the maturity of any Obligation is accelerated for any reason, (b)
any Obligation is prepaid and as a result any amounts held to constitute
interest are determined to be in excess of the legal maximum, or (c)
Lenders or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which
would otherwise increase the interest on any or all of the Obligations to
an amount in excess of that permitted to be charged by applicable law then
in effect, then all such sums determined to constitute interest in excess
of such legal limit shall, without penalty, be promptly applied to reduce
the then outstanding principal of the related Obligations or, at Lenders'
or such holder's option, promptly returned to each Borrower or the other
payor thereof upon such determination. In determining whether or not the
interest paid or payable, under any specific circumstance, exceeds the
maximum amount permitted under applicable law, Lenders and Borrower (and
any other payors thereof) shall to the greatest extent permitted under
applicable law, (i) characterize any non-principal payment as an expense,
fee or premium rather than as interest, (ii) exclude voluntary prepayments
and the effects thereof, and (iii) amortize, prorate, allocate, and spread
the total amount of interest throughout the entire contemplated term of the
instruments evidencing the Obligations in accordance with the amounts
outstanding from time to time thereunder and the maximum legal rate of
interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable
law. In the event applicable law provides for an interest ceiling under
Section 303 of the Texas Finance Code, that ceiling shall be the weekly
ceiling.
1.145 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
Address for Notices:
1800 S. Australian Avenue
Suite 400
West Palm Beach, Florida 33409
Telephone: (561) 478-4900
Telecopier:
GUARANTY BANK, Agent and Lender
By:
Name: Randall S. Reid
Title: Vice President
Address for Notices Regarding Fundings:
3333 Douglas Avenue
Dallas, Texas 75225
Attn: Ronny O'Neal
Telephone No.: (214) 360-4802
Telephone No.: (214) 360-1659
Address for Other Notices:
3333 Douglas Avenue
Dallas, Texas 75225
Attn: Randall S. Reid
Telephone No.: (214) 360-2735
Telephone No.: (214) 360-1661
BANK ONE, NA
By:
Name: Rodney S. Davis
Title: Associate Director
Address for Notices Regarding Fundings:
1 Bank One Plaza
Chicago, Illinois 60670-0098
Attn: Ky Yoo
Telephone No.: (312)732-1068
Telecopier No.: (312)732-3852 or
7326774
Address for Other Notices:
1 Bank One Plaza
Mail Suite IL1-0098
Chicago, Illinois 60670
Attn: Todd Ritz
Director
Telephone No.: (312) 732-3953
Telecopier No.: (312) 732-6222
BANK OF AMERICA, N.A.
By:
Name: Agnes McAlpine
Title: Principal
Address for Notices Regarding Fundings:
901 Main Street
66th Floor
Dallas, Texas 75202-3714
Mail Code TX1-492-66-02
Attn: Barbara Allen
Telephone No.: (214) 209-1551
Telecopier No.: (214) 209-2710
Address for Other Notices:
901 Main Street
66th Floor
Dallas, Texas 75202-3714
Mail Code TX1-492-66-02
Attn: Mark Short
Telephone No.: (214) 209-0670
Telecopier No.: (214) 209-0338
COMERICA BANK
By:
Name: Robert W. Marr
Title: Assistant Vice President
Address for Notices Regarding Fundings:
500 Woodward Avenue
7th Floor, MC 3256
Detroit, MI 48226
Attention: Janet Nowicki
Telephone No.: (313) 222-9294
Telecopier No.: (313) 222-3697
Address for Other Notices:
500 Woodward Avenue
7th Floor, MC 3256
Detroit, MI 48226
Attention: Rob Marr
Telephone No.: (313) 222-4119
Telecopier No.: (313) 222-9295
SCHEDULE "1"
PRICING SCHEDULE*
APPLICABLE MARGIN &
APPLICABLE FEE RATE
Eurodollar Advance 1.25%
Fed Funds Advance 1.375%
Swingline Loan 1.625%
Facility Fee .25%
* There shall be no Applicable Margin for Alternate Base Rate Advances.
SCHEDULE "2"
COMMITMENTS AND COMMITMENT PERCENTAGES
LENDER
(A)
COMMITMENT
(B)
COMMITMENT
PERCENTAGE
(A?Aggregate
Commitment)
(C
SWINGLINE
AMOUNT
Guaranty Bank
Bank of America, N.A.
Bank One, NA
Comerica Bank $30,000,000
$30,000,000
$30,000,000
$20,000,000 27.272727%
27.272727%
27.272727%
18.181818% $3,000,000
SCHEDULE "3"
LIST OF APPROVED INVESTORS
BANK OF AMERICA MORTGAGE
BANK BRANCH AND TRUST (BB&T)
CHASE MANHATTAN MORTGAGE CORPORATION
CITICORP MORTGAGE, INC.
COUNTRYWIDE HOME LOAN, INC.
DIME MORTGAGE SERVICES
FLAGSTAR BANCORP
FLEET MORTGAGE GROUP, INC.
FEDERAL HOME LOAN MORTGAGE CORPORATION
FEDERAL NATIONAL MORTGAGE ASSOCIATION
FIRST HORIZON BANCORP
FIRST NATIONWIDE MORTGAGE
FIRST UNION MORTGAGE GROUP
FLEET MORTGAGE CORP.
GE CAPITAL MORTGAGE SERVICES, INC.
