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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For quarterly period ended JANUARY 31, 2003 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 of (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 Sections 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 by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). 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. 23,805,110
Class A Common Shares and 7,436,034 Class B Common Shares were
outstanding as of February 28, 2003.
HOVNANIAN ENTERPRISES, INC.
FORM 10Q
INDEX
PAGE NUMBER
PART I. Financial Information
Item l. Financial Statements:
Consolidated Balance Sheets at January 31,
2003 (unaudited) and October 31, 2002 4
Consolidated Statements of Income for the three
months ended January 31, 2003 and 2002
(unaudited) 6
Consolidated Statements of Stockholders' Equity
for the three months ended January 31, 2003
(unaudited) 7
Consolidated Statements of Cash Flows for
the three months ended January 31, 2003
and 2002 (unaudited) 8
Notes to Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 29
Item 4. Controls and Procedures 30
PART II. Other Information 30
Item 6. Exhibits and Reports on Form 8-K.
(a)
Exhibit 3(a) Certificate of Incorporation of
the Registrant. (1)
Exhibit 3(b) Certificate of Amendment of
Incorporation of the Registrant. (2)
Exhibit 3(c) Bylaws of the Registrant. (2)
Exhibit 10(a) Amended and Restated Credit
Agreement dated February 20, 2003.
Exhibit 10(b) Restated $142 million K. Hovnanian
Mortgage, Inc. Revolving Credit Agreement
dated March 7, 2003.
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.
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.
(1) Incorporated by reference to Exhibits to
Registration Statement (No. 2-85198) on
Form S-1 of the Registrant.
(2) Incorporated by reference to Exhibits to Annual
Report on Form 10-K for the year ended
February 28, 1994 of the Registrant.
Item 6(b). No reports on Form 8-K 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)
January 31, October 31,
ASSETS 2003 2002
----------- -----------
(unaudited)
Homebuilding:
Cash and cash equivalents....................... $ 87,830 $ 262,675
----------- -----------
Inventories - At the lower of cost or fair
value:
Sold and unsold homes and lots under
development.................................. 1,005,325 843,581
Land and land options held for future
development or sale......................... 270,998 238,001
----------- -----------
Total Inventories........................... 1,276,323 1,081,582
----------- -----------
Receivables, deposits, and notes................ 43,041 26,276
----------- -----------
Property, plant, and equipment - net............ 18,753 19,242
----------- -----------
Senior Residential rental properties - net...... 9,408 9,504
----------- -----------
Prepaid expenses and other assets............... 90,180 86,582
----------- -----------
Goodwill and indefinite life intangibles........ 82,275 82,275
----------- ------------
Definite life intangibles....................... 26,777
----------- -----------
Total Homebuilding.......................... 1,634,587 1,568,136
----------- -----------
Financial Services:
Cash and cash equivalents....................... 7,926 7,315
Mortgage loans held for sale.................... 50,157 91,451
Other assets.................................... 4,418 11,226
----------- -----------
Total Financial Services.................... 62,501 109,992
----------- -----------
Income Taxes Receivable - Including deferred tax
benefits........................................ 5,391
----------- -----------
Total Assets...................................... $1,702,479 $1,678,128
=========== ===========
See notes to consolidated financial statements (unaudited).
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Data)
January 31, October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
----------- -----------
(unaudited)
Homebuilding:
Nonrecourse land mortgages........................ $ 8,039 $ 11,593
Accounts payable and other liabilities............ 310,651 298,213
Customers' deposits............................... 42,425 40,422
Nonrecourse mortgages secured by operating
properties...................................... 3,239 3,274
----------- -----------
Total Homebuilding............................ 364,354 353,502
----------- -----------
Financial Services:
Accounts payable and other liabilities............ 4,370 4,857
Mortgage warehouse line of credit................. 49,029 85,498
----------- -----------
Total Financial Services...................... 53,399 90,355
----------- -----------
Notes Payable:
Term loan........................................ 115,000 115,000
Senior notes...................................... 396,514 396,390
Senior subordinated notes......................... 150,000 150,000
Accrued interest.................................. 15,924 9,555
----------- -----------
Total Notes Payable........................... 677,438 670,945
----------- -----------
Income Taxes Payable - Net of deferred tax benefits. 777
----------- -----------
Total Liabilities............................. 1,095,191 1,115,579
----------- -----------
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 27,537,468 shares
at January 31, 2003 and 27,453,994 shares at
October 31, 2002 (including 4,343,240 shares
at January 31, 2003 and October 31, 2002 held
in Treasury).................................... 275 275
Common Stock,Class B,$.01 par value (convertible
to Class A at time of sale)-authorized
13,000,000 shares; issued 7,784,372 shares at
January 31, 2003 and 7,788,061 shares at
October 31, 2002 (including 345,874 shares at
January 31, 2003 and October 31, 2002 held in
Treasury)....................................... 78 78
Paid in Capital................................... 152,939 152,977
Retained Earnings................................. 492,563 447,802
Deferred Compensation............................. (5) (21)
Treasury Stock - at cost.......................... (38,562) (38,562)
----------- -----------
Total Stockholders' Equity.................... 607,288 562,549
----------- -----------
Total Liabilities and Stockholders' Equity.......... $1,702,479 $1,678,128
=========== ===========
See notes to consolidated financial statements (unaudited).
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(unaudited)
Three Months Ended
January 31,
-------------------
2003 2002
--------- ---------
Revenues:
Homebuilding:
Sale of homes...................... $607,501 $443,098
Land sales and other revenues...... 9,639 1,977
--------- ---------
Total Homebuilding............... 617,140 445,075
Financial Services................... 10,495 8,987
--------- ---------
Total Revenues................... 627,635 454,062
--------- ---------
Expenses:
Homebuilding:
Cost of sales...................... 463,178 351,483
Selling, general and administrative 54,301 37,649
Inventory impairment loss.......... 158 905
--------- ---------
Total Homebuilding............... 517,637 390,037
Financial Services................... 5,821 5,359
Corporate General and Administration. 14,584 10,876
Interest............................. 13,679 13,702
Other Operations..................... 4,778 4,291
--------- ---------
Total Expenses................... 556,499 424,265
--------- ---------
Income Before Income Taxes............. 71,136 29,797
--------- ---------
State and Federal Income Taxes:
State................................ 3,100 1,873
Federal.............................. 23,275 9,763
--------- ---------
Total Taxes........................ 26,375 11,636
--------- ---------
Net Income............................. $ 44,761 $ 18,161
========= =========
Per Share Data:
Basic:
Income per common share.............. $ 1.43 $ 0.63
Weighted average number of common
shares outstanding................. 31,371 28,965
Assuming dilution:
Income per common share.............. $ 1.35 $ 0.60
Weighted average number of common
shares and common share equivalents
outstanding........................ 33,080 30,456
See notes to consolidated financial statements (unaudited).
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, 2002. 23,110,754 $275 7,442,187 $78 $152,977 $447,802 $ (21) $(38,562) $562,549
Sale of common stock
under employee stock
option plan............ 16,117 143 143
Stock bonus plan......... 63,668 (181) (181)
Conversion of Class B to
Class A Common Stock.... 3,689 (3,689)
Deferred compensation..... 16 16
Net Income................ 44,761 44,761
----------- ------ ----------- ------ -------- -------- -------- -------- --------
Balance, January 31, 2003 23,194,228 $275 7,438,498 $78 $152,939 $492,563 $ (5) $(38,562) $607,288
(unaudited) =========== ====== =========== ====== ======== ======== ======== ======== ========
See notes to consolidated financial statements (unaudited).
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
Three Months Ended
January 31,
---------------------
2003 2002
---------- ----------
Cash Flows From Operating Activities:
Net Income.......................................... $ 44,761 $ 18,161
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation.................................... 1,569 1,658
Loss (gain) on sale and retirement of property
and assets.................................... 9 (3)
Deferred income taxes........................... (2,362) (71)
Impairment losses............................... 158 905
Decrease (increase) in assets:
Mortgage notes receivable..................... 41,878 26,334
Receivables, prepaids and other assets........ (26,455) 3,637
Inventories................................... (69,723) 19,489
Increase (decrease) in liabilities:
State and Federal income taxes................ (3,787) 2,307
Tax effect from exercise of stock options..... (19)
Customers' deposits........................... 1,692 3,594
Interest and other accrued liabilities........ (12,165) (15,288)
Post development completion costs............. 2,748 (832)
Accounts payable.............................. (15,324) 5,488
---------- ----------
Net cash (used in) provided by operating
activities................................ (37,020) 65,379
---------- ----------
Cash Flows From Investing Activities:
Net proceeds from sale of property and assets....... 35 136
Purchase of property, equipment and other
fixed assets...................................... (755) (1,353)
Acquisition of homebuilding companies............... (91,273) (120,462)
Investment in and advances to unconsolidated
affiliates........................................ 3,296 (1,948)
---------- ----------
Net cash (used in) investing activities..... (88,697) (123,627)
---------- ----------
Cash Flows From Financing Activities:
Proceeds from mortgages and notes................... 166,609 706,120
Principal payments on mortgages and notes........... (215,088) (622,315)
Purchase of treasury stock.......................... (1,089)
Proceeds from sale of stock and employee stock plans (38) 1,272
---------- ----------
Net cash (used in) provided by financing
activities................................ (48,517) 83,988
---------- ----------
Net (Decrease) Increase In Cash and Cash Equivalents.. (174,234) 25,740
Cash and Cash Equivalents Balance, Beginning
Of Period........................................... 269,990 16,149
---------- ----------
Cash and Cash Equivalent Balance, End Of Period....... $ 95,756 $ 41,889
========== ==========
Supplemental Disclosures of Cash Flow
Cash paid during the year for:
Interest......................................... 7,310 14,346
========== ==========
Income taxes..................................... 32,544 5,151
========== ==========
Supplemental disclosures of noncash operating
activities:
Inventory capitalized and accrued for specific
performance...................................... 130,307
==========
See notes to consolidated financial statements (unaudited).
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, 2002 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
January 31,
-------------------
2003 2002
-------- --------
(Dollars in Thousands)
Interest Capitalized at
Beginning of Period......... $ 22,159 $ 25,124
Plus Interest Incurred(1)(2).. 15,120 11,477
Less Interest Expensed(2)..... 13,679 13,702
-------- --------
Interest Capitalized at
End of Period(2)............ $ 23,600 $ 22,899
======== ========
(1) Data does not include interest incurred by our mortgage and finance
subsidiaries.
(2) Represents interest for construction, and land and development
costs which are charged to interest expense when homes are delivered
or when land is not under active development.
3. Homebuilding accumulated depreciation at January 31, 2003 and
October 31, 2002 amounted to $19.7 million and $18.5 million,
respectively. Senior residential rental property accumulated
depreciation at January 31, 2003 and October 31, 2002 amounted to $3.2
million and $3.1 million, 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.
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. We wrote off such
costs in the amount of $0.2 million during the three months ended January
31, 2003. We also wrote off such costs in the amount of $0.9 million
during the three months ended January 31, 2002, primarily due to the exit
of our Mid-South operations. Residential inventory 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 January 31, 2003 and October 31, 2002,
respectively, we are obligated under various performance letters of
credit amounting to $107.6 million and $100.0 million.
6. We have an unsecured Revolving Credit Agreement ("Agreement")
with a group of banks which was amended on February 20, 2003. Pursuant
to the amendment, our credit line increased to $505.0 million and we have
the ability to seek additional lenders to increase the total facility
amount to $590.0 million. The agreement bears an expiration date of July
2005 and interest is payable monthly and at various rates of either the
prime rate plus 0.40% 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 January 31, 2003 and October 31, 2002, there was no
outstanding balance under the Agreement.
Our mortgage warehouse line of credit was modified on March 7,
2003. Pursuant to the agreement, our credit line matures in July 2003
and we have the option to borrow up to $142.0 million. Interest is
payable monthly at the Federal Funds Rate plus 1.375%. As of January 31,
2003 and October 31, 2002 borrowings were $49.0 million and $85.5
million, respectively.
7. At January 31, 2003, our long term debt consisted of $150
million 10 1/2% Senior Notes due 2007, $150 million 9 1/8% Senior Notes
due 2009, $100 million 8% Senior Notes due 2012, $150 million 8 7/8%
Senior Subordinated Notes due 2012, and a $165 million Term Loan due 2007
which bears interest at either the prime rate plus 1.25% or LIBOR plus
2.5%. As of January 31, 2003 borrowings under the Term Loan were $115
million.
8. Per Share Calculations - Statement of Financial Accounting
Standards (SFAS) 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.
9. Recent Accounting Pronouncements - In April 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 adopted SFAS No. 145 on November 1, 2002 and certain amounts
in our prior year financial statements will be reclassified to conform to
the new presentation.
In June 2002, the Financial Accounting Standards Board issued
(SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". SFAS No. 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including certain costs incurred in a restructuring)".
SFAS No. 146 requires recognition of a liability for a cost associated
with an exit or disposal activity when the liability is incurred as
opposed to when the entity commits to an exit plan as prescribed under
EITF No. 94-3. SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. We do not anticipate that the adoption
of SFAS 146 will have a material effect on the financial position or
results of operations of our Company. However, SFAS No. 146 could impact
the amount or timing of liabilities to be recognized in the event that we
engage in exit or disposal activities in the future.
In November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees
such as standby letters of credit. It also clarifies that at the time a
company issues a guarantee, the company must recognize an initial
liability for the fair value, or market value, of the obligations it
assumes under the guarantee and must disclose that information in its
interim and annual financial statements. The provisions related to
recognizing a liability at inception of the guarantee for the fair value
of the guarantor's obligations does not apply to product warranties. The
initial recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31,
2002. The adoption of the initial recognition and initial measurement
provisions of FIN 45 did not have a material effect on our financial
position or results of operations. Our disclosure of guarantees is
included in Note 12 to the financial statements.
