UNITED STATES
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
For the fiscal year ended December 31, 2004
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
For the Transition period from to
Commission file number 1-08951
M.D.C. HOLDINGS, INC.
(303) 773-1100
Securities registered pursuant to Section 12(b) of the Act:
Delaware
84-0622967
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
3600 South Yosemite Street, Suite 900
80237
Denver, Colorado
(Zip code)
(Address of principal executive offices)
(Registranttelephone number, including area code)
Title of each class
Name of each exchange on which registered
New York Stock Exchange/The Pacific Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K . o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). þ
The aggregate market value of voting stock held by non-affiliates of the Registrant was $1.495 billion. Computation is based on the closing sales price of $48.93 per share of such stock on the New York Stock Exchange on June 30, 2004, the last business day of the Registrants most recently completed second quarter.
As of January 31, 2005, the number of shares outstanding of Registrants common stock was 43,328,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Registrants 2004 definitive proxy statement to be
filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrants fiscal year.
M.D.C. HOLDINGS, INC.
FORM 10-K
For the Year Ended December 31, 2004
_______________
Table of Contents
(i)
M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
Item 1. Business.
(a) General Development of Business
M.D.C. Holdings, Inc. is a Delaware Corporation. We refer to M.D.C. Holdings, Inc. as the Company, MDC, we or our in this Form 10-K and these designations include our subsidiaries unless we state otherwise. Our primary business is owning and managing subsidiary companies that sell and build homes under the name Richmond American Homes. Our financial services segment consists of HomeAmerican Mortgage Corporation (HomeAmerican), which originates mortgage loans primarily for our homebuyers, and American Home Insurance Agency, Inc. (American Home Insurance), which offers third party insurance products to our homebuyers. In addition, we provide title agency services through American Home Title and Escrow Company (American Home Title) to our homebuyers in Virginia, Maryland, Colorado, Florida, Texas and Delaware.
The following is a summary of our history:
(b) Available Information
Our website is located at www.richmondamerican.com . This Form 10-K and all other reports filed by the Company with the Securities and Exchange Commission (SEC) can be accessed, free of charge, through our website as soon as reasonably practicable after the report is electronically filed with the SEC, at http://www.investorrelations.richmondamerican.com/edgar.cfm .
(c) Financial Information About Industry Segments
Note B to the consolidated financial statements contains information regarding our business segments for each of the three years ended December 31, 2004, 2003 and 2002.
1
(d) Narrative Description of Business
Our business consists of two segments, homebuilding and financial services. In our homebuilding segment, our homebuilding subsidiaries build and sell primarily single-family detached homes, although we build some townhomes in Virginia and Maryland. Homes are designed and built to meet local customer preferences. We are the general contractor for all of our projects and retain subcontractors for site development and home construction. Our financial services segment consists of the operations of HomeAmerican and American Home Insurance. HomeAmerican is a full service mortgage lender with offices located in each of our markets and originates or brokers mortgage loans for approximately 75% of our homebuyers. As a result, HomeAmerican is an integral part of our business.
The base prices for our homes primarily range from $100,000 to $600,000, although we also build homes with base prices above $1,400,000. The average sales price of our homes closed in 2004 and 2003 was $283,400 and $254,300, respectively. We maintain a balanced product offering in each of our markets, focusing on high quality design and construction of homes in most price points, targeting the largest homebuyer segments within a given market, which generally is the first-time and first-time move-up buyer. As a result, more than 80% of our homebuyers fall into these two categories.
When opening a new homebuilding project, we generally acquire no more than a two-year supply of lots to avoid overexposure to any single sub-market. When we acquire finished lots, we prefer using option contracts or paying in phases with cash. We also acquire entitled land for development into finished lots when we determine that the risk is justified. Our Asset Management Committees, composed of members of MDCs senior management, generally meet weekly to review all proposed land acquisitions and takedowns of lots under option. Additional information about our land acquisition practices may be found in the Homebuilding Segment, Land Acquisition and Development section.
Homebuilding Segment.
General. MDC, whose subsidiaries build homes under the name Richmond American Homes, is one of the largest homebuilders in the United States. We provide mortgage financing, primarily for our homebuyers, through our wholly owned subsidiary HomeAmerican. We are a major regional homebuilder with a significant presence in some of the countrys best housing markets. We are the largest homebuilder in Colorado; among the top five homebuilders in Northern Virginia, suburban Maryland, Phoenix, Tucson, Las Vegas and Salt Lake City; and among the top ten homebuilders in Jacksonville, Northern California and Southern California. We also have established operating divisions in Dallas/Fort Worth, Houston, West Florida, Philadelphia/Delaware Valley and Chicago. We believe a significant presence in these markets enables us to compete effectively for homebuyers, land acquisitions and subcontractor labor.