GREENPOINT MORTGAGE CORPORATION
ILLINOIS HOUSING AND DEVELOPMENT AUTHORITY
IMPAC FUNDING CORPORATION
OHIO SAVINGS BANK
NATIONSBANC MORTGAGE CORP.
NEW JERSEY MORTGAGE FINANCE AGENCY
NORWEST FUNDING
PNC BANK, N.A.
REGION'S MORTGAGE
RESIDENTIAL FUNDING CORP.
ROSLYN NATION MORTGAGE CORP.
SIERRA WESTERN
SOMERSET SAVINGS BANK
SOVEREIGN BANK FSB
SUMMIT MORTGAGE CO. / SUMMIT BANK
VALLEY NATIONAL BANK
ALLIANCE FUNDING CORP.
CHASE MANHATTAN FUNDING1
COUNTRYWIDE HOME LOAN, INC.1
GE CAPITAL MORTGAGE SERVICES, INC.1
IMPAC FUNDING CORP.1
DIRECTORS ACCEPTANCE, A DIVISION OF NORWEST MORTGAGE1
RESIDENTIAL FUNDING CORP.1
FANNIE MAE TRADING DESK
PAINEWEBBER, INC.2
ADVEST, INC.2
STIFEL FINANCIAL CORP.2
SCHEDULE "4"
SUBSIDIARIES AND OTHER INVESTMENTS
(See Sections 5.8 and 6.14)
Investment
In Owned
By Amount of
Investment Percent
Ownership Jurisdiction of
Organization
None
SCHEDULE "5"
LIENS
(See Sections 5.14 and 6.15)
Indebtedness
Incurred By
Indebtedness
Owed To
Property
Encumbered (If Any) Maturity and
Amount of
Indebtedness
None
EXHIBIT "A"
NOTE
June 7, 2002
K. Hovnanian Mortgage, Inc. a New Jersey corporation (the
"Borrower"), promises to pay to the order of (the "Lender")
the lesser of the Lender's Commitment under the Agreement (as hereinafter
defined) or the aggregate unpaid principal amount of all Loans made by the
Lender to the Borrower pursuant to Article II of the Agreement in
immediately available funds at the main office of Guaranty Bank, in Dallas,
Texas, as Agent, together with interest on the unpaid principal amount
hereof at the rates and on the dates set forth in the Agreement. The
Borrower shall pay the principal of and accrued and unpaid interest on the
Loans in full on the Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual
practice, the date and amount of each Loan and the date and amount of each
principal payment hereunder.
This Note is one of the Notes issued pursuant to, and is entitled to
the benefits of, the Credit Agreement dated as of June 7, 2002 (which, as
it may be amended or modified and in effect from time to time, is herein
called the "Agreement"), among the Borrower, the lenders party thereto,
including the Lender, and Guaranty Bank, as Agent, to which Agreement
reference is hereby made for a statement of the terms and conditions
governing this Note, including the terms and conditions under which this
Note may be prepaid or its maturity date accelerated. This Note is secured
pursuant to the Security Agreement, all as more specifically described in
the Agreement, and reference is made thereto for a statement of the terms
and provisions thereof Capitalized terms used herein and not otherwise
defined herein are used with the meanings attributed to them in the
Agreement.
This Note is to be governed by and construed and enforced in
accordance with the laws of the State of Texas.
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF ,
DATED , 2002
Date Principal
Amount of
Loan Maturity
of Interest
Period Principal
Amount
Paid
Unpaid
Balance
EXHIBIT "B"
FORM OF OPINION
, 2002
The Agent and the Lenders who are parties to the
Credit Agreement described below.
Gentlemen/Ladies:
We are counsel for K. Hovnanian Mortgage, Inc., a New Jersey
corporation (the "Borrower") and Hovnanian Enterprises, Inc., a Delaware
corporation (the "Parent") and have represented the Borrower in connection
with its execution and delivery of a Credit Agreement dated as of ,
2002 (the "Agreement") among the Borrower, the Lenders named therein, and
Guaranty Bank, as Agent, and providing for Advances in an aggregate
principal amount not exceeding $150,000,000 at any one time outstanding and
the Parent in connection with its execution and delivery of the Keep-Well
Agreement dated as of , 2002 and the Subordination Agreement dated
as of
, 2002 related to the Agreement. All capitalized terms used
in this opinion and not otherwise defined herein shall have the meanings
attributed to them in the Agreement.
We have examined the Borrower's "(describe constitutive documents of
Borrower and appropriate evidence of authority to enter into the
transaction)", the Parent's "(describe constitutive documents of Borrower
and appropriate evidence of authority to enter into the transaction)", the
Loan Documents and such other matters of fact and law which we deem
necessary in order to render this opinion. Based upon the foregoing, it is
our opinion that:
1. Each of the Parent, the Borrower and its Subsidiaries is a
corporation, partnership or limited liability company duly and properly
incorporated or organized, as the case may be, validly existing and (to the
extent such concept applies to such entity) in good standing under the laws
of its jurisdiction of incorporation or organization and has all requisite
authority to conduct its business in each jurisdiction in which its
business is conducted.