In December 2002, the Financial Accounting Standards Board issued
(SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", which amends (SFAS) No. 123. The new standard provides
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
It also requires prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the affect of the method used on reported
results. We have not elected to change to the fair value based method of
accounting for stock-based employee compensation. We will adopt the
disclosure provisions of SFAS No. 148 in our second fiscal quarter ending
April 30, 2003.
In January 2003, the Financial Accounting Standards Board issued
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51 ("FIN 46"). A Variable Interest Entity
("VIE") is a entity with insufficient equity investment or in which the
equity investors lack some of the characteristics of a controlling
financial interest. Pursuant to FIN 46, an enterprise that absorbs a
majority of the expected losses of the VIE must consolidate the VIE. FIN
46 is effective immediately for VIE's created after January 31, 2003.
For VIE's created before January 31, 2003, FIN 46 must be applied at the
beginning of the first interim or annual reporting period beginning after
June 15, 2003 (our quarter ending October 31, 2003). FIN 46 may apply to
certain option contracts to acquire land. We are in the process of
evaluating the applicability of FIN 46 to such option contracts and
cannot currently estimate the potential impact of FIN 46 to our
consolidated balance sheet.
10. On November 1, 2002 and December 31, 2002 we acquired
Parkside Homes and Brighton Homes, two Houston homebuilding companies for
an approximate aggregate purchase price of $100 million. These
acquisitions were accounted for as a purchase, with the results of
operations of these entities included in our consolidated financial
statements as of the date of acquisition. The purchase price will be
allocated based on estimated fair value at the date of acquisition. As a
result, estimated definite life intangible assets of $26.8 million were
recorded on the consolidated balance sheet. We expect to amortize the
definite life intangibles over a 2 to 5 year period. We are in the
process of completing an appraisal of the intangible assets and do not
expect to record any goodwill. Therefore, the purchase price allocation
is preliminary and subject to change. (See Note 11).
11. Intangible Assets - As reported on the balance sheet we have
goodwill and indefinite life intangibles amounting to $82.3 million and
definite life intangibles amounting to $26.8 million. Our intangible
assets consist of goodwill, tradenames, architectural designs, and
contractual agreements. During the three months ended January 31, 2003
we added the $26.8 million (See Note 10) of definite life intangibles due
to the Houston acquisitions. In accordance with the Financial Accounting
Standards No. 142 ("SFAS No. 142") "Goodwill and Other Intangible Assets;
we no longer amortize goodwill or indefinite life intangibles, but
instead assess them periodically for impairment. We are amortizing the
definite life intangibles over their expected useful life. The
amortization expense of $0.5 million is reported in other operations on
our Consolidated Statement of Income for the three months ended January
31, 2003.
12. 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"), acts as a finance and management entity that as of
January 31, 2003 had issued and outstanding approximately $150 million
senior subordinated notes, $400 million face value senior notes, a term
loan with an outstanding balance of $115 million, and a revolving credit
agreement with an outstanding balance of zero. 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 other than the
Subsidiary Issuer (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 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, 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 consolidated
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 the Parent on a
consolidated basis.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED BALANCE SHEET
JANUARY 31, 2003
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- ---------- ---------- ------------ ---------- ----------
ASSETS
Homebuilding.......................$ 14 $ 100,961 $1,512,194 $ 21,418 $ $1,634,587
Financial Services................. 111 62,390 62,501
Income Taxes Receivables (Payables) (31,152) 6,687 30,332 (476) 5,391
Investments in and amounts due to
and from consolidated
subsidiaries..................... 638,426 604,415 (817,792) (21,077) (403,972)
-------- ---------- ---------- ------------ ---------- ----------
Total Assets.......................$607,288 $ 712,063 $ 724,845 $ 62,255 $(403,972) $1,702,479
======== ========== ========== ============ ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding.......................$ $ 24,110 $ 340,181 $ 63 $ $ 364,354
Financial Services................. 53,399 53,399
Notes Payable...................... 677,386 52 677,438
Stockholders' Equity............... 607,288 10,567 384,612 8,793 (403,972) 607,288
-------- ----------- ---------- ------------ ---------- ----------
Total Liabilities and Stockholders'
Equity...........................$607,288 $ 712,063 $ 724,845 $ 62,255 $(403,972) $1,702,479
======== ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
OCTOBER 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- ---------- ---------- ------------ ---------- ----------
Assets
Homebuilding.......................$ 1,501 $ 261,107 $1,269,514 $ 36,014 $ $1,568,136
Financial Services................. 111 109,881 109,992
Investments in and amounts due to
and from consolidated
subsidiaries..................... 584,103 432,130 (628,246) (34,316) (353,671)
-------- ---------- ---------- ------------ ---------- ----------
Total Assets.......................$585,604 $ 693,237 $ 641,379 $ 111,579 $ (353,671)$1,678,128
======== ========== ========== ============ ========== ==========
Liabilities
Homebuilding.......................$ $ 35,736 $ 314,171 $ 3,595 $ $ 353,502
Financial Services................. 90,355 90,355
Notes Payable...................... 661,390 2,345 7,210 670,945
Income Taxes Payable (Receivables). 23,055 (3,147) (18,184) (947) 777
Stockholders' Equity............... 562,549 (742) 343,047 11,366 (353,671) 562,549
-------- ---------- ---------- ------------ ---------- ----------
Total Liabilities and Stockholders'
Equity...........................$585,604 $ 693,237 $ 641,379 $ 111,579 $ (353,671)$1,678,128
======== ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2003
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
Revenues:
Homebuilding.....................$ $ 472 $ 613,679 $ 2,994 $ (5) $ 617,140
Financial Services .............. 1,610 8,885 10,495
Intercompany Charges............. 43,538 3,376 (46,914)
Equity In Pretax Income of
Consolidated Subsidiaries...... 71,136 (71,136)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues................. 71,136 44,010 618,665 11,879 (118,055) 627,635
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding..................... 44,010 547,661 3,239 (44,232) 550,678
Financial Services............... 542 5,780 (501) 5,821
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 44,010 548,203 9,019 (44,733) 556,499
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 71,136 70,462 2,860 (73,322) 71,136
State and Federal Income Taxes..... 26,375 (205) 26,195 1,150 (27,140) 26,375
------- ---------- ---------- ------------ ---------- ----------
Net Income.........................$44,761 $ 205 $ 44,267 $ 1,710 $ (46,182) $ 44,761
======= ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
Revenues:
Homebuilding.....................$ $ 145 $ 444,446 $ 5,533 $ (5,049) $ 445,075
Financial Services .............. 1,362 7,625 8,987
Intercompany Charges............. 30,259 2,483 (32,742)
Equity In Pretax Income of
Consolidated Subsidiaries...... 29,797 (29,797)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues................. 29,797 30,404 448,291 13,158 (67,588) 454,062
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding..................... 30,404 423,744 575 (35,817) 418,906
Financial Services............... 558 5,246 (445) 5,359
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 30,404 424,302 5,821 (36,262) 424,265
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 29,797 23,989 7,337 (31,326) 29,797
State and Federal Income Taxes..... 11,636 27 9,349 2,795 (12,171) 11,636
------- ---------- ---------- ------------ ---------- ----------
Net Income.........................$18,161 $ (27) $ 14,640 $ 4,542 $ (19,155) $ 18,161
======= ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2003
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- --------- ---------- ------------ ---------- ----------
Cash Flows From Operating Activities:
Net Income.........................$ 44,761 $ 205 $ 44,267 $ 1,710 $ (46,182) $ 44,761
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities... 1,216 7,665 (185,915) 49,071 46,182 (81,781)
-------- --------- ---------- ------------ ---------- ----------
Net Cash Provided By (Used In)
Operating Activities........... 45,977 7,870 (141,648) 50,781 (37,020)
Net Cash Provided by (Used In)
Investing Activities............... (48) 85 (88,732) (2) (88,697)
Net Cash Provided By(Used In)
Financing Activities............... 124 (11,755) (36,886) (48,517)
Intercompany Investing and Financing
Activities - Net................... (45,933) (172,285) 231,457 (13,239)
-------- --------- ---------- ------------ ---------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents................... (4) (164,206) (10,678) 654 (174,234)
Cash and Cash Equivalents Balance,
Beginning of Period................ 10 218,844 43,689 7,447 269,990
-------- --------- ---------- ------------ ---------- ----------
Cash and Cash Equivalents Balance,
End of Period......................$ 6 $ 54,638 $ 33,011 $ 8,101 $ $ 95,756
======== ========= ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JANUARY 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.........................$ 18,161 $ (27) $ 14,640 $ 4,542 $ (19,155) $ 18,161
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities... 92,738 9,132 (100,389) 26,582 19,155 47,218
-------- --------- ---------- ------------ ---------- ----------
Net Cash Provided By (Used In)
Operating Activities........... 110,899 9,105 (85,749) 31,124 65,379
Net Cash Provided by (Used In)
Investing Activities............... (43,340) (1,033) (79,180) (74) (123,627)
Net Cash Provided By(Used In)
Financing Activities............... (1,089) 200,698 (85,643) (29,978) 83,988
Intercompany Investing and Financing
Activities - Net..................... (66,470) (188,816) 258,293 (3,007)
-------- --------- ---------- ------------ ---------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents................... 19,954 7,721 (1,935) 25,740
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 $ 14,114 $ 23,337 $ 4,428 $ $ 41,889
======== ========= ========== ============ ========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Management believes that the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements:
Business Combinations - When we make an acquisition of another
company, we use the purchase method of accounting in accordance with the
Statement of Financial Accounting Standards (SFAS) No. 141 "Business
Combinations". Under SFAS No. 141 (for acquisitions subsequent to June
30, 2001) and APB 16 (for acquisitions prior to June 30, 2001) we record
as our cost the estimated fair value of 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, indefinite or
definite life intangibles. The reported income of an acquired company
includes the operations of the acquired company from the date of
acquisition.
Income Recognition from Home and Land Sales - Income from home and
land sales are recorded when title is conveyed to the buyer, adequate
cash payment has been received and there is no continued involvement.
Income Recognition from Mortgage Loans - Profits and losses
relating to the sale of mortgage loans are recognized when legal control
passes 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 discounted future cash
flows generated from 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 the Statement of Financial Accounting Standards
(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. 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.
Insurance Deductible Reserves - Our deductible is $150,000 per
occurrence for our worker's compensation and general liability insurance.
Reserves have been established based upon actuarial analysis of estimated
future losses.
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.
Land Options - Costs are 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.
Options that include specific performance terms, which have been
triggered, are recorded on the balance sheet as inventory and other
liabilities.
Intangible Assets - The intangible assets recorded on our balance
sheet consist of goodwill, tradenames, architectural designs and
contractual agreements with both definite and indefinite lives 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 or indefinite life intangibles,
but instead assess them periodically for impairment. We are amortizing
the definite life intangibles over their expected useful life.
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 and is recorded in accounts payable and other
liabilities in the consolidated balance sheets.
CAPITAL RESOURCES AND LIQUIDITY
Our cash uses during the three months ended January 31, 2003 were
for operating expenses, increases in housing inventories, construction,
income taxes, interest, and the acquisition of two Houston, Texas
homebuilders. We provided for our cash requirements from housing and
land sales, the revolving credit facility, 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 January 31, 2003 we had approximately $80.0 million of excess
cash. Management anticipates using the excess cash to grow existing
operations and fund future acquisitions.
On December 31, 2000, our stock repurchase program to purchase up
to 4.0 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 2.0 million shares of Class A Common
Stock. As of January 31, 2003, 606,319 shares of Class A Common Stock
have been purchased under this program, of which zero were repurchased
during the three months ended January 31, 2003.
Our homebuilding bank borrowings are made pursuant to an amended
and restated revolving credit agreement (the "Agreement") that provides a
revolving credit line and letter of credit line of up to $590 million
through July 2005. Interest is payable monthly and at various rates of
either the prime rate plus 0.40% 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. Each of our
significant subsidiaries is a guarantor under the revolving credit
agreement. As of January 31, 2003, there were no borrowings under the
Agreement.
At January 31, 2003 we had $400 million of outstanding senior debt
($396.5 million, net of discount), comprised of $150 million 10 1/2% Senior
Notes due 2007, $150 million 9 1/8% Senior Notes due 2009, and $100
million 8% Senior Notes due 2012. At January 31, 2003, we had
outstanding senior subordinated debt comprised of $150 million 8 7/8%
Senior Subordinated Notes due 2012. Each of our significant subsidiaries
is a guarantor under the Senior Notes and Senior Subordinated Notes.
On January 22, 2002 we entered into a $165 million five-year Term
Loan with a group of banks. The Term Loan matures in January 2007, and
bears interest at either the prime rate plus 1.25% or LIBOR plus 2.5%.
Each of our significant subsidiaries is a guarantor under the Term Loan.
At January 31, 2003 borrowings under the Term Loan were $115 million.
Our mortgage banking subsidiary's warehousing agreement was
modified on March 7, 2003. Pursuant to the modification, we may borrow
up to $142 million. The agreement bears an expiration date of July 2003
and 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
July 2003 or negotiate a replacement facility, but there can be no
assurance of such extension or replacement facility. As of January 31,
2003, the aggregate principal amount of all such borrowings was $49.0
million.
Total inventory increased $194.7 million during the three months
ended January 31, 2003. Approximately $75.0 million of the increase in
inventory was due to the acquisition of two homebuilding companies in
Houston, Texas. In addition, inventory levels increased in most of our
other housing markets. This was the result of seasonality factors and
planned future organic growth in our existing markets. Substantially all
homes under construction or completed and included in inventory at
January 31, 2003 are expected to be closed during the next twelve months.