Our operations are diversified geographically, as shown in the following table of home sales
revenues by state for the years 2002 through 2004 (dollars in thousands).
Total Home Sales Revenues
Percent of Total
2004
2003
2002
2004
2003
2002
$
627,331
$
547,697
$
370,367
16
%
19
%
16
%
1,078,063
748,337
645,700
27
%
26
%
29
%
614,919
675,236
731,211
16
%
24
%
32
%
81,635
15,655
2
%
1
%
994
0
%
161,561
112,975
84,913
4
%
4
%
4
%
676,252
383,659
227,319
17
%
13
%
10
%
109,432
26,143
177
3
%
1
%
0
%
113,579
48,331
16,936
3
%
2
%
1
%
468,247
293,295
183,668
12
%
10
%
8
%
$
3,932,013
$
2,851,328
$
2,260,291
100
%
100
%
100
%
The financial information required by Item 1 is contained in Note B to the accompanying consolidated financial statements.
Housing. We build homes in a number of basic series, each designed to appeal to a different segment of the homebuyer market. Within each series, we build several models, each with a different floor plan, elevation and standard
2
and optional features. Differences in sales prices of similar models in any series depend primarily upon location, optional features and design specifications. The series of homes offered at a particular location are based on customer preference, lot size, the areas demographics and, in certain cases, the requirements of major land sellers and local municipalities.
Design centers are located in most of our homebuilding markets. Homebuyers are able to customize certain features of their homes by selecting options and upgrades on display at the design centers. Homebuyers can select finishes and upgrades soon after they decide to purchase a Richmond American home. The design centers also provide us with an additional source of revenue and profit. We recently have launched our new Home Gallery concept in the Denver area. These Home Galleries offer thousands of options for customizing a new home, including flooring; countertops; lighting and plumbing fixtures; cabinetry; paint; appliances; home entertainment, security and technology wiring; closet solutions and central vacuum systems. The Home Gallery color studios enable homebuyers to view selections that have been coordinated into color schemes by design consultants. The individualized process is designed to make design and upgrade decisions simpler. Another advantage of the Home Gallery is the ease with which homebuyers can visit to browse the design and upgrade options available before their appointment with a design consultant.
We maintain limited levels of inventories of unsold homes in our markets. Unsold homes in various stages of completion allow us to meet the immediate and near-term demands of prospective homebuyers. In order to mitigate the risk of carrying excess inventory, we have strict controls and limits on the number of our unsold homes under construction.
Land Acquisition and Development. We purchase finished lots using option contracts, in phases or in bulk for cash. We also acquire entitled land for development into finished lots when we believe that the risk is justified. In making land purchases, we consider a number of factors, including projected rates of return, sales prices of the homes to be built, population and employment growth patterns, proximity to developed areas, estimated costs of development and demographic trends. Generally, we acquire finished lots and land for development only in areas that will have, among other things, available building permits, utilities and suitable zoning. We attempt to maintain a supply of finished lots sufficient to enable us to start homes promptly after a contract for a home sale is executed. This approach is intended to minimize our investment in inventories and reduce the risk of shortages of labor and building materials. Increases in the cost of finished lots may reduce Home Gross Margins (as defined below) in the future to the extent that market conditions would not allow us to recover the higher cost of land through higher sales prices. See Forward-Looking Statements below. We define Home Gross Margins to mean home sales revenues less cost of goods sold (which primarily includes land and construction costs, capitalized interest, a reserve for warranty expense and financing and closing costs) as a percent of home sales revenues.
We have the right to acquire a portion of the land we will acquire in the future utilizing option contracts, in some cases on a rolling basis. Generally, in an option contract, we obtain the right to purchase lots in consideration for an option deposit. In the event we elect not to purchase the lots within a specified period of time, we forfeit the option deposit. Our option contracts do not contain provisions requiring specific performance. This practice limits our risk and avoids a greater demand on our liquidity. At December 31, 2004, we had the right to acquire 21,164 lots under option agreements with approximately $41.8 million in non-refundable cash option deposits and $22.1 million in letters of credit at risk. Because of increased demand for finished lots in certain of our markets, our ability to acquire lots using rolling options has been reduced or has become significantly more expensive.