2. A. The execution and delivery by the Borrower of the Loan
Documents to which it is a party and the performance by the Borrower of its
obligations thereunder have been duly authorized by proper corporate
proceedings on the part of the Borrower and will not:
(a) require any consent of the Borrower's shareholders or
members (other than any such consent as has already been given and
remains in full force and effect);
(b) violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Borrower or any
of its Subsidiaries or (ii) the Borrower's or any Subsidiary's
articles or certificate of incorporation, partnership agreement,
certificate of partnership, articles or certificate of organization,
by-laws, or operating or other management agreement, as the case may
be, or (iii) the provisions of any indenture, instrument or agreement
to which the Borrower or any of its Subsidiaries is a party or is
subject, or by which it, or its Property, is bound, or conflict with
or constitute a default thereunder; or
(c) result in, or require, the creation or imposition of any
Lien in, of or on the Property of the Borrower or a Subsidiary
pursuant to the terms of any indenture, instrument or agreement
binding upon the Borrower or any of its Subsidiaries.
B. The execution and delivery by the Parent of the Loan
Documents to which it is a party and the performance by the Parent of its
obligations thereunder have been duly authorized by proper corporate
proceedings on the part of the Parent and will not:
(a) require any consent of the Parent's shareholders or
members (other than any such consent as has already been given and
remains in full force and effect);
(b) violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Parent or any of
its Subsidiaries or (ii) the Parent's or any of its Subsidiary's
articles or certificate of incorporation, partnership agreement,
certificate of partnership, articles or certificate of organization,
by-laws, or operating or other management agreement, as the case may
be, or (iii) the provisions of any indenture, instrument or agreement
to which the Parent or any of its Subsidiaries is a party or is
subject, or by which it, or its Property, is bound, or conflict with
or constitute a default thereunder; or
(c) result in, or require, the creation or imposition of any
Lien in, of or on the Property of the Parent or any of its
Subsidiaries pursuant to the terms of any indenture, instrument or
agreement binding upon the Parent or any of its Subsidiaries.
3. A. The Loan Documents to which the Borrower is a party have
been duly executed and delivered by the Borrower and constitute legal,
valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their terms except to the extent the
enforcement thereof may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and subject
also to the availability of equitable remedies if equitable remedies are
sought.
B. The Loan Documents to which the Parent is a party have been
duly executed and delivered by the Parent and constitute legal, valid and
binding obligations of the Parent enforceable against the Parent in
accordance with their terms except to the extent the enforcement thereof
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and subject also to the
availability of equitable remedies if equitable remedies are sought.
4. There is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the best of our
knowledge after due inquiry, threatened against the Parent, the Borrower or
any of its Subsidiaries which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.
5. No order, consent, adjudication, approval, license,
authorization, or validation of, or filing, recording or registration with,
or exemption by, or other action in respect of any governmental or public
body or authority, or any subdivision thereof, which has not been obtained
by the Parent, the Borrower or any of its Subsidiaries, is required to be
obtained by the Parent, the Borrower or any of its Subsidiaries in
connection with the execution and delivery of the Loan Documents, the
borrowings under the Agreement, the payment and performance by the Borrower
of the Secured Obligations, or the legality, validity, binding effect or
enforceability of any of the Loan Documents.
6. The Secured Obligations constitute senior indebtedness which is
entitled to the benefits of the subordination provisions contained in the
Subordination Agreement.
7. The provisions of the Collateral Documents are sufficient to
create in favor of the Lenders a security interest in all right, title and
interest of the Borrower in those items and types of collateral described
in the Collateral Documents in which a security interest may be created
under Article 9 of the Uniform Commercial Code as in effect from time to
time in New Jersey and Delaware, as applicable. Financing statements on
Form UCC-l's have been duly executed by the Borrower and have been duly
filed in each filing office indicated in Exhibit A hereto under the Uniform
Commercial Code in effect in each state in which said filing offices are
located. The description of the collateral set forth in said financing
statements is sufficient to perfect a security interest in the items and
types of collateral described therein in which a security interest may be
perfected by the filing of a financing statement under the Uniform
Commercial Code as in effect from time to time in such states. Such
filings are sufficient to perfect the security interest created by the
Collateral Documents in all right, title and interest of the Borrower in
those items and types of collateral described in the Collateral Documents
in which a security interest may be perfected by the filing of a financing
statement under the Uniform Commercial Code from time to time in effect in
such states, except that we express no opinion as to personal property
affixed to real property in such manner as to become a fixture under the
laws of any state in which the collateral may be located and we call your
attention to the fact that the Lenders' security interest in certain of
such collateral may not be perfected by filing financing statements under
the Uniform Commercial Code.
This opinion may be relied upon by the Agent, the Lenders and their
participants, assignees and other transferees.
Very truly yours,
EXHIBIT "C"
(RESERVED)
EXHIBIT "D"
COLLATERAL TRANSMITTAL
1. CUSTOMER NAME
2. LOAN NUMBER
AND "MIN" (IF APPLICABLE)
3. MORTGAGOR
SURNAME ONLY
4. AP STATUS CODE
5. PLEDGE DATE
6. ORIGINAL NOTE AMOUNT $
7. OUTSTANDING PRINCIPAL BALANCE $
8. ACQUISITION COST $
9. TAKE-OUT VALUE $
10. NOTE DATE OR CONVERSION DATE
11. NOTE RATE
12. LOAN TYPE
EXHIBIT "E"
AGREEMENT TO PLEDGE
SECURITY AGREEMENT AS PROVIDED FOR BY
THE UNIFORM COMMERCIAL CODE OF TEXAS
K. Hovnanian Mortgage, Inc. (the "Borrower") pursuant to that certain
Credit Agreement dated as of , 2002 (as amended, extended and
replaced from time to time, the "Credit Agreement") among the Borrower,
Guaranty Bank, as Agent, and certain other Lenders, and pursuant to that
certain Security and Collateral Agency Agreement among the Borrower, the
Agent, the Lenders and Guaranty Bank (the "Collateral Agent") for new value
this day received, and as security for the payment of any and all
indebtedness and obligations of the Borrower under the Credit Agreement,
hereby creates and grants to the Collateral Agent for the benefit of the
lenders under the Credit Agreement a security interest in and to the
mortgage loans identified as AP Mortgages by the inclusion of an "AP Status
Code" on the Borrower's Collateral Transmittals on the date indicated below
which provide the information concerning the AP Mortgages required by the
Credit Agreement. All capitalized terms used herein shall have the
meanings given to them in the Credit Agreement.