Most inventory completed or under development is financed through our
line of credit, term loan, and senior and subordinated indebtedness.
We usually option property for development prior to acquisition.
By optioning property, we are only subject to the loss of a small option
fee and predevelopment costs if we choose not to exercise the option. As
a result, our commitment for major land acquisitions is reduced.
The following table summarizes housing lots included in our residential
real estate. The January 31, 2003 numbers exclude lots owned and options
in locations in which we have ceased development.
Active Proposed
Active Selling Developable Grand Total
Communities Lots Lots Lots
----------- ------- ----------- -----------
January 31, 2003:
Northeast Region.. 23 5,484 15,246 20,730
North Carolina.... 68 4,893 2,333 7,226
Metro D.C......... 31 3,508 7,776 11,284
California........ 39 5,621 5,031 10,652
Texas............. 72 5,139 2,901 8,040
----------- ------- ---------- -----------
233 24,645 33,287 57,932
=========== ======= ========== ===========
Owned.......... 11,971 3,661 15,632
Optioned....... 12,674 29,626 42,300
------- ---------- -----------
Total........ 24,645 33,287 57,932
======= ========== ===========
Active Proposed
Active Selling Developable Grand Total
Communities Lots Lots Lots
----------- ------- ----------- -----------
October 31, 2002:
Northeast Region.. 28 5,699 15,700 21,399
North Carolina.... 64 5,186 2,283 7,469
Metro D.C......... 27 3,182 7,394 10,576
California........ 42 5,974 4,457 10,431
Texas............. 35 2,566 1,518 4,084
Other............. -- 29 -- 29
----------- ------- ---------- -----------
196 22,636 31,352 53,988
=========== ======= ========== ===========
Owned.......... 11,088 2,274 13,362
Optioned....... 11,548 29,078 40,626
------- ---------- -----------
Total........ 22,636 31,352 53,988
======= ========== ===========
The following table summarizes our started or completed unsold
homes and models:
January 31, October 31,
2003 2002
----------------------- -----------------------
Unsold Unsold
Homes Models Total Homes Models Total
------ ------ ----- ------ ------ -----
Northeast Region.... 84 49 133 73 46 119
North Carolina...... 180 18 198 191 32 223
Metro D.C........... 38 19 57 34 31 65
California.......... 171 73 244 193 65 258
Texas............... 570 69 639 261 31 292
Other............... -- -- -- 2 -- 2
------ ------ ----- ------ ------ -----
Total 1,043 228 1,271 754 205 959
====== ====== ===== ====== ====== =====
Financial Services - Mortgage loans held for sale consist of
residential mortgages receivable of which $50.0 million and $91.3 million
at January 31, 2003 and October 31, 2002, respectively, are being
temporarily warehoused and awaiting sale in the secondary mortgage
market. The balance of mortgage loans held for sale are being held as an
investment. 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 MONTHS ENDED JANUARY 31, 2003
COMPARED TO THE THREE MONTHS ENDED JANUARY 31, 2002
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, and Texas. 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
------------------------------------------
January January Dollar Percentage
31, 2003 31, 2002 Change Change
-------- -------- -------- ----------
(Dollars in Thousands)
Homebuilding:
Sale of homes............... $607,501 $443,098 $164,403 37.1%
Land sales and other
revenues................... 9,639 1,977 7,662 387.6%
Financial services............ 10,495 8,987 1,508 16.8%
-------- -------- -------- ---------
Total Revenues........... $627,635 $454,062 $173,573 38.2%
======== ======== ======== =========
Homebuilding:
Revenues from the sale of homes increased $164.4 million or 37.1%
during the three months ended January 31, 2003, compared to the same
period last year. Revenues from sales 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
January 31,
-------------------
2003 2002
--------- --------
(Dollars in Thousands)
Northeast Region:
Housing Revenues..... $136,763 $132,769
Homes Delivered...... 431 421
North Carolina:
Housing Revenues..... $ 54,469 $ 56,681
Homes Delivered...... 299 298
Metro D.C.:
Housing Revenues..... $103,651 $ 70,392
Homes Delivered...... 324 263
California:(2)
Housing Revenues..... $238,695 $114,642
Homes Delivered...... 863 440
Texas: (1)
Housing Revenues..... $ 72,662 $ 54,526
Homes Delivered...... 359 237
Other:
Housing Revenues..... $ 1,261 $ 14,088
Homes Delivered...... 9 91
Totals:
Housing Revenues..... $607,501 $443,098
Homes Delivered...... 2,285 1,750
(1) January 31, 2003 includes Parkside Homes and Brighton Homes
deliveries beginning on November 1, 2002 and January 1,
2003, respectively.
(2) January 31, 2002 includes Forecast deliveries beginning on
January 10, 2002.
The increase in housing revenues was primarily due to the
acquisition of Parkside Homes and Brighton Homes in Houston, and a full
quarter of deliveries from Forecast. In addition, these increases were
the result of organic growth in Metro D. C. and California (excluding
Forecast) and increased average sales prices in most of our markets.
Important indicators of the future results are recently signed
contracts and home contract backlog for future deliveries. Our sales
contracts and homes in contract backlog (using base sales prices) by
market area are set forth below:
Sales Contracts for the
Three Months Ended Contract Backlog
January 31, as of January 31,
----------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(Dollars in Thousands)
Northeast Region:
Dollars............. $115,447 $109,689 $ 410,793 $317,189
Homes............... 368 393 1,334 1,132
North Carolina:
Dollars............. $ 54,679 $ 53,794 $ 88,496 $100,708
Homes............... 300 286 467 522
Metro D.C.:
Dollars............. $ 94,358 $ 78,993 $ 234,082 $217,487
Homes............... 286 263 717 779
California: (2)
Dollars............. $233,616 $ 84,122 $ 270,835 $144,061
Homes............... 832 301 924 568
Texas: (1)(3)
Dollars............. $ 68,927 $ 43,827 $ 89,888 $ 56,471
Homes............... 353 193 433 219
Other:
Dollars............. $ 313 $ 11,365 $ -- $ 17,120
Homes............... 2 74 -- 108
Totals:
Dollars............. $567,340 $381,790 $1,094,094 $853,036
Homes............... 2,141 1,510 3,875 3,328
(1) January 31, 2003 includes Parkside Homes and Brighton Homes
sales contracts signed from November 1, 2002 and January 1,
2003, respectively.
(2) January 31, 2002 includes Forecast sales contracts signed
from January 10, 2002 and Forecast's entire contract backlog.
(3) Contract backlog includes 162 homes with a value of $31.1 million
from the acquisition of Parkside Homes and Brighton Homes
during the quarter ended January 31, 2003.
During February 2003 we signed an additional 1,061 contracts compared to
931 in the same month last year. The February 2003 contracts along with
our contract backlog at January 31, 2003 and deliveries for the three
months ended January 31, 2003 amount to approximately 64% of our planned
deliveries for fiscal 2003.
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
January 31,
-------------------
2003 2002
-------- --------
(Dollars in Thousands)
Sale of Homes................ $607,501 $443,098
Cost of Sales................ 457,526 351,201
-------- --------
Housing Gross Margin......... $149,975 $ 91,897
======== ========
Gross Margin Percentage...... 24.7% 20.7%
Cost of Sales expenses as a percentage of home sales revenues are
presented below:
Three Months Ended
January 31,
-------------------
2003 2002
-------- --------
Sale of Homes................ 100.0% 100.0%
-------- --------
Cost of Sales:
Housing, land &
development costs.... 67.8% 71.2%
Commissions............ 2.1% 2.2%
Financing concessions.. 0.9% 1.1%
Overheads.............. 4.5% 4.8%
-------- --------
Total Cost of Sales.......... 75.3% 79.3%
-------- --------
Gross Margin................. 24.7% 20.7%
======== ========
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 months ended January 31, 2003 compared to the
same period last year. The consolidated gross margin increased 4.0% for
the three months ended January 31, 2003. Ignoring the effect of the two
Houston acquisitions, we achieved higher gross margins on a market-by-
market basis during the three months ended January 31, 2003 compared to
the same period last year. These increased margins are the result of
higher sales prices and increased national contract rebates, which
slightly lowered our housing costs.
Selling, general, and administrative expenses as a percentage of
total homebuilding revenues, increased to 8.8% for the three months ended
January 31, 2003 from 8.5% for the prior year's three months. Such
expenses increased $16.7 million during the three months ended January
31, 2003 compared to the same period last year. The percentage increase
was partially due to a full quarter of selling, general and
administrative costs from Forecast and partially due to our Coastal
California and Northeast Region operations gearing up to open a number of
communities later this year. The dollar increase in selling, general and
administrative was due to a full quarter of expenses from Forecast and
the addition of Parkside Homes and Brighton 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
January 31,
------------------
2003 2002
-------- --------
Land and Lot Sales................ $8,452 $ 421
Cost of Sales..................... 5,652 282
-------- --------
Land and Lot Sales Gross Margin... 2,800 139
Interest Expense.................. 344 65
-------- --------
Land and Lot Sales Profit
Before Tax...................... $2,456 $ 74
======== ========
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 months ended January 31, 2003
financial services provided a $4.7 million profit before taxes compared
to a profit of $3.6 million in 2002. This increase is primarily due to
reduced costs, increased mortgage loan amounts, and the addition of a
mortgage joint venture from the acquisition of Forecast for a full
quarter.
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
2.3% for the three months ended January 31, 2003 from 2.4% for the
corresponding prior year three months. Corporate general and
administrative expenses increased $3.7 million during the three months
ended January 31, 2003 compared to the same period 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
January 31,
------------------
2003 2002
-------- --------
Sale of Homes.............. $13,335 $13,637
Land and Lot Sales......... 344 65
-------- --------
Total...................... $13,679 $13,702
======== ========
Housing interest as a percentage of sale of homes revenues
decreased to 2.2% for the three months ended January 31, 2003 compared to
3.1% for the three months ended January 31, 2002. This percentage
decline is primarily attributed to the increase in home revenues and a
decrease in debt leverage of our company.
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, amortization of
the Forecast consultant's agreement and the right of first refusal
agreement, amortization of a definite life intangible for our Houston
acquisitions, minority interest relating to joint ventures, and corporate
owned life insurance loan interest.
Recent Accounting Pronouncements:
In April 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 adopted SFAS No. 145 on November 1, 2002 and
certain amounts in our prior year financial statements will be
reclassified to conform to the new presentation.
In June 2002, the Financial Accounting Standards Board issued
(SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". SFAS No. 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including certain costs incurred in a restructuring)".
SFAS No. 146 requires recognition of a liability for a cost associated
with an exit or disposal activity when the liability is incurred as
opposed to when the entity commits to an exit plan as prescribed under
EITF No. 94-3. SFAS No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. We do not anticipate that the adoption
of SFAS 146 will have a material effect on the financial position or
results of operations of our Company. However, SFAS No. 146 could impact
the amount or timing of liabilities to be recognized in the event that we
engage in exit or disposal activities in the future.
In November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees
such as standby letters of credit. It also clarifies that at the time a
company issues a guarantee, the company must recognize an initial
liability for the fair value, or market value, of the obligations it
assumes under the guarantee and must disclose that information in its
interim and annual financial statements. The provisions related to
recognizing a liability at inception of the guarantee for the fair value
of the guarantor's obligations does not apply to product warranties. The
initial recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31,
2002. The adoption of the initial recognition and initial measurement
provisions of FIN 45 did not have a material effect on our financial
position or results of operations. Our disclosure of guarantees is
included in Note 12 to the financial statements.
In December 2002, the Financial Accounting Standards Board issued
(SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", which amends (SFAS) No. 123. The new standard provides
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
It also requires prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the affect of the method used on reported
results. We have not elected to change to the fair value based method of
accounting for stock-based employee compensation. We will adopt the
disclosure provisions of SFAS No. 148 in our second fiscal quarter ending
April 30, 2003.
In January 2003, the Financial Accounting Standards Board issued
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51 ("FIN 46"). A Variable Interest Entity
("VIE") is a entity with insufficient equity investment or in which the
equity investors lack some of the characteristics of a controlling
financial interest. Pursuant to FIN 46, an enterprise that absorbs a
majority of the expected losses of a VIE must consolidate the VIE. FIN
46 is effective immediately for VIE's created after January 31, 2003.
For VIE's created before January 31, 2003, FIN 46 must be applied at the
beginning of the first interim or annual reporting period beginning after
June 15, 2003 (our quarter ending October 31, 2003). FIN 46 may apply to
certain option contracts to acquire land. We are in the process of
evaluating the applicability of FIN 46 to such option contracts and
cannot currently estimate the potential impact of FIN 46 to our
consolidated balance sheet.
Total Taxes:
Total taxes as a percentage of income before taxes amounted to
approximately 37.1% and 39.1% for the three months ended January 31, 2003
and 2002, respectively. The decreased effective rate is due primarily to
a reduction in 2003 in state income taxes. 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 57% of our homebuilding
cost of sales.
Mergers and Acquisitions:
On January 10, 2002 we acquired The Forecast Group, L.P. for a
total 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. At
the date of acquisition we also paid off approximately $88.0 million of
Forecast's third party debt. On November 1, 2002 and December 31, 2002
we acquired two Houston homebuilding companies for an approximate
aggregate purchase price of $100.0 million.
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 of the Company to be
materially different from any future 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, 2002.
Item 3. 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 January 31, 2003, our long term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value ("FMV").