We own and have the right under option contracts to acquire undeveloped parcels of real estate that we intend to develop into finished lots. We develop our land in phases (generally fewer than 100 lots at a time for each home series in a subdivision) in order to limit our risk in a particular project and to efficiently employ available liquidity. Building permits and utilities are available and zoning is suitable for the current intended use of substantially all of our undeveloped land. When developed, these lots generally will be used in our homebuilding activities. See Forward-Looking Statements below.
3
The table below shows the carrying value of land and land under development, by state, as of
December 31, 2004, 2003 and 2002 (in thousands).
December 31,
2004
2003
2002
$
168,489
$
89,950
$
92,639
277,360
239,714
154,980
139,554
105,223
140,930
27,926
12,116
33,656
69,523
53,483
21,892
209,544
129,554
114,142
28,916
19,420
16,420
5,559
35,104
22,548
12,984
100,461
94,561
113,717
$
1,109,953
$
763,569
$
656,843
The table below shows the number of lots owned and under option (excluding lots in housing
completed or under construction), by state, as of December 31, 2004, 2003 and 2002.
December 31,
2004
2003
2002
5,657
2,902
3,356
2,646
2,733
2,473
3,993
3,392
4,733
594
346
508
650
532
228
3,916
3,634
3,254
312
642
534
170
862
867
730
980
1,411
2,018
20,760
16,351
16,962
5,494
2,356
584
1,782
779
983
1,866
1,814
1,027
2,980
529
203
1,206
1,235
1,223
1,859
1,725
1,137
723
1,694
1,669
671
216
353
131
3,141
1,791
1,239
21,164
12,251
6,995
Labor and Raw Materials . Generally, the materials used in our homebuilding operations are standard items carried by major suppliers. We generally contract for most of our materials and labor at a fixed price during the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Increases in the cost of building materials, particularly lumber, and subcontracted labor may reduce Home Gross Margins to the extent that market conditions prevent the recovery of increased costs through higher sales prices. From time to time and to varying degrees, we may experience shortages in the availability of building materials and/or labor in each of our markets. These shortages and delays may result in delays in the delivery of homes under construction, reduced Home Gross Margins, or both. See Forward-Looking Statements below.
4
Warranty . Our homes are sold with limited warranties that generally provide for ten years of structural coverage (structural warranty), two years of coverage for plumbing, electrical and heating, ventilation and air conditioning systems, and one year of coverage for workmanship and materials (general warranty). Warranty reserves are initially established as homes close on a per-unit basis in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. Reserves are determined based upon historical experience with respect to similar product types and geographical areas. Certain factors are given consideration in determining the per-house reserve amount, including: (1) the historical range of amounts paid per house; (2) the historical average amount paid per house; (3) any warranty expenditures included in (1) and (2) not considered to be normal and recurring; (4) improvements in quality control and construction techniques expected to impact future warranty expenditures; and (5) conditions that may affect certain projects and require higher per-house reserves for those specific projects.
Warranty expenditures are tracked on a house-by-house basis and are charged against the warranty reserve established for the house. Any expenditure incurred within 120 days of closing a home is recorded against the estimate to complete land development and home construction accrual, unless it is clear that the expenditure is a warranty claim. Expenditures incurred after 120 days of closing a home are considered warranty expenditures. Additional reserves are established for known unusual warranty-related expenditures not covered by the initial warranty reserves. If warranty expenditures for an individual house exceed the related reserve, then costs in excess of the reserve are evaluated in the aggregate to determine if an adjustment to housing cost of sales should be recorded.
Seasonal Nature of Business . Our homebuilding business is seasonal to the extent that certain of our operations, especially in the northernmost markets, are subject to weather-related slowdowns. Delays in development and construction activities resulting from adverse weather conditions could increase our risk of buyer cancellations and contribute to higher costs for interest, materials and labor. In addition, homebuyer preferences and demographics influence the seasonal nature of our business. See Forward-Looking Statements below.
Backlog.
As of December 31, 2004 and 2003, homes under contract but not yet delivered
(Backlog) totaled 6,505 and 5,593, respectively, with estimated sales values of $1.92 billion and
$1.60 billion, respectively. Based on our past experience, assuming no significant change in market
conditions and mortgage interest rates, we anticipate that approximately 70% to 75% of our December
31, 2004 Backlog will close under existing sales contracts during the first nine months of 2005.
The remaining 25% to 30% of the homes in Backlog are not expected to close under existing contracts
due to cancellations. See
Forward-Looking Statements
below. The table below discloses, by market,
our Backlog for the years ended December 31, 2004 and 2003 (dollars in thousands).