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
Dated: , 200 .
EXHIBIT "F"
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Credit Agreement Described Below
This Compliance Certificate is furnished pursuant to that certain
Credit Agreement dated as of , 2002 (as amended, modified, renewed
or extended from time to time, the "Agreement") among the K. Hovnanian
Mortgage, Inc. (the "Borrower"), the lenders party thereto and Guaranty
Bank, as Agent for the Lenders. Unless otherwise defined herein,
capitalized terms used in this Compliance Certificate have the meanings
ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. 1 am the duly elected of the Borrower;
2. 1 have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and
I have no knowledge of, the existence of any condition or event which
constitutes a Default or Unmatured Default during or at the end of the
accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and
computations evidencing the Borrower's compliance with certain covenants of
the Agreement, all of which data and computations are true, complete and
correct.
Described below are the exceptions, if any, to paragraph 3 by
listing, in detail, the nature of the condition or event, the period during
which it has existed and the action which the Borrower has taken, is
taking, or proposes to take with respect to each such condition or event:
The foregoing certifications, together with the computations set
forth in Schedule I hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this day of
, 20 .
SCHEDULE I TO COMPLIANCE CERTIFICATE
Compliance as of , 200 with
Provisions of and of
the Agreement
EXHIBIT "G"
BORROWING BASE CERTIFICATE
EXHIBIT "H"
NON-CONFORMING UNDERWRITING GUIDELINES
SEE ATTACHED
EXHIBIT "I"
SECURITY AGREEMENT
EXHIBIT "J'
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
(the "Assignor") and (the "Assignee") is dated
as of , 200 . The parties hereto agree as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit
Agreement (which, as it may be amended, modified, renewed or extended from
time to time is herein called the "Credit Agreement") described in Item 1
of Schedule 1 attached hereto ("Schedule 1). Capitalized terms used herein
and not otherwise defined herein shall have the meanings attributed to them
in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and
assigns to the Assignee, and the Assignee hereby purchases and assumes from
the Assignor, an interest in and to the Assignor's rights and obligations
under the Credit Agreement such that after giving effect to such assignment
the Assignee shall have purchased pursuant to this Assignment Agreement the
percentage interest specified in Item 3 of Schedule 1 of all outstanding
rights and obligations under the Credit Agreement relating to the
facilities listed in Item 3 of Schedule 1 and the other Loan Documents.
The aggregate Commitment (or Loans, if the applicable Commitment has been
terminated) purchased by the Assignee hereunder is set forth in Item 4 of
Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment
Agreement (the "Effective Date") shall be the later of the date specified
in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed
to by the Agent) after a Notice of Assignment substantially in the form of
Annex "I" attached hereto has been delivered to the Agent. Such Notice of
Assignment must include any consents required to be delivered to the Agent
by Section 12.3.1 of the Credit Agreement. In no event will the Effective
Date occur if the payments required to be made by the Assignee to the
Assignor on the Effective Date under Sections 4 and 5 hereof are not made
on the proposed Effective Date. The Assignor will notify the Assignee of
the proposed Effective Date no later than the Business Day prior to the
proposed Effective Date. As of the Effective Date, (i) the Assignee shall
have the rights and obligations of a Lender under the Loan Documents with
respect to the rights and obligations assigned to the Assignee hereunder
and (ii) the Assignor shall relinquish its rights and be released from its
corresponding obligations under the Loan Documents with respect to the
rights and obligations assigned to the Assignee hereunder.
4. PAYMENT OBLIGATIONS. On and after the Effective Date, the
Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby.