As of January 31, 2003 for the
Three Months Ended January 31,
--------------------------------------
FMV @
2004 2005 2006 2007 2008 Thereafter Total 1/31/03
------- ------ ------ ------ ------ ---------- -------- -------
(Dollars in Thousands)
Long Term Debt(1):
Fixed Rate...... $ 8,114 $ 81 $ 88 $150,096 $ 104 $ 400,298 $558,781 $581,028
Average interest
rate.......... 4.96% 8.38% 8.38% 10.50% 8.38% 8.75% 9.16% --
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%
Item 4. CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer evaluated
the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934, as amended) within 90 days of the filing date of this report (the
"Evaluation Date") and, based on that evaluation, concluded that, as of
the Evaluation Date, we had sufficient controls and procedures for
recording, processing, summarizing and reporting information that is
required to be disclosed in our reports under the Securities Exchange Act
of 1934, as amended, within the time periods specified in the SEC's rules
and forms.
Since the Evaulation Date, there have not been any significant
changes to our internal controls or in other factors that could
significantly affect these controls subsequent to the Evaluation Date,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a)
Exhibit 3(a) Certificate of Incorporation of
the Registrant. (1)
Exhibit 3(b) Certificate of Amendment of
Incorporation of the Registrant. (2)
Exhibit 3(c) Bylaws of the Registrant. (2)
Exhibit 10(a) Amended and Restated Credit
Agreement dated February 20, 2003.
Exhibit 10(b) Restated $142 million K. Hovnanian
Mortgage, Inc. Revolving Credit Agreement
dated March 7, 2003.
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.
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.
(1) Incorporated by reference to Exhibits to
Registration Statement (No. 2-85198) on
Form S-1 of the Registrant.
(2) Incorporated by reference to Exhibits to Annual
Report on Form 10-K for the year ended
February 28, 1994 of the Registrant.
Item 6(b). No reports on Form 8-K 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: March 17, 2003 /S/J. LARRY SORSBY
J. Larry Sorsby,
Executive Vice President and
Chief Financial Officer
DATE: March 17, 2003 /S/PAUL W. BUCHANAN
Paul W. Buchanan,
Senior Vice President
Corporate Controller
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mr. 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;
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;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
By,
/S/ARA K. HOVNANIAN
Ara K. Hovnanian
Chief Executive Officer
Date: March 12, 2003
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mr. 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;
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;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
By,
/S/J. LARRY SORSBY
J. Larry Sorsby
Chief Financial Officer
Date: March 12, 2003
$590,000,000 REVOLVING CREDIT FACILITY
SECOND 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.
Wachovia Bank, National Association,
as
Syndication Agents
Fleet National Bank, as
Documentation Agent
PNC Capital Markets, LLC
Wachovia Securities, Inc.
as
Joint Lead Arrangers and Joint Book Runners
Amended and Restated February 20, 2003
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. 22
1.2.4. Documents Taken as a Whole. 22
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. 23
1.3 Accounting Principles. 23
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. 24
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. 25
2.4 Revolving Credit Loan Requests; Swing Loan Requests. 25
2.4.1. Revolving Credit Loan Requests. 25
2.4.2. Swing Loan Requests. 26
2.5 Making Revolving Credit Loans and Swing Loans. 26
2.5.1. Generally. 26
2.5.2. Making Swing Loans. 26
2.6 Swing Loan Note. 26
2.7 Use of Proceeds. 27
2.8 Borrowings to Repay Swing Loans. 27
2.9 Letter of Credit Subfacility. 27
2.9.1. Issuance of Letters of Credit. 27
2.9.2. Letter of Credit Fees. 28
2.9.3. Disbursements, Reimbursement. 28
2.9.4. Repayment of Participation Advances. 29
2.9.5. Documentation. 30
2.9.6. Determinations to Honor Drawing Requests. 30
2.9.7. Nature of Participation and Reimbursement Obligations. 30
2.9.8. Indemnity. 31
2.9.9. Liability for Acts and Omissions. 32
2.9.10. Sharing Letter of Credit Documentation. 33
2.10 Extension by Banks of the Expiration Date. 33
2.10.1. Requests; Approval by All Banks. 33
2.10.2. Approval by 80% Banks. 33
2.11 Designation of Subsidiaries and Release of Guarantors. 34
2.11.1. Release of Guarantors. 34
2.11.2. Designation of Non-Restricted Person. 34
2.11.3. Automatic Designation of Non-Restricted Person. 35
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. 36
3.1.2. Rate Quotations. 36
3.2 Interest Periods. 36
3.3 Interest After Default. 36
3.3.1. Default Rate. 36
3.3.2. Acknowledgment. 37
3.4 LIBO-Rate Unascertainable; Illegality; Increased Costs;
Deposits Not Available. 37
3.4.1. Unascertainable. 37
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. 39
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. 41
4.5 Mandatory Payments. 41
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. 42
4.7 Notes. 43
4.8 Settlement Date Procedures. 43
5. REPRESENTATIONS AND WARRANTIES 43
5.1 Representations and Warranties. 43
5.1.1. Organization and Qualification. 43
5.1.2. Subsidiaries. 44
5.1.3. Power and Authority. 44
5.1.4. Validity and Binding Effect. 44
5.1.5. No Conflict. 45
5.1.6. Litigation. 45
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. 47
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. 48
5.1.16. Compliance with Laws. 48
5.1.17. Burdensome Restrictions. 48
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. 50
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. 51
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. 52
6.1.7. Consents. 52
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 53
7.1 Affirmative Covenants. 53
7.1.1. Preservation of Existence, Etc. 53
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. 54
7.1.5. Maintenance of Patents, Trademarks, Etc. 54
7.1.6. Visitation Rights. 54
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. 55
7.1.10. Use of Proceeds. 55
7.2 Negative Covenants. 55
7.2.1. Indebtedness. 55
7.2.2. Liens. 55
7.2.3. Loans and Investments. 56
7.2.4. Liquidations, Mergers, Consolidations, Acquisitions. 56
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. 59
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. 63
7.3.7. Budgets, Forecasts, Other Reports and Information. 63
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. 65
8.1.2. Breach of Warranty. 65
8.1.3. Breach of Certain Negative Covenants. 65
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. 66
8.1.8. Uninsured Losses; Proceedings Against Assets. 66
8.1.9. Notice of Lien or Assessment. 66
8.1.10. Insolvency. 66
8.1.11. Events Relating to Plans and Benefit Arrangements. 66
8.1.12. Cessation of Business. 67
8.1.13. Change of Control. 67
8.1.14. Involuntary Proceedings. 67
8.1.15. Voluntary Proceedings. 68
8.2 Consequences of Event of Default. 68
8.2.1. Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings. 68
8.2.2. Bankruptcy, Insolvency or Reorganization Proceedings. 68
8.2.3. Set-off. 69
8.2.4. Suits, Actions, Proceedings. 69
8.2.5. Application of Proceeds. 69
8.2.6. Other Rights and Remedies. 70
9. THE AGENT 70
9.1 Appointment. 70
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. 71
9.5 Reimbursement and Indemnification of Agent by the Borrower. 71
9.6 Exculpatory Provisions; Limitation of Liability. 72
9.7 Reimbursement and Indemnification of Agent by Banks. 73
9.8 Reliance by Agent. 73
9.9 Notice of Default. 73
9.10 Notices. 73
9.11 Banks in Their Individual Capacities; Agents in its
Individual Capacity. 74
9.12 Holders of Notes. 74
9.13 Equalization of Banks. 74
9.14 Successor Agent. 75
9.15 Agent's Fee. 75
9.16 Availability of Funds. 75
9.17 Calculations. 76
9.18 Beneficiaries. 76
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. 77
10.1.3. Miscellaneous 77
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. 79
10.5.1. Notional Funding. 79
10.5.2. Actual Funding. 79
10.6 Notices. 79
10.7 Severability. 80
10.8 Governing Law. 80
10.9 Prior Understanding. 81
10.10 Duration; Survival. 81
10.11 Successors and Assigns. 81
10.12 Confidentiality. 83
10.12.1. General. 83
10.12.2. Sharing Information With Affiliates of the Banks. 83
10.13 Counterparts. 83
10.14 Agent's or Bank's Consent. 84
10.15 Exceptions. 84
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. 84
10.17 Tax Withholding Clause. 84
10.18 Joinder of Guarantors. 85
10.19 Concerning Agent Terms. 85
10.20 Ratification of Notes and Loan Documents and Existing
Obligations. 86
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
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is dated February
20, 2003 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 an Amended and Restated Credit
Agreement dated June 21, 2002 among the parties hereto (the "Prior
Credit Agreement");
WHEREAS, the Borrower and the Banks have agreed that the aggregate
Commitments of the Banks may be increased to $590,000,000 and that Prior
Credit Agreement be amended and restated as provided herein;
WHEREAS, the revolving credit provided hereunder shall be used to
refinance existing indebtedness, provide for letters of credit and
provide working capital and funds for general corporate purposes;
WHEREAS, the parties hereto intend that the Notes and other Loan
Documents delivered in connection with the Prior 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
Open 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 Section3(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
property located outside of the United
States of America in excess of $10,000,000;
Unimproved 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 February 20, 2003. 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 Sections414 (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.
Federal Funds Open Rate shall mean the rate per annum
determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the "open"
rate for federal funds transactions as of the opening of business for
federal funds transactions among members of the Federal Reserve System
arranged by federal funds brokers on such day, as quoted by Garvin
Guybutler, any successor entity thereto, or any other broker selected by
the Bank, as set forth on the applicable Telerate display page; provided,
however; that if such day is not a Business Day, the Federal Funds Open
Rate for such day shall be the "open rate" on the immediately preceding
Business Day, or if no such rate shall be quoted by a Federal funds
broker at such time, such other rate as determined by the Agent in
accordance with its usual procedures.
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, Hovnanian shall be a Guarantor and all Restricted
Subsidiaries other than the Borrower 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, as supplemented by joinders delivered from time to time in respect
of new Guarantors..
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.
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 K. HOV IP II, Inc., a California
corporation, successor by merger to KHL, Inc, a Delaware corporation, or,
as applicable, KHL, Inc, a Delaware corporation prior to such merger.
KHL Agreement shall mean KHL Agreement dated the date
of the Prior Credit Agreement 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 Guaranty 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 Prior Credit Agreement
(other than the KHL Agreement and the Stock Pledge) shall be Loan
Documents hereunder.
Loan Parties shall mean the Borrower and the
Guarantors.
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, the Notes 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.
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.
Prior Credit Agreement shall have the meaning assigned
to such term in the preamble to this Agreement.
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.
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), whether in the form
of an Amended and Restated Note or a Revolving Credit Note which is not
amended and restated, 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 date of the Prior Credit Agreement pursuant to which Hovnanian
pledged 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, subject to the time restrictions in Section 2.1.1 (Revolving Credit
Loan) and the requirements of Section 6.2 (Each Additional Loan or Letter
of Credit), that a new lender join this Agreement as a "Bank" in order to
provide additional Revolving Credit Commitments or that an existing Bank
increase its Revolving Credit Commitment. (Any existing Bank may decline
to increase its Revolving Credit Commitment in its sole discretion.) In
connection with any such increase, Schedule 1.1(A) shall be amended and
restated to reflect such increase. The selection of any new Bank shall
be subject to the Borrower's and Agent's consent, which shall not be
unreasonably withheld. Any new Bank shall join this Agreement as a Bank
pursuant to the procedures contained in Section 10.11(b) (Additional
Bank). The Revolving Credit Commitments as increased in accordance
herewith shall not exceed Five Hundred Ninety Million Dollars
($590,000,000).
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 $295,000,000) 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 Prior 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 Prior 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 provided that in no event shall Letter
of Credit Outstanding exceed, at any one time, $175,000,000.
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 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, 2002 (the "Annual Statements"). (The Annual Statements
are also sometimes 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.
(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, 2002, 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 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. (The KHL
Agreement and the Stock Pledge (together with certificates evidencing
100% of the stock of KHL and stock powers therefor executed in blank)
were delivered on the date of the Prior Agreement, but they are no longer
effective and are no longer "Loan Documents" hereunder.)
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, 2002, 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.
7.2 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 Omitted.
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) 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 (iii) 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; provided, however, the Borrowing Base Certificate delivered
with respect to the month of October, in any year, may be in draft form,
subject to change as a result of the year-end audit, but in no event
shall be executed and delivered in final form later than ninety (90) days
after the end of such fiscal year.