December 31,
2004 Increase (Decrease)
2004
2003
Amount
%
2,143
1,333
810
61
%
807
1,119
(312
)
-28
%
692
734
(42
)
-6
%
638
104
534
513
%
18
18
N/A
225
269
(44
)
-16
%
746
886
(140
)
-16
%
23
23
N/A
256
143
113
79
%
289
151
138
91
%
668
854
(186
)
-22
%
6,505
5,593
912
16
%
$
1,920,000
$
1,600,000
$
320,000
20
%
$
295.2
$
286.1
$
9.1
3
%
In 2004, we experienced strong demand for homes in Arizona, where our Backlog significantly increased year-over-year. Additionally, our Backlog increased in Florida, in part resulting from the acquisition of certain assets of Crawford Homes, Inc. in 2003 and of Watson Home Builders, Inc. in 2004. In 2004, we slowed the pace of new home offerings in certain communities in Virginia by releasing fewer homes to the market to allow construction to catch up with the Backlog in this market.
5
The 13% increase in orders for 2004 compared with 2003 was impacted by the extraordinary levels of demand experienced in Nevada and California during the first half of 2004. During the second half of 2004, we saw our overall level of net home orders decline to a level comparable to the same period in 2003. This decline was driven by Nevada and California, primarily due to a reduction in the number of net home orders per active community. Higher home order cancellations during the second half of 2004, compared with the same period in 2003, in both of these markets also contributed to the reduced number of net home orders. In addition, the net home orders received in California during the 2004 fourth quarter were impacted by a temporary reduction in the number of active communities, due in part to a higher than anticipated sales pace resulting from the exceptional demand for new homes in the state through the first half of 2004. Notwithstanding these changes in California and Nevada, we generally maintained the significant price increases realized in these markets earlier in the year.
Marketing and Sales . Our homes are sold under various commission arrangements by our own sales personnel and by cooperating brokers and referrals in the realtor community. In marketing our homes, we primarily use on-site model homes, advertisements in local newspapers, radio, billboards and other signage, magazines and illustrated brochures. We also market our homes on our internet website, www.richmondamerican.com , and utilize a variety of other internet sites to advertise our homes and communities.
Title Operations . American Home Title provides title agency services to our homebuyers in Virginia, Maryland, Colorado, Florida, Texas and Delaware. AHT Reinsurance, Inc., a wholly-owned subsidiary of MDC, reinsures existing title insurance policies issued to our homebuyers in California, Nevada and Utah. We are evaluating opportunities to provide title agency services in our other markets.
Competition . The homebuilding industry is fragmented and highly competitive. We compete with numerous homebuilders, including a number that are larger and have greater financial resources. Homebuilders compete for customers, desirable financing, land, building materials and subcontractor labor. Competition for home orders primarily is based upon price, style, financing provided to prospective purchasers, location of property, quality of homes built, customer service and general reputation in the community. We also compete with subdivision developers and land development companies when acquiring land.
Mortgage Interest Rates. Our homebuilding operations are dependent upon the availability and cost of mortgage financing. Increases in home mortgage interest rates may reduce the demand for homes and home mortgages and, generally, will reduce home mortgage refinancing activity, which could negatively impact our business. We are unable to predict future changes in home mortgage interest rates or the impact such changes may have on our operating activities and results of operations. See Forward-Looking Statements below.
Regulation . Our homebuilding operations are subject to continuing compliance requirements mandated by applicable federal, state and local statutes, ordinances, rules and regulations, including zoning and land use ordinances, building codes, contractors licensing laws, state insurance laws, federal and state human resources laws and regulations and health and safety regulations and laws (including, but not limited to, those of the Occupational Safety and Health Administration). Various localities in which we operate have imposed (or may impose in the future) fees on developers to fund schools, road improvements and low and moderate-income housing. See Forward-Looking Statements below.
From time to time, various municipalities in which we operate restrict or place moratoriums on the availability of utilities, including water and sewer taps. Additionally, certain jurisdictions in which we operate have proposed or enacted growth initiatives that may restrict the number of building permits available in any given year. Although no assurances can be given as to future conditions or governmental actions, in general, we believe that we have, or can obtain, water and sewer taps and building permits for our land inventory and land held for development. See Forward-Looking Statements below.