The Assignee shall advance funds directly to the Agent with respect to all
Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. **[In consideration for the sale
and assignment of Loans hereunder, (i) the Assignee shall pay the Assignor,
on the Effective Date, an amount equal to the principal amount of the
portion of all Alternate Base Rate Loans assigned to the Assignee hereunder
and (ii) with respect to each Eurodollar Loan made by the Assignor and
assigned to the Assignee hereunder which is outstanding on the Effective
Date, (a) on the last day of the Interest Period therefor or (b) on such
earlier date agreed to by the Assignor and the Assignee or (c) on the date
on which any such Eurodollar Loan becomes due (by acceleration or
otherwise) (the date as described in the foregoing clauses (a), (b) or (c)
being hereinafter referred to as the "Payment Date"), the Assignee shall
pay the Assignor an amount equal to the principal amount of the portion of
such Eurodollar Loan assigned to the Assignee which is outstanding on the
Payment Date. If the Assignor and the Assignee agree that the Payment Date
for such Eurodollar Loan shall be the Effective Date, they shall agree to
the interest rate applicable to the portion of such Loan assigned hereunder
for the period from the Effective Date to the end of the existing Interest
Period applicable to such Eurodollar Loan (the "Agreed Interest Rate") and
any interest received by the Assignee in excess of the Agreed Interest Rate
shall be remitted to the Assignor. In the event interest for the period
from the Effective Date to but not including the Payment Date is not paid
by the Borrower with respect to any Eurodollar Loan sold by the Assignor to
the Assignee hereunder, the Assignee shall pay to the Assignor interest for
such period on the portion of such Eurodollar Loan sold by the Assignor to
the Assignee hereunder at the applicable rate provided by the Credit
Agreement. In the event a prepayment of any Eurodollar Loan which is
existing on the Payment Date and assigned by the Assignor to the Assignee
hereunder occurs after the Payment Date but before the end of the Interest
Period applicable to such Eurodollar Loan, the Assignee shall remit to the
Assignor the excess of the prepayment penalty paid with respect to the
portion of such Eurodollar Loan assigned to the Assignee hereunder over the
amount which would have been paid if such prepayment penalty was calculated
based on the Agreed Interest Rate. The Assignee will also promptly remit
to the Assignor (i) any principal payments received from the Agent with
respect to Eurodollar Loans prior to the Payment Date and (ii) any amounts
of interest on Loans and fees received from the Agent which relate to the
portion of the Loans assigned to the Assignee hereunder for periods prior
to the Effective Date, in the case of Alternate Base Rate Loans or fees, or
the Payment Date, in the case of Eurodollar Loans, and not previously paid
by the Assignee to the Assignor.]** In the event that either party hereto
receives any payment to which the other party hereto is entitled under this
Assignment Agreement, then the party receiving such amount shall promptly
remit it to the other party hereto.
**Each Assignor may insert its standard payment provisions in lieu of the
payment terms included in this Exhibit.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the
Assignor a fee on each day on which a payment of interest or fees is made
under the Credit Agreement with respect to the amounts assigned to the
Assignee hereunder (other than a payment of interest or commitment fees for
the period prior to the Effective Date or, in the case of Eurodollar Loans,
the Payment Date, which the Assignee is obligated to deliver to the
Assignor pursuant to Section 4 hereof). The amount of such fee shall be
the difference between (i) the interest or fee, as applicable, paid with
respect to the amounts assigned to the Assignee hereunder and (ii) the
interest or fee, as applicable, which would have been paid with respect to
the amounts assigned to the Assignee hereunder if each interest rate was
of 1% less than the interest rate paid by the Borrower or if the commitment
fee was
of 1% less than the commitment fee paid by the Borrower, as
applicable. In addition, the Assignee agrees to pay % of the
recordation fee required to be paid to the Agent in connection with this
Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim created by the
Assignor. It is understood and agreed that the assignment and assumption
hereunder are made without recourse to the Assignor and that the Assignor
makes no other representation or warranty of any kind to the Assignee.
Neither the Assignor nor any of its officers, directors, employees, agents
or attorneys shall be responsible for (i) the due execution, legality,
validity, enforceability, genuineness, sufficiency or collectability of any
Loan Document, including without limitation, documents granting the
Assignor and the other Lenders a security interest in assets of the
Borrower or any guarantor, (ii) any representation, warranty or statement
made in or in connection with any of the Loan Documents, (iii) the
financial condition or creditworthiness of the Borrower or any guarantor,
(iv) the performance of or compliance with any of the terms or provisions
of any of the Loan Documents, (v) inspecting any of the Property, books or
records of the Borrower, (vi) the validity, enforceability, perfection,
priority, condition, value or sufficiency of any collateral securing or
purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the
Loan Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms
that it has received a copy of the Credit Agreement, together with copies
of the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment Agreement, (ii)
agrees that it will, independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and information at
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents, (iii)
appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto, (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of
the Loan Documents are required to be performed by it as a Lender, (v)
agrees that its payment instructions and notice instructions are as set
forth in the attachment to Schedule 1, (vi) confirms that none of the
funds, monies, assets or other consideration being used to make the
purchase and assumption hereunder are "plan assets" as defined under ERISA
and that its rights, benefits and interests in and under the Loan Documents
will not be "plan assets" under ERISA, **[(vii) confirms that it is an
Eligible Assignee,]** **[and (viii) attaches the forms prescribed by the
Internal Revenue Service of the United States certifying that the Assignee
is entitled to receive payments under the Loan Documents without deduction
or withholding of any United States federal income taxes].**
*(vii) to be inserted if required by the Credit Agreement.
**(viii) to be inserted if the Assignee is not incorporated under the laws
of the United States, or a state thereof.
8. INDEMNITY. The Assignee agrees to indemnify and hold the
Assignor harmless against any and all losses, costs and expenses
(including, without limitation, reasonable attorneys' fees) and liabilities
incurred by the Assignor in connection with or arising in any manner from
the Assignee's non-performance of the obligations assumed under this
Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee
shall have the right pursuant to Section 12.3.1 of the Credit Agreement to
assign the rights which are assigned to the Assignee hereunder to any
entity or person, provided that (i) any such subsequent assignment does not
violate any of the terms and conditions of the Loan Documents or any law,
rule, regulation, order, writ, judgment, injunction or decree and that any
consent required under the terms of the Loan Documents has been obtained
and (ii) unless the prior written consent of the Assignor is obtained, the
Assignee is not thereby released from its obligations to the Assignor
hereunder, if any remain unsatisfied, including, without limitation, its
obligations under Sections 4, 5 and 8 hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the
Aggregate Commitment occurs between the date of this Assignment Agreement
and the Effective Date, the percentage interest specified in Item 3 of
Schedule 1 shall remain the same, but the dollar amount purchased shall be
recalculated based on the reduced Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached
Notice of Assignment embody the entire agreement and understanding between
the parties hereto and supersede all prior agreements and understandings
between the parties hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by
the internal law, and not the law of conflicts, of the State of Illinois.