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 which is not covered by
insurance 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, except as provided in Section 2.1.3;
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 1.1441-1(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 1.1441-1(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 1.1441-1(e)(3) of the Regulations; a statement
described in 1.871-14(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 1.1441-7(b) of the
Regulations. Further, the Agent is indemnified under 1.1461-1(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 1441 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
Prior 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. Each of the Notes
under the Prior Credit Agreement shall bear an Expiration Date of July
30, 2005, unless replaced by a new Note hereunder. This Agreement amends
and restates, and supersedes, the Prior Credit Agreement and is in no way
intended to constitute a novation of the "Obligations" under the Prior
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 owing under
the Prior 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:
WACHOVIA BANK, NATIONAL ASSOCIATION
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:
BNP PARIBAS
By:
Title
and
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
$70,000,000
13.8614%
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
11.8812%
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
9.9010%
Bank Name:
Wachovia Bank, National
Association
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
$70,000,000
13.8614%
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
7.9208%
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:
KeyBank Real Estate Capital
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:
KeyBank Real Estate Capital
127 Public Square
Cleveland, OH 44114
OH-01-27-0839
Attn: R.J. Quinn, CSA
Telephone: (216) 689-4343
Telecopy: (216) 689-4721
$30,000,000
5.9406%
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
5.9406%
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
4.9505%
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
4.9505%
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: John Wendler
Telephone: (404) 575-2562
Telecopy: (404) 575-2693
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
4.9505%
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
3.9604%
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: (760) 804-8598
Telecopy: (760) 804--8590
Address of Lending Office:
3200 Southwest Freeway
Houston, TX 77027
Attention: Monica Rampp
Telephone: (713) 543-3323
Telecopy: (713) 543-7813
$45,000,000
8.9109%
Bank Name:
BNP PARIBAS
Address for Notices:
787 Seventh Avenue
New York, NY 10019
Attention: Stephanie Rogers
Telephone: (212) 841-2973
Telecopy: (212) 841-3830
Address of Lending Office:
787 Seventh Avenue
New York, NY 10019
Attention: Stephanie Rogers
Telephone: (212) 841-2973
Telecopy: (212) 841-3830
$15,000,000
2.9703%
Total
$505,000,000
100%
unsubscribed
$85,000,000
n/a
Maximum
$590,000,000
n/a
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
TABLE OF CONTENTS
Section Page
- - iii -
- - vi -
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Part 1 - Addresses Commitments of Banks and Addresses for Notices to Banks
SCHEDULE 1.1(B) - 5
SCHEDULE 1.1(B) - 8
FIRST RESTATED
REVOLVING CREDIT AGREEMENT
by and among
K. HOVNANIAN MORTGAGE, INC.,
K. HOVNANIAN AMERICAN MORTGAGE, L.L.C.,
THE LENDERS PARTY HERETO,
and
GUARANTY BANK,
As Agent
dated as of March 7, 2003
FIRST RESTATED REVOLVING CREDIT AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.....................1
ARTICLE II THE CREDITS...................26
2.1 Commitment, Sublimits and Types of Advances .26
2.2 Primary Advances.............................28
2.3 Buy Down Loans...............................28
2.4 Swingline Loans................................28
2.5 Fees....................................................30
2.6 Method of Selecting Types and Interest Periods for New Advances .30
2.7 Conversion and Continuation of Outstanding
Advances..........................................31
2.8 Reductions to Aggregate Commitment ...........31
2.9 Principal Payments............................32
2.10 Changes in Interest Rate, etc.............33
2.11 Rates Applicable After Default.........33
2.12 Method of Payment............................34
2.13 Noteless Agreement; Evidence of
Indebtedness.......................................................34
2.14 Telephonic Notices............................35
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.................................................38
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
TABLE OF CONTENTS
Page
FIRST RESTATED REVOLVING CREDIT AGREEMENT
5.5 Material Adverse Change..................43
5.6 Taxes.............................................43
5.7 Litigation and Contingent Obligations .............43
5.8 Subsidiaries........................................43
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.44
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
5.20 Solvency............................................45
ARTICLE VI COVENANTS....................45
6.1 Financial Reporting...........................45
6.2 Use of Proceeds.................................48
6.3 Notice of Default...............................48
6.4 Conduct of Business..........................48
6.5 Taxes...............................................48
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................52
6.21 Approved Investor
Commitments.............................................53
6.22 Negative Pledges...............................53
6.23 MERS................................................53
ARTICLE VII DEFAULTS........................53
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........................................56
8.4 Settlement and Funding Accounts.....57
8.5 Termination...............................................57
8.6 Acceleration..............................................57
8.7 Other Remedies.................................57
8.8 Application of
Proceeds..................................................59
8.9 Preservation of
Rights.....................................................59
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.............................................61
9.8 Nonliability of Lenders......................62
9.9 Severability of Provisions..................62
9.10 Numbers of Documents.....................63
9.11 Accounting.............................................63
9.12 Confidentiality..............................................63
9.13 Nonreliance........................................63
9.14 Disclosure..........................................63
9.15 Joint and Several
Liability................................................63
9.16 No Release of Joint and Several Liability.
................................................................63
ARTICLE X THE AGENT AND THE COLLATERAL
AGENT.................................66
10.1 Appointment; Nature of
Relationship.......................................66
10.2 Powers...........................................66
10.3 General Immunity.......................................67
10.4 No Responsibility for Loans, Recitals, etc. ......67
10.5 Action on Instructions of Lenders ................67
10.6 Employment of Agents and
Counsel..............................................67
10.7 Reliance on Documents;
Counsel..............................................67
10.8 Agent's Reimbursement and
Indemnification......................................68
10.9 Notice of Default...............................68
10.10 Rights as a Lender.............................68
10.11 Lender Credit
Decision.............................................69
10.12 Successor Agent................................69
10.13 Delegation to Affiliates.......................69
10.14 Collateral Releases............................69
ARTICLE XI SETOFF; RATABLE PAYMENTS .............70
11.1 Setoff......................................70
11.2 70
11.3 Ratable Payments.............................70
11.4 Custodial Accounts
...................................................70
ARTICLE XII ASSIGNMENTS; PARTICIPATIONS; COMMITMENT
INCREASES.....................................70
12.1 Successors and Assigns.....................70
12.2 Participations.....................................71
12.3 Assignments........................................72
12.4 Commitment Increases......................73
12.5 Dissemination of Information..............73
12.6 Tax Treatment.............................73
ARTICLE XIII NOTICES...........................74
13.1 Notices...................................74
13.2 Change of Address.........................74
ARTICLE XIV COUNTERPARTS.............74
ARTICLE XV CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER
OF JURY TRIAL..............................74
15.1 CHOICE OF LAW............................74
15.2 CONSENT TO JURISDICTION......74
15.3 WAIVER OF JURY TRIAL.............75
15.4 No Tri-Party Accounts.............75
15.5 Limitation on Interest........................75
15.6 NO ORAL AGREEMENTS..............76
15.7 Original Credit Agreement................76
FIRST RESTATED
REVOLVING CREDIT AGREEMENT
This FIRST RESTATED REVOLVING CREDIT AGREEMENT dated as of March 7,
2003 is among K. HOVNANIAN MORTGAGE, INC., a New Jersey corporation,
and K. HOVNANIAN AMERICAN MORTGAGE, L.L.C., a New Jersey limited
liability company (collectively, the "Borrowers"), 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 a 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
a 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, 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 $142,000,000 without the approval of the
Borrowers, the Agent and all of the Lenders.
"Agreement" means this First Restated Revolving 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 Borrowers 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 Borrowers 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 a Borrower, acting singly.
"Available Deposits" means those free collected balances maintained in
accounts in the name of the Borrowers (or held by the Borrowers 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 Borrowers.
"Basic Eligibility Requirements" means a Pledged Item with respect to
which each of the following statements is accurate and complete:
(i) A 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 such Borrower (including Approved
Investor Commitments) has been duly and validly issued
to such 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 a 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 fund s, cashier's check or a check written against the
Borrowers' 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 a 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 a Borrower, duly executed and delivered by the such Borrower
and is the legal, valid and binding obligation of such 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 such 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
Borrowers have 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) a 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 a 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 suc h 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 Borrowers are 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
Borrowers employ 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 Borrowers 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 Borrowers 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) A Borrower is the servicer for and shall service all Pledged
Mortgages in accordance with the requirements of the Approved Investor
Commitments. A 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) A 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 Borrowers 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 Borrowers, 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 Borrowers shall promptly notify the Agent and the Collateral
Agent if and when a 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 Borrowers 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 Borrowers 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.
"Borrowers" means each of Hovnanian Mortgage and Hovnanian American and
their respective 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 Borrowers, 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
Borrowers 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 Borrowers (i.e. natural disasters,
transmission failures etc.), provided that, if such determination
cannot be made for more than one (1) Business Day, the Borrowers
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 Borrowers
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 Borrowers 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
Borrowers 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 Borrowers, of
every kind and nature, in and to all of the following property, assets
and rights of the Borrowers wherever located, whether now existing or
hereafter arising, and whether now or hereafter owned, acquired by or
accruing or owing to the Borrowers, 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 Borrowers;
(iv) any options to sell or purchase Securities, future contracts, or
any other interest rate protection products which directly or
indirectly protect the Borrowers against reductions in value of such
Pledged Mortgages or Pledged Securities due to changes in
mortgage interest rates;
(v) the Settlement Accounts, the Funding Accounts and all uncollected
deposits into the Settlement Accounts and the Funding Accounts,
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
Borrowers, 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 Borrowers to the
Collateral Agent in electronic form (or in written form delivered by
fax) or in the event that the Borrowers are unable -- due to a system
failure or other event beyond the Borrowers' 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:
(i) Each Security shall be valued based upon the Collateral Value of
the underlying Pledged Mortgages as otherwise determined hereunder; and
(ii) 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 a 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 Borrowers as of the
Pledge Date of the applicable Pledged Mortgage and reported to the
Collateral Agent.
"Combined" refers to the combination of the Borrowers and their
consolidated Subsidiaries. References herein to "Combined" financial
statements, financial position, financial condition, liabilities, etc.,
refer to the financial statements, financial position, financial
condition and liabilities of the Borrowers and their consolidated
Subsidiaries prepared on a combined basis with the consolidation of
each Borrower and its Subsidiaries being determined in
accordance with GAAP.
"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%).
"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 Borrowers or any of their
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 Borrowers 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.
"Cumulative Cash Flow" is defined in Section 6.17.4.
"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 as of June 7, 2002 among the Agent, MERS, MERSCORP, the
Collateral Agent and Hovnanian Mortgage, and the Electronic Tracking
Agreement of even date herewith among the Agent, MERS, MERSCORP, the
Collateral Agent and Hovnanian American.
"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 Borrowers expect 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 Borrowers shall so notify the
Collateral Agent as soon as the Borrowers become 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 Bo rrowers 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 a 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
Borrowers 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 ha ve 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 Agent.
"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 `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 isnot 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.
"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 Accounts" is defined in 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
Borrowers, the value at which such asset is carried on the books of the
Borrowers 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 a
Borrower and guaranteed as to full and timely payment of principal and
interest by GNMA without regard as to whether such Borrower
collects any payments on such Mortgage Loans.
"Hovnanian American" means K. Hovnanian American Mortgage, L.L.C., a
New Jersey limited liability company.
"Hovnanian Mortgage" means K. Hovnanian Mortgage, Inc., a New Jersey
corporation.
"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) NetMark-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 Borrowers 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 First Restated 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.
"Leverage Ratio" is defined in Section 6.17.2.
"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 Borrowers 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 a Borrower and its Subsidiaries taken as a
whole or of the Parent, (ii) the ability of the Parent or a 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 a 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 a 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 Borrowers 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
Combined net income of the Borrowers and the ir consolidated
Subsidiaries 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 Combined
net worth of the Borrowers and their consolidated Subsidiaries 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 Borrowers 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 Borrowers their consolidated Subsidiaries for
such period prepared on a Combined basis (with terms in quotes having
the meanings given such terms in the Borrowers' 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 Borrowers and their consolidated Subsidiaries
for such period prepared on a Combined basis (with terms in
quotes having the meanings given such terms in the Borrowers'
consolidated financial statements): the decrease in deferred (but not
current) taxes and other non-cash gains included in the computation of
"net income".)
"Original Credit Agreement" means the Revolving Credit Agreement dated
as of June 7, 2002 among the parties hereto.
"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 Borrowers 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 a 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 Do cuments" 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 Obligatio ns 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 First Restated Security and Collateral
Agency Agreement as of even date herewith, substantially in the form of
Exhibit "I" attached hereto, by and among the Borrowers, 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 Accounts" is defined in Section 8.4.
"Single Employer Plan" means a Plan maintained by a Borrower or any
member of the Controlled Group for employees of such 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 First Restated
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 whic h shall at the time be so owned or
controlled. Unless otherwise expressly provided, all references herein
to a "Subsidiary" shall mean each Subsidiary of each Borrower.
"Substantial Portion" means, with respect to the Property of the
Borrowers and their Subsidiaries, Property which (i) represents more
than 10% of the Combined assets of the Borrowers and their Subsidiaries
as would be shown in the Combined financial statements of the
Borrowers 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 Combined net sales or of the Combined net
income of the Borrowers and their 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.
"Tangible Net Worth" means, as of any date of determination thereof,
the Net Worth less the Combined book value of any assets of the
Borrowers and their 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.
"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 July 31, 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, the
Combined liabilities (as such term is used under GAAP) of the Borrowers
and the ir consolidated Subsidiaries.
"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
2.1 Commitment, Sublimits and Types of Advances
2.1.1 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 Borrowers from time to
time; provided that, on any date, after giving effect to such Primary
Loans and all other Loans that the Borrowers have 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 Borrowers 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.
2.1.2 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:
(1) clause (iii) of the definition thereof (Eligible Non-Conforming
Mortgage Loans) shall not exceed five percent (5%) of the Aggregate
Commitment; (2) clause (iv) of the definition thereof (Eligible Jumbo
Mortgage Loans) shall not exceed thirty percent (30%) of the Aggregate
Commitment; and (3) clause (v) of the definition thereof (Eligible
Oversize Jumbo Mortgage Loans) shall not exceed five percent (5%) of
the Aggregate Commitment.
2.1.3 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:
(1) Eligible Conforming Aged Mortgage Loans shall not exceed one
and one half percent (1.5%) of the Aggregate Commitment; and
(2) Pledged Mortgages having a second lien priority shall not exceed
five percent (5%) of the Aggregate Commitment.
2.1.4 Types of Advances. Each Advance hereunder shall consist of one or
more Primary Advances requested by the Borrowers 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.
2.2 Primary Advances. Subject to the terms and conditions herein
(including the Lending Sublimits) the Borrowers 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 Borrowers in accordance with
Sections 2.6 and 2.7.
2.3 Buy Down Loans. Notwithstanding anything contained in this
Agreement, the Borrowers 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 Borrowers 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 Borrowers shall
maintain sufficient Available Deposits with such Buy-Down Lender. The
Agent shall (until otherwise notified by the Borrowers and Buy-Down
Lender to the contrary) accrue interest on such Fed Funds Loans at the
Buy-Down Rate and the Borrowers 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 Borrowers under the applicable Buy-Down Agreement. The Borrowers
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.