Our homebuilding operations also are affected by environmental laws and regulations pertaining to availability of water, municipal sewage treatment capacity, land use, hazardous waste disposal, naturally occurring radioactive materials, building materials, population density and preservation of endangered species, natural terrain and vegetation. Due to these considerations, we generally obtain an environmental site assessment for parcels of land that we acquire. The particular environmental laws and regulations that apply to any given homebuilding project vary greatly according to the sites location, the sites environmental conditions and the present and former uses of the site. These environmental laws and regulations may result in project delays, causing us to incur substantial compliance and other costs, and/or
6
prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas. See Forward-Looking Statements below.
Bonds and Letters of Credit. In many cases, we are required to obtain bonds and letters of credit in support of our related obligations with respect to subdivision improvement, homeowners association dues and start-up expenses, warranty work, contractors license fees, earnest money deposits, etc. At December 31, 2004, we had issued and outstanding performance bonds and letters of credit totaling $306.8 million and $94.7 million, respectively, including $25.6 million in letters of credit issued by HomeAmerican. In the event any such bonds or letters of credit issued by third parties are called, we would be obligated to reimburse the issuer of the bond or letter of credit. See Forward-Looking Statements below.
Financial Services Segment.
Mortgage Lending Operations.
General . HomeAmerican is a full-service mortgage lender and is the principal originator of mortgage loans for our homebuyers. Through office locations in each of our markets and a centralized loan origination center, HomeAmerican originates mortgage loans primarily for our homebuyers. HomeAmerican also brokers mortgage loans for origination by outside lending institutions for our homebuyers.
HomeAmerican is authorized to originate Federal Housing Administration-insured (FHA), Veterans Administration-guaranteed (VA), Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and other private investor mortgage loans. HomeAmerican also is an authorized loan servicer for FNMA, FHLMC and the Government National Mortgage Association (GNMA) and, as such, is subject to the rules and regulations of these organizations.
Substantially all of the mortgage loans originated by HomeAmerican are sold to investors within 45 days of origination. We use HomeAmericans secured warehouse line of credit, other borrowings and Company generated funds to finance these mortgage loans until they are sold.
Portfolio of Mortgage Loan Servicing . Mortgage loan servicing involves the collection of principal, interest, taxes and insurance premiums from the borrower and the remittance of such funds to the mortgage loan investor, local taxing authorities and insurance companies. The servicer is paid a fee to perform these services. HomeAmerican obtains the servicing rights related to the mortgage loans it originates. Certain mortgage loans are sold servicing released (the servicing rights are included with the sale of the corresponding mortgage loans). In 2004, 51% of the mortgage loans were sold servicing released. The servicing rights on the remainder of the mortgage loans generally are sold under minibulk contracts within two months of the sale of the mortgage loan. HomeAmerican intends to continue selling servicing rights on all mortgage loans originated in the future. See Forward-Looking Statements below.
HomeAmericans portfolio of mortgage loan servicing at December 31, 2004 consisted of servicing rights with respect to 2,906 single-family loans, 99% of which were less than one year old. This includes 2,330 single-family loans for which the servicing rights had been sold but not transferred to the purchasers as of December 31, 2004. HomeAmerican anticipates transferring these servicing rights in the first half of 2005. These loans are secured by mortgages on properties in eleven states, with interest rates on the loans ranging from approximately 4.25% to 6.00% and averaging 5.77%. The underlying value of a servicing portfolio generally is determined based on the interest rates and the annual servicing fee rates, gross of guarantee fees, currently .44% for FHA/VA loans and .25% for conventional loans applicable to the loans comprising the portfolio.
Pipeline. HomeAmericans mortgage loans in process that had not closed (the Pipeline) at December 31, 2004 had aggregate principal balances of $1.3 billion. An estimated 70% to 75% of the Pipeline at December 31, 2004 is anticipated to close during the first nine months of 2005. If mortgage interest rates decline, a smaller percentage of these loans would be expected to close. See Forward-Looking Statements below.
Forward Sales Commitments. HomeAmerican is exposed to market risks related to fluctuations in interest rates on its mortgage loan inventory. Derivative instruments utilized in the normal course of business by HomeAmerican include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage loans. HomeAmerican utilize the sales commitments to manage the price risk on fluctuations in interest rates on our mortgage loans owned and commitments to originate mortgage loans. Such contracts are the only significant
7
financial derivative instruments utilized by the Company and are generally settled within 45 days of origination. Due to this hedging philosophy, the market risk associated with HomeAmericans mortgages is limited.