13. NOTICES. Notices shall be given under this Assignment
Agreement in the manner set forth in the Credit Agreement. For the purpose
hereof, the addresses of the parties hereto (until notice of a change is
delivered) shall be the address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above
written.
[NAME OF ASSIGNOR]
By:
Title:
[NAME OF ASSIGNEE]
By:
Title:
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement:
2. Date of Assignment Agreement: , 200
3. Amounts (As of Date of Item 2 above):
a.
Total of Commitments
(Loans)* under
Credit Agreement Primary
Commitment Swingline
Commitment
$ $
b. Assignee's Percentage
of each Facility purchased
under the Assignment
Agreement**
% %
c. Amount of Assigned Share in
each Facility purchased under
the Assignment
Agreement
$ $
4. Assignee's Aggregate (Loan Amount)* Commitment Amount Purchased
Hereunder:
$
$
5. Proposed Effective Date:
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
Title: Title:
* If a Commitment has been terminated, insert outstanding Loans in
place of Commitment
** Percentage taken to 10 decimal places
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
ADMINISTRATIVE INFORMATION SHEET
Attach Assignor's Administrative Information Sheet, which must
include notice addresses for the Assignor and the Assignee
(Sample form shown below)
ASSIGNOR INFORMATION
Contact:
Name: Telephone No.:
Fax No.: Telex No.:
Answerback:
Payment Information:
Name & ABA # of Destination Bank:
Account Name & Number for Wire Transfer:
Other Instructions:
Address for Notices for Assignor:
ASSIGNEE INFORMATION
Credit Contact:
Name: Telephone No.:
Fax No.: Telex No.:
Answerback:
Key Operations Contacts:
Booking Installation: Booking Installation:
Name: Name:
Telephone No.: Telephone No.:
Fax No.: Fax No.:
Telex No.: Telex No.:
Answerback: Answerback:
Payment Information:
Name & ABA # of Destination Bank:
Account Name & Number for Wire Transfer:
Other Instructions:
Address for Notices for Assignee:
GUARANTY BANK INFORMATION
Assignee will be called promptly upon receipt of the signed agreement.
Initial Funding Contact: Subsequent Operations
Contact:
Name: Name:
Telephone No.: (214) Telephone No.: (214)
Fax No.: (214) Fax No.: (214)
Initial Funding Standards:
Libor - Fund 2 days after rates are set.
GUARANTY BANK Wire Instructions: Guaranty Bank ABA #
Account No.:
Account Name:
Ref: K. Hovnanian
Address for Notices for GUARANTY BANK:
ANNEX "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
, 200
To: K. HOVNANIAN MORTGAGE, INC.
[NAME OF AGENT]
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit
Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule
1"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and
delivered to **[the Borrower and]** the Agent pursuant to Section 12.3.2 of
the Credit Agreement.
3. The Assignor and the Assignee have entered into an
Assignment Agreement, dated as of , 200 (the "Assignment"),
pursuant to which, among other things, the Assignor has sold, assigned,
delegated and transferred to the Assignee, and the Assignee has purchased,
accepted and assumed from the Assignor the percentage interest specified in
Item 3 of Schedule 1 of all outstandings, rights and obligations under the
Credit Agreement relating to the facilities listed in Item 3 of Schedule 1.
The Effective Date of the Assignment shall be the later of the date
specified in Item 5 of Schedule 1 or two Business Days (or such shorter
period as agreed to by the Agent) after this Notice of Assignment and any
consents and fees required by Sections **[12.3.1 and 12.3.2]** of the
Credit Agreement have been delivered to the Agent, provided that the
Effective Date shall not occur if any condition precedent agreed to by the
Assignor and the Assignee has not been satisfied.
*To be included only if consent must be obtained from the Borrower pursuant
to Section 12.3.1 of the Credit Agreement.
4. The Assignor and the Assignee hereby give to the Borrower
and the Agent notice of the assignment and delegation referred to herein.
The Assignor will confer with the Agent before the date specified in Item 5
of Schedule 1 to determine if the Assignment Agreement will become
effective on such date pursuant to Section 3 hereof, and will confer with
the Agent to determine the Effective Date pursuant to Section 3 hereof if
it occurs thereafter. The Assignor shall notify the Agent if the
Assignment Agreement does not become effective on any proposed Effective
Date as a result of the failure to satisfy the conditions precedent agreed
to by the Assignor and the Assignee. At the request of the Agent, the
Assignor will give the Agent written confirmation of the satisfaction of
the conditions precedent.
5. The Assignor or the Assignee shall pay to the Agent on or
before the Effective Date the processing fee of $3,500 required by Section
12.3.2 of the Credit Agreement.