2.4 Swingline Loans.
2.4.1 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
Borrowers 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.
2.4.2 Swingline Take-Out. By no later than 11:00 a.m. (Dallas time), 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 Bus iness 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 Borrowers 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 Borrowers at
the Office not later tha n 1:00 p.m. (Dallas time), 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.
2.4.3 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 Borrowers' 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 Borrowers 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.
2.4.4 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.
2.5 Fees. The Borrowers shall pay the following fees (the "Fees"):
2.5.1 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.
2.5.2 Agent Fees. Any fees payable to the Agent pursuant to the
Borrowers' letter agreement with the Agent with respect to this
Agreement.
2.5.3 Collateral Agent Fees. Any fees payable to Collateral Agent for
its services rendered pursuant to the Security Agreement as agreed to
by the Borrowers and charged by Collateral Agent from time to time.
2.5.4 Fees Payable in connection with Buy-Down Loans. The Borrowers
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.
2.6 Method of Selecting Types and Interest Periods for New Advances.
The Borrowers 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 Borrowers 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: (i) the Borrowing Date, which shall be a Business
Day, of such Advance, (ii) 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, (iii) except in the case of a
Swingline Loan, the Type of Advance selected, and (iv) 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 Borrowers at the Agent's
aforesaid address.
2.7 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 Borrowers have paid any such Fed Funds Advance prior to 10:00
a.m. (Dallas time) on any Business Day or the Borrowers have 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 Borrowers have 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 Borrowers 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 Borrowers 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 Borrowers 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.
2.8 Reductions to Aggregate Commitment. The Borrowers 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 Borrowers 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.
2.9 Principal Payments.
2.9.1 Optional Principal Payments. The Borrowers 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 Borrowers 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 Bus iness Days' prior notice to the
Agent. Fed Funds Advances and Swingline Loans may be paid on any
Business Day provided that the Borrowers have 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 Borrowers 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.
2.9.2 Required Payments Related to Borrowing Base. On any date that the
Coverage Requirement is in excess of the then-current Borrowing Base,
the Borrowers 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 Borrowers 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.
2.9.3 Settlement Accounts Payments. Prior to the occurrence of a
Default, to the extent the amounts in the Settlement Accounts are not
needed to keep the Borrowing Base equal to or greater than the Coverage
Requirement, the Borrowers 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 Accounts and any deposits made in the Settlement
Accounts 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 Accounts by the Agent and
shall be applied to the Obligations.
2.9.4 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 Borrowers on
the Termination Date.
2.10 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 Borrowers' 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.
2.11 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 Borrowers (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
Borrowers (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.
2.12 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 Borrowers, 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 Borrowers
fail 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
Borrowers intend 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
Borrowers maintained with Guaranty Bank for each payment of principal,
interest and fees as it becomes due hereunder.
2.13 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 Borrowers 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 Borrowers to each Lender hereunder and
(c) the amo unt of any sum received by the Agent hereunder from the
Borrowers 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 Borrowers 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 Borrowers 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.
2.14 Telephonic Notices. The Borrowers hereby authorize 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 Borrowers, it being understood
that the foregoing authorization is specifically intended to allow
Borrowing Notices and Conversion/Continuation Notices to be given
telephonically. The Borrowers agree 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.
2.15 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.
2.16 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 Borrowers 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 Borrowers prompt notice of each change in such rates.
2.17 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
Borrowers 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.
2.18 Non-Receipt of Funds by the Agent. Unless the Borrowers 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 Borrowers, a payment of principal
(including but not limited to situations in which the
Borrowers inform the Agent that the Agent will be receiving proceeds of
Collateral on a specific date and that the Borrowers intend 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 Borrowers, 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 Borrowers, the
interest rate applicable to the relevant Loan.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1 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 Ad vances), 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 Borrowers shall pay such Lender such additional amount or
amounts as will compensate such Lender for such increased cost or
reduction in an amount received.
3.2 Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender,
any Lend ing 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 Borrowers 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.
3.3 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.
3.4 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 Borrowers for any reason other than default by
the Lenders, the Borrowers 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.
3.5 Taxes.
(i) All payments by the Borrowers 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 Borrowers 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 Borrowers shall make such
deductions, (c) the Borrowers shall pay the full amount deducted to the
relevant authority in accordance with applicable law and (d) the
Borrowers 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 Borrowers hereby agree 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 Borrowers hereby agree 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 Borrowers 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 Borrowers 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 Borrowers 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
Borrowers 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
Borrowers 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 Borrowers 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
Borrowers 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 Borrowers (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. 3.6 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 Borrowers 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
Borrowers (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 Borrowers 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 Borrowers of such written
statement. The obligations of the Borrowers under Sections 3.1, 3.2,
3.4 and 3.5 shall survive payment of the Obligations and
termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT; WITHHOLDING TAX EXEMPTION
4.1 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 Borrowers have furnished or
caused to be furnished to the Agent (with sufficient copies for
the Lenders) the following: (i) Copies of the organization documents of
each 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 each
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 such Borrower is a party.
(iii) An incumbency certificate, executed by the Secretary or Assistant
Secretary of each Borrower, which shall identify by name and title and
bear the signatures of the Authorized Officers and any other officers
of such Borrower authorized to sign the Loan Documents to which such
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
such Borrower.
(iv) A certificate, signed by the chief financial officer of each
Borrower, stating that on the initial Borrowing Date no Default or
Unmatured Default has occurred and is continuing.
(v) A written opinion of the Borrowers' 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 Security Agreement executed by the Borrowers.
(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 Accounts and the Funding
Accounts.
(xiv) Copy of each form of Approved Investor Commitment that the
Borrowers currently utilizes for any Mortgage Loan that is not a
Conforming Mortgage Loan.
(xv) Electronic Tracking Agreements with MERS for each Borrower.
(xvi) Such other documents as any Lender or its counsel may have
reasonably requested.
4.2 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 and the principal
amount of the loans made to Hovnanian Mortgage under the Original
Credit Agreement has been repaid in full.
(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 Borrowers 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 Borrowers have 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 V
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to the Lenders that:
5.1 Existence and Standing. Each of the Parent, the Borrowers 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.
5.2 Authorization and Validity. Each of the Borrowers 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 Borrowers
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 Borrowers and the Parent is a party constitute legal, valid and
binding obligations of the Borrowers or the Parent, as applicable
enforceable against the Borrowers 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.
5.3 No Conflict; Government Consent. Neither the execution and delivery
by the Borrowers 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, the Borrowers or any of their respective Subsidiaries or (ii)
the Borrowers' 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 Borrowers
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, Borrowers 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,
Borrowers or any of their respective Subsidiaries, is required to be
obtained by the Parent, Borrowers 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 Borrowers 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).
5.4 Financial Statements. The October 31, 2002 audited consolidated
financial statements of Hovnanian Mortgage 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
Hovnanian Mortgage 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, 2002
financial statements).
5.5 Material Adverse Change. Since October 31, 2002, there has been no
change in the business, Property, prospects, condition (financial or
othe rwise) or results of operations of the Borrowers and their
Subsidiaries which could reasonably be expected to have a Material
Adverse Effect.
5.6 Taxes. The Parent, Borrowers 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, the
Borrowers 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, Hovnanian Mortgage 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 Borrowers and the Subsidiaries in respect of any taxes
or other governmental charges are adequate.
5.7 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 Borrowers or any of their 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
Borrowers have no material contingent obligations not provided for or
disclosed in the financial statements referred to in Section 5.4.
5.8 Subsidiaries. Schedule "4" hereto contains an accurate list of all
Subsidiaries of the Borrowers 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 Borrowers 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.
5.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not
in the aggregate exceed $250,000. Neither the Borrowers nor any other
member of the Controlled Group has incurred, or is reasonably expected
to incur, any withdrawal liability to Multiemployer 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
Borrowers 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.
5.10 Accuracy of Information. No information, exhibit or report
furnished by the Parent, Borrowers 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.
5.11 Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of the value of those assets of the Borrowers
and their Subsidiaries which are subject to any limitation on sale,
pledge, or other restriction hereunder.
5.12 Material Agreements. Neither the Borrowers 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 Borrowers 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.
5.13 Compliance With Laws. The Borrowers and their 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.
5.14 Ownership of Properties. Except as set forth on Schedule "5"
hereto, on the date of this Agreement, the Borrowers and their
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
Borrowers and their Subsidiaries.
5.15 Plan Assets; Prohibited Transactions. No Borrower is an entity
deemed to hold "plan assets" within the meaning of 29 C.F.R. 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. Each Borrower is an "operating company" as defined in 29
CRR 2510-101 (c) and "benefit plan investors" (as defined in 29 C.F.R.
2510.3-101(f)) do not own 25% or more of the value of any class of
equity interests in the Borrowers.
5.16 Investment Company Act. Neither the Borrowers 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.
5.17 Public Utility Holding Company Act. Neither the Borrowers 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.
5.18 GNMA, FHA, VA, FNMA, and FHLMC Eligibility. Each 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.
5.19 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 Borrowers for such
purposes.
5.20 Solvency. Each Borrower is solvent (as such term is used in
applicable bankruptcy, liquidation, receivership, insolvency or similar
Laws).
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1 Financial Reporting. Each 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 Borrowers 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. With such
financial statements, Borrowers shall furnish to Lenders unaudited
Combined financial statements of the types described above in a form
acceptable to Agent.
(ii) Within 45 days after the close of the first three quarterly
periods of each of its fiscal years, for Borrowers and the
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. With such financial
statements, Borrowers shall furnish to Lenders Combined financial
statements of the types described above in a form acceptable
to Agent.
(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
Combined 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 each
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 such Borrower. With such financial statements,
Borrowers shall furnish to Lenders Combined financial statements and
reports of the types described above in a form acceptable to Agent.
(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, prepared for each Borrower
separately and also on a Combined basis in a form acceptable to
Agent.
(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 (prepared for each
Borrower separately and also on a Combined basis in a form acceptable
to Agent): (1) Commitment Position - detailing investor, type, original
principal amount, rate, price/yield, and expiration date.
(2) 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 Borrowers, a copy of the
plan and forecast (including a projected summary balance sheet and
income statement) of each Borrower and its consolidated Subsidiaries
and also on a Combined basis acceptable to Agent.
(viii) Within five (5) Business Days of submission thereof by a
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 a 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
such 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 a Borrower as an approved
originator of insured Mortgage Loans.
(ix) At any time that a 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 a
Borrower knows that any Reportable Event has occurred with respect to
any Plan, a statement, signed by the chief financial officer of such
Borrower, describing said Reportable Event and the action which such
Borrower proposes to take with respect thereto.
(xi) As soon as possible and in any event within 10 days after receipt
by a Borrower, a copy of (a) any notice or claim to the effect that
such Borrower or any of its Subsidiaries is or may be liable to any
Person as a result of the release by such 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 such Borrower or any of its
Subsidiaries, which, in either case, could reasonably be expected to
have a Material Adverse Effect.
(xii) Promptly upon the furnishing thereof to the shareholders of the
Borrowers or the Parent, copies of all financial statements, reports
and proxy statements so furnished.
(xiii) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports
which the Parent, the Borrowers or any of their Subsidiaries files with
the Securities and Exchange Commission.
(xiv) Such other information (including non- financial information) as
the Agent or any Lender may from time to time reasonably request.
6.2 Use of Proceeds. The Borrowers 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; provided. that Borrowers shall not use
proceeds of Advances to repay indebtedness owing under the Original
Credit Agreement. The Borrowers 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.
6.3 Notice of Default. Each 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.
6.4 Conduct of Business. Each 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. Each
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 such 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.
6.5 Taxes. Each 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.
6.6 Insurance. Each 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 such Borrower will
furnish to any Lender upon request full information as to the insurance
carried. Each 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.
6.7 Compliance with Laws. Each 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.
6.8 Maintenance of Properties. Each 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.
6.9 Inspection. Each 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 such Borrower and each Subsidiary,
to examine and make copies of the books of accounts and other financial
records of such Borrower and each Subsidiary, and to discuss the
affairs, finances and accounts of such 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.
6.10 Dividends. No Borrower will, 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 a 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 mont h 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 Borrowers to reduce the
Leverage Ratio, the Borrowers may declare and pay dividends or make
distributions.
6.11 Indebtedness. No Borrower will, 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.
6.12 Merge. No Borrower will, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person, except that a
Subsidiary may merge into a Borrower or a Wholly-Owned Subsidiary of a
Borrower.
6.13 Sale of Assets. No Borrower will, 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 such 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 Borrowers
and their Subsidiaries.
6.14 Investments and Acquisitions. No Borrower will, 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 such 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 such 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 Borrowers wishes to
acquire.
6.15 Liens. No Borrower will, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of
such 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 such
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.
6.16 Affiliates. No Borrower will, and no Borrower will 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 such Borrower or any Subsidiary to the
Parent) except in the ordinary course of business and pursuant to the
reasonable requirements of such Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to such
Borrower or such Subsidiary of such Borrower or such Subsidiary would
obtain in a comparable arms- length transaction.
6.17 Financial Covenants.
6.17.1 Current Ratio. The Borrowers will not permit, at any time, the
ratio of the Combined current assets to the Combined current
liabilities of the Borrowers and their Subsidiaries determined in
accordance with GAAP, to fall below 1.0 to 1.0. 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.
6.17.2 Leverage Ratio. The Borrowers will not permit, as of the end of
any calendar month, the ratio of Total Liabilities to Tangible Net
Worth to exceed 10.0 to 1.0 (the "Leverage Ratio "). If the Borrowers'
Leverage Ratio as of the end of a month exceeds the respective limits
then Parent will inject sufficient capital into the Borrowers
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 Borrowers 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 Borrowers for purposes of
determining the Leverage Ratio. The Borrowers 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.