Competition. The mortgage industry is fragmented and highly competitive. In each of the locations in which it originates loans, HomeAmerican competes with numerous banks, thrifts and other mortgage bankers, many of which are larger and have greater financial resources. Competitive factors include pricing, loan terms, underwriting criteria and customer service.
Insurance Operations.
American Home Insurance provides third party homeowners, auto and other types of casualty insurance to our homebuyers.
Employees.
At December 31, 2004, we employed approximately 3,600 employees. We consider our employee relations to be very good.
Item 2. Properties.
Our corporate headquarters currently is located at 3600 South Yosemite Street, Denver, Colorado 80237, where we lease office space in a 134,000 square foot office building. We have given notice of termination of our existing lease and have entered into a lease for new office space in the Denver area. We also lease office space at our homebuilding divisions and our financial services locations. All operations currently are either satisfied with the suitability and capacity of their properties or are in the process of locating additional space suitable for expanding operations.
Item 3. Legal Proceedings.
The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business, including moisture intrusion and related mold claims. In the opinion of management, the outcome of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. See Forward-Looking Statements below.
The U.S. Environmental Protection Agency (EPA) filed an administrative action against Richmond American Homes of Colorado, Inc. (Richmond), alleging that Richmond violated the terms of Colorados general permit for discharges of stormwater from construction activities at two of Richmonds development sites. In its complaint, the EPA sought civil penalties against Richmond in the amount of $122,000. On November 11, 2003, the EPA filed a motion to withdraw the administrative action so that it could refile the matter in United States District Court as part of a consolidated action against Richmond for alleged stormwater violations at not only the original two sites, but also two additional sites. The EPAs motion to withdraw was granted by the Administrative Law Judge on February 9, 2004. The EPA has not yet refiled the matter. The EPA recently has inspected a number of sites under development by Richmond affiliates in Virginia, Maryland, Arizona, California and again in Colorado, and claims to have found additional stormwater permit violations. Richmond has substantial defenses to the allegations made by the EPA and also is exploring methods of resolving this matter with the EPA.
Because of the nature of the homebuilding business, and in the ordinary course of its operations, the Company from time to time may be subject to product liability claims.
Item 4. Submission of Matters to a Vote of Security Holders.
No meetings of the Companys stockholders were held during the fourth quarter of 2004.
8
PART II
Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
On December 31, 2004, MDC had 954 shareowners of record. The shares of MDC common stock are
traded on the New York and the Pacific Stock Exchanges. The following table sets forth, for the
periods indicated, the price ranges of MDCs common stock. Amounts have been adjusted for
the effects of the 10% stock dividend distributed on March 23, 2004, as well as the 1.3 for 1 stock
split effective January 10, 2005.
The following table sets forth the cash dividends declared and paid in 2004 and 2003. Amounts
have been adjusted for the effects of the 10% stock dividend distributed on March 23, 2004, as well
as the 1.3 for 1 stock split effective January 10, 2005 (dollars in thousands, except per share
amounts).
On January 24, 2005, MDCs board of directors approved the payment of a cash dividend of 15.0
cents per share payable February 24, 2005 to shareowners of record on February 10, 2005.
On December 14, 2004, MDCs board of directors declared a 1.3 for 1 stock split, effected in
the form of a stock dividend that was distributed on January 10, 2005.
On February 23, 2004, MDCs board of directors declared a 10% stock dividend that was
distributed on March 23, 2004 to shareowners of record on March 8, 2004.
In connection with the declaration and payment of dividends, the Company is required to comply
with certain covenants contained in its unsecured revolving line of credit agreement which had a
capacity of $700 million as of December 31, 2004 and was amended and increased in January 2005 to
$1.058 billion. Pursuant to the terms of this agreement, dividends may be declared or paid if the
Company is in compliance with certain stockholders equity and debt coverage tests. At December
31, 2004, the Company had a permitted dividend capacity of approximately $371 million pursuant to
the most restrictive of these covenants.
There were no shares repurchased during the fourth quarter of 2004.
The Company declared a 1.3 for 1 stock split effective January 10, 2005. As a result of this
stock split, the number of shares issuable under the Companys registration statements identified
below have been adjusted accordingly.
9
Pursuant to Rule 416 under the Securities Act of 1933, as
amended, the following registration statements on Form S-8 are deemed to cover the additional
number of shares of the Companys common stock as listed below, as a result of the adjustments to
account for such stock split:
10
Item 6.
Selected Financial and Other Data.