6. If Notes are outstanding on the Effective Date, the
Assignor and the Assignee request and direct that the Agent prepare and
cause the Borrower to execute and deliver new Notes or, as appropriate,
replacement notes, to the Assignor and the Assignee. The Assignor and, if
applicable, the Assignee each agree to deliver to the Agent the original
Note received by it from the Borrower upon its receipt of a new Note in the
appropriate amount.
7. The Assignee advises the Agent that notice and payment
instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of
the funds, monies, assets or other consideration being used to make the
purchase pursuant to the Assignment are "plan assets" as defined under
ERISA and that its rights, benefits, and interests in and under the Loan
Documents will not be "plan assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent
under the Loan Documents in accordance with the terms thereof. The
Assignee acknowledges that the Agent has no duty to supply information with
respect to the Borrower or the Loan Documents to the Assignee until the
Assignee becomes a party to the Credit Agreement.*
*May be eliminated if Assignee is a party to the Credit Agreement prior to
the Effective Date.
NAME OF ASSIGNOR
By:
NAME OF ASSIGNEE
By:
Title:
Title:
ACKNOWLEDGED [AND CONSENTED TO]
ACKNOWLEDGED [AND CONSENTED TO]
BY [NAME OF AGENT]
BY:
By:
Title:
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
[Attach photocopy of Schedule 1 to Assignment]
EXHIBIT "K"
FORM OF AMENDMENT FOR AN INCREASED OR NEW COMMITMENT
This AMENDMENT is made as of the day of ,
200 by and among K. Hovnanian Mortgage, Inc. (the "Borrower"), Guaranty
Bank, as Agent under the "Credit Agreement" (as defined below) (the
"Agent") and
(the "Supplemental Lender").
The Borrower, the Agent and certain other Lenders, as described
therein, are parties to a Credit Agreement dated as of , 2002 (the
"Credit Agreement"). All terms used herein and not otherwise defined shall
have the same meaning given to them in the Credit Agreement.
Pursuant to Section 12.4.1 of the Credit Agreement, the Borrower has
the right to increase the Aggregate Commitment by obtaining additional
Commitments upon satisfaction of certain conditions. This Amendment
requires only the signature of the Borrower, the Agent and the Supplemental
Lender so long as the Aggregate Commitment is not increased above
$150,000,000.
The Supplemental Lender is either (a) an existing Lender which is
increasing its Commitment or (b) a new Lender which is a lending
institution whose identity the Agent will approve by its signature below.
In consideration of the foregoing, such Supplemental Lender, from and
after the date hereof shall have a Commitment of $ , resulting in a new
Aggregate Commitment of $ as of the date hereof, and if it is a new
Lender, the Supplemental Lender hereby assumes all of the rights and
obligations of a Lender under the Credit Agreement.
The Borrower has executed and delivered to the Supplemental Lender as
of the date hereof, if requested by the Supplemental Lender, a new or
amended and restated Note in the form attached to the Credit Agreement as
Exhibit A to evidence the new or increased Commitment of the Supplemental
Lender.
IN WITNESS WHEREOF, the Agent, the Borrower and the Supplemental
Lender have executed this Amendment as of the date shown above.
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
[SUPPLEMENTAL LENDER]
By:
Its:
Guaranty Bank, as Agent
By:
Its:
Approved for the purchase of Non-Conforming Mortgage Loans.
Approved for the purchase of Securities.
TABLE OF CONTENTS
(continued)
Page
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033544 000195 DALLAS 1437609_2.DOC
033544 000195 DALLAS 1437609_6.DOC
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033544 000195 DALLAS 1437609_6.DOC
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1
033544 000195 DALLAS 1437609_6.DOC
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
This FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT is dated as of
July 31, 2002 and is among K. HOVNANIAN MORTGAGE, INC., a New Jersey
corporation (the "Borrower"), GUARANTY BANK, BANK OF AMERICA, N.A., BANK
ONE, NA and COMERICA BANK (together with any successors and assigns
thereof, hereinafter referred to individually as an "Existing Lender" and
collectively as the "Existing Lenders"), U.S. BANK NATIONAL ASSOCIATION and
NATIONAL CITY BANK OF KENTUCKY, a national banking association (together
with any successors and assigns thereof, hereinafter referred to
individually as a "Supplemental Lender" and collectively as the
"Supplemental Lenders"), and GUARANTY BANK, a federal savings bank, as
Agent for the Lenders under the Credit Agreement ("Agent").
RECITALS
The Borrower, the Agent and the Existing Lenders are parties to a
certain Revolving Credit Agreement dated as of June 7, 2002 (the "Credit
Agreement"), pursuant to which the Existing Lenders have agreed to provide
a revolving credit facility to Borrower on the terms and conditions set
forth in the Credit Agreement. Any capitalized term not expressly defined
herein shall have the meaning ascribed to such term in the Credit
Agreement.
The parties hereto desire to modify the Commitments and certain
definitions set forth in Article I of the Credit Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions relating to Federal Funds Rate. The definitions of
"Federal Funds Effective Rate" and "Federal Funds Funding Rate" in Article
I of the Credit Agreement are hereby amended in their entirety to read as
follows:
"'Federal Funds Effective Rate' means, for any day, an interest
rate per annum equal to the 'Fed funds (effective rate)' as reported
on such day for the immediately preceding Business Day by the Federal
Reserve Board in its H.15 statistical release or any successor
publication (or, if such day is not a Business Day, on the
immediately preceding Business Day) or, if such rate is not so
published on any day which is a Business Day, 'Federal Funds
Effective Rate' shall mean a comparable rate of interest reasonably
selected by Agent."