6.17.3 Net Worth. At all times, the Borrowers will maintain a Tangible
Net Worth of at least Six Million Dollars ($6,000,000).
6.17.4 Minimum Cash Flow. The Borrowers will not permit, as of the end
of any calendar month ending after the date hereof, the Combined
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 Combined non-cash revenues and plus non-cash expenses
of the Borrowers' and their consolidated Subsidiaries ("Cumulative
Cash Flow"), 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.
6.18 Compliance with Security Agreement. The Borrowers will not fail to
perform in any material respect any of their 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 Borrowers will direct the Collateral Agent to
ship Collateral only to Approved Investors or otherwise consistent with
the provisions of the Loan Documents.
6.19 Servicing Re lease. All Mortgage Loans sold by the Borrowers will
be sold on a servicing released basis, unless otherwise specifically
approved in writing by the Agent in its sole discretion.
6.20 Federal Agency Approvals. Each 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 such Borrower.
6.21 Approved Investor Commitments. The Borrowers will 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.
6.22 Negative Pledges. No Borrowers will 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.
6.23 MERS.
(i) Each Borrower will, (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 times maintain the Electronic Tracking Agreement in full force
and effect.
(ii) No Borrower shall de-register or attempt to de-register any
Mortgage from the MERS System unless such 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.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
7.1 Any representation or warranty made or deemed made by or on behalf
of a Borrower or any of its Subsidiaries to the Le nders 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).
7.2 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.
7.3 The breach by a 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 a 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.
7.4 The breach by a 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 such
Borrower obtains knowledge of such breach.
7.5 Failure of a 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 a 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 a 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 a 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.
7.6 A Borrower, Parent or any of their 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.
7.7 Without the application, approval or consent of a Borrower or any
of its Subsidiaries, or Parent a receiver, trustee, examiner,
liquidator or similar official shall be appointed for a 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 a 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.
7.8 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 a Borrower and its Subsidiaries or Parent
which, when taken together with all other Property of a 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.
7.9 A 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.
7.10 Any Change in Control shall occur.
7.11 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.
7.12 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 a Borrower shall fail to comply with any of the terms or provisions
of the Security Agreement.
7.13 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.
7.14 A 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 such Borrower or any other member of
the Controlled Group as withdrawal liability (determined as of the date
of such notification), exceeds $250,000.
7.15 A Borrower or any of its Subsidiaries shall (i) be the subject of
any proceeding or investigation pertaining to the release by such
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.
7.16 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
Subordina tion 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.
7.17 The representations and warranties set forth in "Section 5.15 Plan
Assets; Prohibited Transactions " shall at any time not be true and
correct.
7.18 A Borrower and/or the Parent shall terminate its existence or
suspend or discontinue their business; or
7.19 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
7.20 A change occurs, or is reasonably likely to occur, in the business
condition (financial or otherwise), operations, properties or prospects
of a Borrower or Parent, or the ability of a Borrower or Parent 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 VIII
COLLATERAL, ACCELERATION AND OTHER REMEDIES
8.1 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.
8.2 AP Mortgages. Each 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 Borrowers assume the responsibility for loss or
destruction of any such Required Mortgage Documents until
the same are delivered to the Collateral Agent.
8.3 Release of Collateral. Upon the request of a 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.
8.4 Settlement and Funding Accounts. There is hereby established with
the Agent, for the benefit of the Lenders, a "cash collateral" account
of Hovnanian Mortgage, Account #3801990619, and a "cash collateral"
account of Hovnanian American, Account # (collectively,
"Settlement Accounts"), 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 Accounts by the applicable investor or purchaser of each
Pledged Item and the Borrowers agrees to give notice of such to each
such investor or purchaser. Only the Agent shall have access to the
Settlement Accounts. All amounts in the Settlement Accounts 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 with
Hovnanian Mortgage, Account #3801990627, and a second account with
Hovnanian American, Account # (collectively, "Funding
Accounts"), into which shall be deposited all Advances and from which
all AP Mortgages shall be funded (by wire transfer from such Funding
Accounts) and which account shall be pledged as Collateral.
8.5 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 Accounts and Pledged Items to the Borrowers. The receipt by
the Borrowers of any cash in the Settlement Accounts and of all Pledged
Items returned or delivered to the Bo rrowers pursuant to any provision
of this Agreement, together with UCC-3 termination statements
executed by the Agent, shall be a complete and full acquittance for the
Pledged Items so delivered.
8.6 Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to a 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
Borrowers, 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 Borrowers hereby
expressly waive.
8.7 Other Remedies.
(i) Unless a Default shall have occurred and then be continuing, the
Borrowers shall be entitled to receive and collect directly all sums
payable to the Borrowers 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 Borrowers agree that the
Borrowers and the Agent shall, if the Agent shall request implement
certain procedures with respect to the Borrowers' funding of AP
Mortgages, all at the Borrowers' 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 Borrowers
to provide the Agent and the Lenders with such information regarding
the funding of such AP Mortgages as the Agent may reasonably request.
The Borrowers, at their 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) Each Borrower waives, to the extent permitted by law, any right to
require the Agent or any Lender to (i) proceed against any Person
(including but not limited to either Borrower, (ii) proceed against or
exhaust any of the Collateral or pur sue 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 Borrowers 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 Borrowers 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 a 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 Borrowers
shall receive and hold in trust for the Lenders any amounts thereafter
received by the Borrowers 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
Borrowers shall be deposited in the Settlement Accounts.
8.8 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 Accounts and the Funding Accounts
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 Borrowers, 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 Borrowers shall remain liable for any
deficiency.
8.9 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 Borrowers 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 IX
AMENDMENTS; WAIVERS; GENERAL PROVISIONS
9.1 Amendments and Waivers. Other than (a) Commitment increases
pursuant to Section 12.4 (which may be accomplished solely by the
Borrowers, 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 Borrowers 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 Borrowers 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 Borrowers to assign their rights under this Agreement
or amend or waive any restriction on the Borrowers' 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.
9.2 Survival of Representations. All representations and warranties of
the Borrowers contained in this Agreement shall survive the making of
the Loans herein contemplated.
9.3 Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, no Lender shall be obligated to extend
credit to the Borrowers in violation of any limitation or prohibition
provided by any applicable statute or regulation.
9.4 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.
9.5 Entire Agreement. The Loan Documents embody the entire agreement
and understanding among the Borrowers, the Agent, the Collateral Agent
and the Lenders and supersede all prior agreements and understandings
among the Borrowers, 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.
9.6 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.
9.7 Expenses; Indemnification. (i) The Borrowers shall reimburse the
Agent 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 Age nt or the Collateral Agent in connection with
the preparation, negotiation, execution, delivery, syndication, review,
amendment, modification, and administration of the Loan Documents. The
Borrowers also agree 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 Borrowers under this
Section include, without limitation, costs and expenses incurred in
connection with the Reports described in the following sentence. The
Borrowers 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 Borrowers' assets for internal use by
Guaranty Bank from information furnished to it by or on behalf of the
Borrowers, after Guaranty Bank has exercised its rights of inspection
pursuant to this Agreement. (ii) Each 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 Borrowers under this Section 9.7 shall survive
the termination of this Agreement.
9.8 Nonliability of Lenders. The relationship between the Borrowers on
the one hand and the Lenders, the Agent and the Collateral Agent on the
other hand shall be solely that of borrowers and lender. Neither the
Agent, the Collateral Agent nor any Lender shall have any fiduciary
responsibilities to the Borrowers. Neither the Agent, the Collateral
Agent nor any Lender undertakes any responsibility to the Borrowers to
review or inform the Borrowers of any matter in connection with any
phase of the Borrowers' business or operations or to review or
determine that payments by investors or purchasers of Pledged Items are
deposited in the Settlement Account of the Borrower that owned such
Pledged item immediately prior to the sale thereof to such investor or
purchaser. The Borrowers agree that neither the Agent, the Collateral
Agent nor any Lender shall have liability to the Borrowers (whether
sounding in tort, contract or otherwise) for losses suffered by the
Borrowers 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 (including but not limited to any of
the foregoing resulting from the negligence of any of the Agent, the
Collateral Agent or any Lender), 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 each
Borrower hereby waives, releases and agrees not to sue for, any
special, indirect or consequential damages suffered by such Borrower in
connection with, arising out of, or in any way related to the Loan
Documents or the transactions contemplated thereby.
9.9 Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jur
isdiction 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.
9.10 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.
9.11 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 Borrowers and all their
Subsidiaries, including those Subsidiaries, if any, which are
unconsolidated on the Borrowers' audited financial statements.
9.12 Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrowers 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.
9.13 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.
9.14 Disclosure. The Borrowers and each Lender hereby (i) acknowledge
and agree that Guaranty Bank and/or its Affiliates from time to time
may hold investments in, make other loans to or have other
relationships with the Parent, the Borrowers and their respective
Affiliates, and (ii) waive any liability of Guaranty Bank or such
Affiliate to the Parent, the Borrowers 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.
9.15 Joint and Several Liability. All Obligations shall be joint and
several obligations and liabilities of the Borrowers. Notwithstanding
the foregoing or any other provision of this Agreement or any other
Loan Document to the contrary, Hovnanian American does not assume
or otherwise agree to be liable for, and shall have no liability under
the Loan Documents for, loans made to Hovnanian Mortgage under the
Original Credit Agreement or any refinancing of such loans.
9.16 No Release of Joint and Several Liability.
(i) No action which the Agent, the Collateral Agent or any Lender may
take or omit to take in connection with any Loan Document or any of the
Obligations, and no course of dealing of the Agent, the Collateral
Agent or any Lender with a Borrower (the "Affected Borrower") or any
other Person, shall release or diminish the joint and several
liability of the other Borrower hereunder for Advances made to the
Affected Borrower. Without limiting the foregoing, each Borrower
hereby expressly agrees that Agent, the Collateral Agent and Lenders
may, from time to time, without notice to or the consent of
the other Borrower, do any or all of the following:
(1) Give or refuse to give any waivers or other indulgences with
respect to the Loan Documents.
(2) Neglect, delay, fail, or refuse to take or prosecute any action for
the collection or enforcement of any of the Obligations, to foreclose
or take or prosecute any action in connection with the Collateral, to
bring suit against any Borrower or any other Person, or to take any
other action concerning the Obligations or the Loan Documents.
(3) Compromise or settle any unpaid or unperformed Obligations.
(4) Take, exchange, amend, eliminate, surrender, release, or
subordinate any Collateral, accept additional or substituted collateral
therefor, and perfect or fail to perfect Lender's rights in any or all
of such collateral.
(5) Except as otherwise provided in the Loan Documents, apply all
monies received from any Borrower or others, or from any Collateral, as
Agent and Collateral Agent may determine to be in the best interest of
the Lenders, without in any way being required to marshal Collateral or
assets or to apply all or any part of such monies upon any particular
part of the Obligations.
(ii) No action or inaction of Hovnanian Mortgage or any other Person,
and no change of law or circumstances, shall release or diminish the
joint and several liability of Hovnanian American hereunder for
Advances made to Hovnanian Mortgage. Without limiting the foregoing,
the joint and several liability of Hovnanian American hereunder
for Advances made to Hovnanian Mortgage shall not be released,
diminished, impaired, reduced, or affected by the occurrence of any or
all of the following from time to time, even if occurring without
notice to or without the consent of Hovnanian American:
(1) Any voluntary or involuntary liquidation, dissolution, sale of all
or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or composition of
Hovnanian Mortgage or any other proceedings involving Hovnanian
Mortgage or any of the assets of Hovnanian Mortgage under laws for the
protection of debtors, or any discharge, impairment, modification,
release, or limitation of the liability of, or stay of actions or lien
enforcement proceedings against, Hovnanian Mortgage, any properties of
Hovnanian Mortgage, or the estate in bankruptcy of Hovnanian Mortgage
in the course of or resulting from any such proceedings.
(2) The failure by Agent or any Lender to file or enforce a claim in
any proceeding described in the immediately preceding subsection or to
take any other action in any proceeding to which Hovnanian Mortgage is
a party.
(3) The release by operation of law of Hovnanian Mortgage from any
of the Obligations.
(4) The invalidity, deficiency, illegality, or unenforceability of any
of the Obligations or the Loan Documents against Hovnanian Mortgage, in
whole or in part, any bar by any statute of limitations or other law of
recovery on any of the Obligations, or any defense or excuse for
failure to perform on account of force majeure, act of God, casualty,
impossibility, impracticability, or other defense or
excuse whatsoever.
(5) Without limiting any of the foregoing, any fact or event (whether
or not similar to any of the foregoing) which in the absence of this
provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a debtor or surety other than the
actual performance by Hovnanian Mortgage under this Agreement.
(iii) No action or inaction of Hovnanian American or any other Person,
and no change of law or circumstances, shall release or diminish the
joint and several liability of Hovnanian Mortgage hereunder for
Advances made to Hovnanian American. Without limiting the foregoing,
the joint and several liability of Hovnanian Mortgage hereunder
for Advances made to Hovnanian American shall not be released,
diminished, impaired, reduced, or affected by the occurrence of any or
all of the following from time to time, even if occurring without
notice to or without the consent of Hovnanian Mortgage:
(1) Any voluntary or involuntary liquidation, dissolution, sale of all
or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or composition of
Hovnanian American or any other proceedings involving Hovnanian
American or any of the assets of Hovnanian American under laws for the
protection of debtors, or any discharge, impairment,
modification, release, or limitation of the liability of, or stay of
actions or lien enforcement proceedings against, Hovnanian American,
any properties of Hovnanian American, or the estate in bankruptcy of
Hovnanian American in the course of or resulting from any such
proceedings.