The data in this table should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and the Companys Consolidated Financial
Statements. Weighted-average shares and per share amounts have been adjusted for the effects of
the 10% stock dividend distributed on March 23, 2004 and the 1.3 for 1 stock split effective
January 10, 2005 (in thousands, except per share and unit amounts).
SELECTED FINANCIAL DATA
11
12
Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
M.D.C. Holdings, Inc. is a Delaware Corporation. We refer to M.D.C. Holdings, Inc. as the
Company, MDC, we or our in this Form 10-K, and these designations include our subsidiaries
unless we state otherwise. Our primary business is owning and managing subsidiary companies that
build and sell homes under the name Richmond American Homes. Our financial services segment
consists of HomeAmerican Mortgage Corporation (HomeAmerican), which originates mortgage loans
primarily for our homebuyers, and American Home Insurance Agency, Inc. (American Home Insurance),
which offers third party insurance products to our homebuyers. In addition, we provide title agency
services through American Home Title and Escrow Company (American Home Title) to our homebuyers
in Virginia, Maryland, Colorado, Florida, Texas and Delaware.
RESULTS OF OPERATIONS
Overview
The economic climate for the homebuilding industry was excellent in 2004, and we were able to
capitalize on the fundamentals that drove the housing market, such as increasing consumer
confidence, improving job growth, low interest rates and a limited supply of land in high-demand
markets. We also were able to capitalize on the economies of scale that we experienced as a large,
well-capitalized homebuilder. Earnings per share increased by 79% to $8.79 in 2004. Our net
income of $391 million represents the 7th consecutive year for record earnings, and our total
revenues of $4 billion marks our 11th consecutive annual record. In addition, we achieved all-time
highs for home closings and Home Gross Margins, as defined below.
Strong demand for homes in most of our markets in 2004, particularly during the first half of
the year, led to our highest-ever level of annual orders for 14,248 homes. These strong orders
enabled us to end the year with a record Backlog, as defined below, of over 6,500 homes valued at
nearly $2 billion, representing a year-over-year value increase of 20%.
Our financial position continued to strengthen in 2004. Total stockholders equity at year-end
exceeded $1.4 billion, or $32.80 per outstanding share, and our yearend debt-to-capital ratio, net
of cash, was .19. Earlier in 2004, the term of our homebuilding line of credit was extended to five
years, and we increased our borrowing capacity to $700 million. Additionally in 2004, we expanded our shelf registration to $1 billion,
earmarking $500 million for our medium-term notes program. In December 2004, we issued $250
million of 10-year medium-term senior notes at a coupon rate of 5
3/8%. We ended the year with more than $1 billion in cash and borrowing capacity. In January 2005, we further
increased our borrowing capacity under our homebuilding line of
credit to $1.058 billion, with the ability to expand to $1.25 billion
with lender approval.
We declared a 10% stock dividend in February 2004 and, in January 2005, we completed a 1.3 for
1 stock split. As a result of these actions, we have effectively tripled our quarterly dividend
payment over the last 24 months. In addition, we repurchased 155,000 shares of stock in 2004,
adjusted for the 1.3 for 1 stock split, and we have 2,145,000 additional shares authorized for
repurchase.
We made significant progress in 2004 in furthering our expansion efforts in markets across the
country, evidenced by a 22% increase in our actively selling communities. We acquired control of
certain assets of Watson Home Builders, Inc. in Jacksonville and Patriot Homes and others in southern
New Jersey in the third quarter of 2004. These transactions significantly expanded our presence in
two of the countrys strongest housing markets. Also, in January 2005, we acquired the right to purchase
approximately 1,200 finished lots in the Central Valley of California from Del Valle Homes.
As a merchant homebuilder, we are focused on maximizing risk-adjusted returns. While we will
complete some level of development work on lots when the returns justify the risk, generally we
will not develop master-planned communities. We attempt to focus on the largest demand segments
within a given market, which generally is the first-time and first-time move-up buyer. As a result,
more than 80% of our homebuyers fall into these two categories.
Our objective is to achieve a major market share in each of our markets. The markets in which
we operate have been selected because of their potential for population and employment growth. We
attempt to establish homebuilding operations in the best markets in the country. When we enter a
market, our goal is to be one of the top builders in that market. We have accomplished this goal in
most of the markets we have operated in since the mid-1980s.
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When opening a new homebuilding project, our land strategy generally is to acquire no more
than a 2
1
/
2
year supply of lots to avoid overexposure to any single sub-market. We prefer to acquire
finished lots using rolling options or in phases for cash. However, we will acquire entitled land
for development into finished lots when we determine that the risk is justified. Our Asset
Management Committees, composed of members of our senior management, generally meet weekly to
review all proposed land acquisitions and takedowns of lots under option. In evaluating land and
lot acquisition opportunities, our objective is to increase our land under option and reduce the
percentage of land owned.