"'Federal Funds Funding Rate' means, with respect to any Fed
Funds Loan for any day, the Federal Funds Effective Rate for such
day."
2. Other Definitions. In Article I of the Credit Agreement, the
definition of "Eurodollar Base Rate" is hereby amended by substituting the
word "Agent" for the word "Lender" at the end of such definition and the
definition of "Security Agreement" is hereby amended by deleting the words
"Fourth Amended and Restated" prior to the words "Security and Collateral
Agency Agreement".
3. Modifications to Commitments.
Each of the Existing Lenders and the Supplemental Lenders, hereby
agrees that from and after the date hereof it shall have a Commitment in
the amount set forth opposite its name in Column (A) of Schedule 2 attached
hereto, resulting in a new Aggregate Commitment of $150,000,000 as of the
date hereof, and each of the Supplemental Lenders hereby assumes all of the
rights and obligations of a Lender under the Credit Agreement.
The Borrower shall execute and deliver to each of the Supplemental
Lenders as of the date hereof, a new Note in the form attached to the
Credit Agreement as Exhibit A to evidence the new Commitment of such
Supplemental Lender.
4. Schedules. The Credit Agreement is hereby amended by
substituting Schedule 2 and Schedule 3 to this Amendment for Schedule 2 and
Schedule 3 to the Credit Agreement.
5. Miscellaneous.
(a) All references to the Credit Agreement in the Loan
Documents shall be deemed to refer to the Credit Agreement as amended by
this Amendment.
(b) Borrower hereby represents and warrants to the Lenders
that on the date of execution hereof both prior to and after giving effect
to this Amendment, (i) the representations and warranties of Borrower
contained in the Loan Documents are accurate and complete in all respects,
and (ii) no Default or Unmatured Default has occurred and is continuing.
(c) In all other respects, the Credit Agreement and the other
Loan Documents are and remain unmodified and in full force and effect and
are hereby ratified and confirmed. This Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Amendment by
signing any such counterpart.
(d) The Company agrees to reimburse the Agent for all
reasonable out-of-pocket expenses (including legal fees and expenses)
incurred in connection with the preparation, negotiation and consummation
of this Amendment.
(e) This Amendment may be executed in counterparts which,
taken together, shall constitute a single document. This Amendment may be
duly executed by facsimile or other electronic transmission.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
GUARANTY BANK, individually and as Agent
By:
Name:
Title:
BANK OF AMERICA, N.A.
By:
Name:
Title:
BANK ONE, NA
By:
Name:
Title:
COMERICA BANK
By:
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY
By:
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
CONSENT AND AGREEMENT
Hovnanian Enterprises, Inc. hereby consents to the provisions of this
Amendment and the transactions contemplated herein, and hereby ratifies and
confirms the Keep-Well Agreement dated as of June 7, 2002 made by it for
the benefit of Lender and the Subordination Agreement dated as of June 7,
2002 made by it for the benefit of Lender, and agrees that its obligations
and covenants thereunder are unimpaired hereby and shall remain in full
force and effect.
HOVNANIAN ENTERPRISES, INC.
By:
Name:
Title:
SCHEDULE 2
LENDER
(A)
COMMITMENT (B)
COMMITMENT
PERCENTAGE
(A?Aggregate
Commitment) (C)
SWINGLINE
AMOUNT
Guaranty Bank
$35,000,000
23.333%
$3,000,000
Bank of America
$30,000,000 20.000%
Bank One
$25,000,000 16.667%
Comerica
$25,000,000 16.667%
U.S. Bank
$25,000,000 16.667%
National City Bank
$10,000,000 6.667%
SCHEDULE 3
LIST OF APPROVED INVESTORS
CHASE MANHATTAN MORTGAGE CORPORATION
COUNTRYWIDE HOME LOAN, INC.
FLAGSTAR BANCORP
FEDERAL HOME LOAN MORTGAGE CORPORATION
FEDERAL NATIONAL MORTGAGE ASSOCIATION
FIRST HORIZON BANCORP
FIRST NATIONWIDE MORTGAGE
GREENPOINT MORTGAGE CORPORATION
GUARANTY RESIDENTIAL LENDING
IMPAC FUNDING CORPORATION
NATIONAL CITY BANK
OHIO SAVINGS BANK
RESIDENTIAL FUNDING CORPORATION
VALLEY NATIONAL BANK
WASHINGTON MUTUAL
WELLS FARGO
CHASE MANHATTAN FUNDING
COUNTRYWIDE HOME LOAN, INC.1
IMPAC FUNDING CORPORATION1
RESIDENTIAL FUNDING CORPORATION1
Approved for the purchase of Non-Conforming Mortgage Loans.
Exhibit 99(a)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hovnanian
Enterprises, Inc. (the "Company") on Form 10-Q for the period ended
July 31, 2002 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, Ara K. Hovnanian, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/S/ARA K. HOVNANIAN
Ara K. Hovnanian
Chief Executive Officer
Date: September 13, 2002
Exhibit 99(b)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hovnanian
Enterprises, Inc. (the "Company") on Form 10-Q for the period ended
July 31, 2002 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, J. Larry Sorsby, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/S/J. LARRY SORSBY
J. Larry Sorsby
Chief Financial Officer
Date: September 13, 2002