(2) The failure by Agent or any Lender to file or enforce a claim in
any proceeding described in the immediately preceding subsection or to
take any other action in any proceeding to which Hovnanian American is
a party.
(3) The release by operation of law of Hovnanian American from any
of the Obligations.
(4) The invalidity, deficiency, illegality, or unenforceability of any
of the Obligations or the Loan Documents against Hovnanian American, in
whole or in part, any bar by any statute of limitations or other law of
recovery on any of the Obligations, or any defense or excuse for
failure to perform on account of force majeure, act of God, casualty,
impossibility, impracticability, or other defense or excuse whatsoever.
(5) Without limiting any of the foregoing, any fact or event (whether
or not similar to any of the foregoing) which in the absence of this
provision would or might constitute or afford a legal or equitable
discharge or release of or defense to a debtor or surety other than the
actual performance by Hovnanian American under this Agreement.
ARTICLE X
THE AGENT AND THE COLLATERAL AGENT
10.1 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 Texas 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.
10.2 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.
10.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrowers, 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.
10.4 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 Borrowers or any
guarantor of any of the Obligations or of any of the Borrowers' 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 Borrowers to the Agent at such time, but is
voluntarily furnished by the Borrowers to the Agent (either in its
capacity as Agent or in its individual capacity).
10.5 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.
10.6 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.
10.7 Reliance on Documents; Counsel. The Agent sha ll 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.
10.8 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 Borrowers for which the Agent
is entitled to reimbursement by the Borrowers 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.
10.9 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 Borrowers 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.
10.10 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
Borrowers or any of their Subsidiaries in which the Borrowers 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.
10.11 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
Borrowers 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.
10.12 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrowers, 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 Borrowers 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 Borrowers and the Lenders, a successor Agent. Notwithstanding
the previous sentence, the Agent may at any time without the consent of
the Borrowers 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 Borrowers 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.
10.13 Delegation to Affiliates. The Borrowers 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.
10.14 Collateral Releases. The Lenders hereby empower and authorize the
Agent to execute and deliver to the Borrowers 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 XI
SETOFF; RATABLE PAYM ENTS
11.1 Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law,
11.2 If a 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 such
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.
11.3 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 Le nder, 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.
11.4 Custodial Accounts. The Borrowers agree that funds received and
held by the Borrowers 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 provis ion of the foregoing subsections of this
Article XI shall not apply to such custodial accounts. The Borrowers
shall not deposit any of its general funds in any custodial
accounts or otherwise commingle funds in any custodial accounts.
ARTICLE XII
ASSIGNMENTS; PARTICIPATIONS; COMMITMENT INCREASES
12.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the
Borrowers and the Lenders and their respective successors and assigns,
except that (i) the Borrowers 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.
12.2 Participations.
12.2.1 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 Borrowers under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrowers 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.
12.2.2 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).
12.2.3 Benefit of Setoff. The Borrowers agree 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.
12.3 Assignments.
12.3.1 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 Borrowers 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 Borrowers 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 Borrowers 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).
12.3.2 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 Borrowers, 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 Borrowers 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
Borrowers, whereupon such revised Schedule shall replace the old
Schedule and become part of this Agreement.
12.4 Commitment Increases.
12.4.1 Increases to Aggregate Commitment. The Borrowers 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 $142,000,000 without the
approval of the Agent and all of the Lenders.
12.4.2 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 Borrowers 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
$142,000,000. 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
Borrowers, 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.
12.5 Dissemination of Information. The Borrowers authorize 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 Borrowers and their 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.
12.6 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).
ARTICLE XIII
NOTICES
13.1 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 Borrowers, 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 Borrowers 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.
13.2 Change of Address. The Borrowers, 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.
ARTICLE XIV
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 Borrowers, the Agent and the Lenders and each party has
notified the Agent by facsimile transmission or telephone, that it has
taken such action. This Agreement may be duly executed by facsimile or
other electronic transmission.
ARTICLE XV
CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL
15.1 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.
15.2 CONSENT TO JURISDICTION. EACH 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 BORROWERS HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT
033544 000195 DALLAS 1532102 4.DOC 75 FIRST RESTATED REVOLVING CREDIT
AGREEMENT
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 BORROWERS IN
THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE
BORROWERS 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.
15.3 WAIVER OF JURY TRIAL. EACH 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.
15.4 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.
15.5 Limitation on Interest. The Agent, the Lenders, and the Borrowers,
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 stipula te 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 the Borrowers 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. The 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) the 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 the 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, the Lenders and the
Borrowers (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.
15.6 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.
15.7 Original Credit Agreement. This Agreement amends and restates in
its entirety the Original Credit Agreement.]
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
FIRST RESTATED REVOLVING CREDIT AGREEMENT
IN WITNESS WHEREOF, the Borrowers, 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:
K. HOVNANIAN AMERICAN MORTGAGE,
L.L.C.
By:
Name:
Title:
Address for Notices:
1800 S. Australian Avenue
Suite 400
West Palm Beach, Florida 33409
Telephone: (561) 478-4900
Telecopier:
FIRST RESTATED REVOLVING CREDIT AGREEMENT
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
FIRST RESTATED REVOLVING CREDIT AGREEMENT
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 732-6774
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
FIRST RESTATED REVOLVING CREDIT AGREEMENT
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
FIRST RESTATED REVOLVING CREDIT AGREEMENT
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
Attn: 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
Attn: Rob Marr
Telephone No.: (313) 222-4119
Telecopier No.: (313) 222-9295
FIRST RESTATED REVOLVING CREDIT AGREEMENT
NATIONAL CITY BANK OF KENTUCKY
By:
Name:
Title:
Address for Notices Regarding Fundings:
421 West Market St.
Louisville, KY 40202
Attn: Janie Denton
Telephone No.: (502) 581-5450
Telecopier No.: (502) 581-7874
Address for Other Notices:
421 West Market St.
Louisville, KY 40202
Attn: Paul Best
Telephone No.: (502) 581-4148
Telecopier No.: (502) 581-4154
FIRST RESTATED REVOLVING CREDIT AGREEMENT
U.S. BANK NATIONAL ASSOCIATION
By:
Name: Edwin D. Jenkins
Title: Senior Vice President
Address for Notices Regarding Fundings:
225 South Sixth Street
Minneapolis, MN 55402
Attn:
Telephone No.:
Telecopier No.:
Address for Other Notices:
225 South Sixth Street
Minneapolis, MN 55402
Attn: Edwin D. Jenkins
Telephone No.: (612) 973-0588
Telecopier No.: (612) 973-0826
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
$ 35,000,000
24.6479%
$3,000,000
Bank of America
$ 30,000,000 21.1268%
Bank One
$ 25,000,000 17.6056%
Comerica
$ 17,000,000 11.9718%
U.S. Bank
$ 25,000,000 17.6056%
National City Bank of
Kentucky
$ 10,000,000 7.0423%
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 FUNDING1
COUNTRYWIDE HOME LOAN, INC.1
IMPAC FUNDING CORPORATION1
RBNG, INC.
RESIDENTIAL FUNDING CORPORATION1
US BANK CORPORATE TRUST SERVICES
1 Approved for the purchase of Non-Conforming Mortgage Loans.
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
March 7, 2003
K. Hovnanian Mortgage, Inc. a New Jersey corporation, and K. Hovnanian
American Mortgage, L.L.C., a New Jersey limited liability company
(collectively, the "Borrowers"), jointly and severally promise 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 Borrowers 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 Borrowers 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 First Restated Revolving Credit Agreement dated as
of March 7, 2003 (which, as it may be amended or modified and in effect
from time to time, is herein called the "Agreement"), among
the Borrowers, 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:
K. HOVNANIAN AMERICAN MORTGAGE,
L.L.C.
By:
Name:
Title:
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF
DATED MARCH 7, 2003
Date
Principal
Amount of Loan
Maturity of Interest Period
Principal
Amount Paid
Unpaid Balance
EXHIBIT "B"
FORM OF OPINION
March 7, 2003
The Agent and the Lenders who are parties to the
First Restated Revolving Credit Agreement described below.
Gentlemen/Ladies:
We are counsel for K. Hovnanian Mortgage, Inc., a New Jersey
corporation, and K. Hovnanian American Mortgage, L.L.C., a New Jersey
limited liability company (collective, the "Borrowers"), and Hovnanian
Enterprises, Inc., a Delaware corporation (the "Parent "), and
have represented the Borrowers in connection with its execution and
delivery of a First Restated Revolving Credit Agreement dated as of
March 7, 2003 (the "Agreement") among the Borrowers, the Lenders named
therein, and Guaranty Bank, as Agent, and providing for
Advances in an aggregate principal amount not exceeding $142,000,000 at
any one time outstanding and the Parent in connection with its
execution and delivery of the First Restated Keep-Well Agreement dated
as of March 7, 2003 and the First Restated Subordination
Agreement dated as of March 7, 2003 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 Borrowers' "(describe constitutive documents of
Borrowers and appropriate evidence of authority to enter into the
transaction) ", the Parent's "(describe constitutive documents of
Borrowers 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 Borrowers and their 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 cond ucted.
2. A. The execution and delivery by each Borrower of the Loan Documents
to which it is a party and the performance by such Borrower of its
obligations thereunder have been duly authorized by proper corporate
proceedings on the part of such Borrower and will not:
(a) require any consent of such 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 such Borrower or any of its
Subsidiaries or (ii) such 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 such
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 such Borrower or a Subsidiary pursuant to the
terms of any indenture, instrument or agreement binding upon such
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 each Borrower is a party have been
duly executed and delivered by such Borrower and constitute legal,
valid and binding obligations of such Borrower enforceable against suc
h 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 Borrowers or any of
their 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 Borrowers or any of their Subsidiaries, is
required to be obtained by the Parent, the Borrowers or any of their
Subsidiaries in connection with the execution and delivery of the Loan
Documents, the borrowings under the Agreement, the payment and
performance by the Borrowers 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 Borrowers 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 Borrowers 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 Borrowers 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 tothe 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"
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
Each of K. Hovnanian Mortgage, Inc. and K. Hovnanian American Mortgage,
L.L.C. (the "Borrowers") pursuant to that certain First Restated
Revolving Credit Agreement dated as of March 7, 2003 (as amended,
extended and replaced from time to time, the "Credit Agreement")
among the Borrowers, Guaranty Bank, as Agent, and certain other
Lenders, and pursuant to that certain Security and Collateral Agency
Agreement among the Borrowers, 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 Borrowers under the Credit Agreement, hereby creates and grants to
the Collateral Agent for the bene fit 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
Borrowers' 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:
K. HOVNANIAN AMERICAN MORTGAGE,
L.L.C.
By:
Name:
Title:
Dated: , 200 .
EXHIBIT "F"
COMPLIANCE CERTIFICATE
To: The Lenders parties to the First Restated Revolving Credit
Agreement Described Below This Compliance Certificate is furnished
pursuant to that certain First Restated Revolving Credit Agreement
dated as of March 7, 2003 (as amended, modified, renewed or extended
from time to time, the "Agreement") among the K. Hovnanian Mortgage,
Inc. and K. Hovnanian American Mortgage, L.L.C. (collectively, the
"Borrowers"), 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 each 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 Borrowers and their 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 Combined financial data and
computations evidencing the Borrowers' 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 Borrowers have 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 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 the First Restated
Revolving 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 Borrowers 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 Borrowers or if the commitment fee
was of 1% less than the commitment fee paid by the
Borrowers, 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 Borrowers 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 Borrowers 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 Borrowers, (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.
By:
Title:
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):
Primary
Commitment
Swingline
Commitment
a.
Total of Commitments
(Loans)* under
Credit Agreement $ $
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:
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.
K. HOVNANIAN AMERICAN MORTGAGE, L.L.C.
(NAME OF AGENT)
From: (NAME OF ASSIGNOR) (the "Assignor")
(NAME OF ASSIGNEE) (the "Assignee")
1. We refer to that First Restated Revolving 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 Borrowers 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 Borrowers
pursuant to Section 12.3.1 of the Credit Agreement.
4. The Assignor and the Assignee hereby give to the Borrowers 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
Borrowers 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 Borrowers upon their 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 Borrowers 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 BY:
By:
Title:
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
K. HOVNANIAN AMERICAN MORTGAGE,
L.L.C.
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. and K. Hovnanian American Mortgage,
L.L.C. (collectively, the "Borrowers"), Guaranty Bank, as Agent under
the "Credit Agreement " (as defined below) (the "Agent") and
(the "Supplemental Lender").
The Borrowers, the Agent and certain other Lenders, as described
therein, are parties to the First Restated Revolving Credit Agreement
dated as of March 7, 2003 (as amended to the date hereof, 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 Borrowers have
the right to increase the Aggregate Commitment by obtaining additional
Commitments upon satisfaction of certain conditions. This Amendment
requires only the signature of the Borrowers, the Agent and
the Supplemental Lender so long as the Aggregate Commitment is not
increased above $142,000,000.
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 Borrowers have 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 Borrowers and the Supplemental
Lender have
executed this Amendment as of the date shown above.
K. HOVNANIAN MORTGAGE, INC.
By:
Name:
Title:
K. HOVNANIAN AMERICAN MORTGAGE,
L.L.C.
By:
Name:
Title:
By:
Its:
Guaranty Bank, as Agent
By:
Its:
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 quarter ending January 31, 2003 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) or 15(d) 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. By, /S/ARA K. HOVNANIAN Ara K. Hovnanian Chief Executive Officer Date: March 12, 2003
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-K for the quarter ending January 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) or 15(d) 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. By, /S/J. LARRY SORSBY J. Larry Sorsby Chief Financial Officer Date: March 12, 2003