Consolidated Results.
The following discussion for both consolidated results of operations and segment results
refers to the year ended December 31, 2004, compared with the same period in 2003, and the year
ended December 31, 2003, compared with the same period in 2002. The table below summarizes our
results of operations (in thousands, except per share amounts). Earnings per share for prior
periods have been restated to reflect the effect of the 10% stock dividend distributed on March 23,
2004 and the 1.3 for 1 stock split effective January 10, 2005.
2004
Compared With 2003
. The 37% growth in revenues primarily resulted from a 24% increase
in the number of homes closed to 13,876, as well as an increase of $29,100 in our average home
selling price.
Income before income taxes increased 83% in 2004. The increase primarily was due to an 83%
increase in homebuilding segment operating profit, partially offset by a 35% decrease in financial
services segment operating profit. The homebuilding segment profit increase principally was the
result of the increases in home closings and average selling prices described above and a 360 basis
point increase in Home Gross Margins. The financial services segment profit decrease primarily was
due to a 21% decrease in gains on sales of mortgage loans and a 19% increase in general and
administrative expenses resulting from HomeAmericans expanded loan origination activity. The
improvement in homebuilding operating profits more than offset a 36%
increase in total corporate expenses.
2003 Compared With 2002
. The 26% increase in revenues primarily resulted from a 26% increase
in the number of homes closed to 11,211.
Income before income taxes increased 27% in 2003. The increase primarily was due to a 33%
increase in homebuilding segment operating profit and a 17% increase in financial services segment
operating profit. The homebuilding segment profit increase principally was the result of the home
closing increases described above and a 110 basis point increase in Home Gross Margins. The
financial services segment profit increase primarily was due to a 46% increase in gains on sales of
mortgage loans and a 19% increase in loan origination fees, partially offset by higher general and
administrative expenses resulting from HomeAmericans expanded loan origination activity. These
improvements in homebuilding and financial services operating profits more than offset a 40%
increase in corporate general and administrative expenses and a $9.3 million charge for expenses
related to the redemption of our $175 million 8 3/8% senior notes due 2008.
14
Homebuilding Activities 2004 Compared With 2003 (dollars in thousands).
15
Home Sales Revenues and Homes Closed.
Home sales revenues in 2004 increased 38% over 2003.
The improvement resulted from a 24% increase in home closings, as well as an increase of $29,100 in our average home selling price.
Our home closings were higher in 2004, compared with 2003, in all of our markets except
Colorado. Home closings particularly were strong in Nevada, Arizona, California and Virginia,
primarily due to the strong demand for new homes in these markets
which resulted in a higher Backlog of homes to begin the year, as
compared with the start of the prior year. In addition, our recently
entered markets in Utah, Texas, Florida and Illinois contributed an increase of 1,231 home closings
in 2004. We closed fewer homes in 2004, compared with 2003, in Colorado, primarily due to lower
home orders resulting from fewer average active subdivisions in this market.
Average Selling Price Per Home Closed.
The average selling price per home closed increased by
$29,100 to $283,400 in 2004, compared with $254,300 in 2003. The
increase is partially attributable to
closing a greater number of homes in California and Virginia, where average home selling prices are
significantly above the Company average. We also closed significantly more homes in Nevada, where
our average selling price increased $60,900, or 33%, over 2003. These increases partially were
offset by the impact of higher home closings in Arizona, Utah, Texas and Florida, where average
selling prices were more than $90,000 lower than the Company average. The following table displays
our average selling price per home closed by market for the years indicated below (in thousands).
Home Gross Margins.
We define Home Gross Margins to mean home sales revenues less cost of
goods sold (which primarily includes land and construction costs, capitalized interest, a reserve
for warranty expense and financing and closing costs) as a percent of home sales revenues.
Home Gross Margins were 27.7% for the year ended December 31, 2004, compared with 24.1% in
2003. The increase in our Home Gross Margins primarily was due to
strong demand for homes and increased
selling prices in many of our markets, particularly in Nevada, California and Virginia. In
addition, we closed 33% more homes in Nevada, where we realized significantly higher Home Gross
Margins than the Company average. These Home Gross Margin increases partially were offset by the impact of
a greater number of homes closed in Florida, Utah and Texas in 2004, where Home Gross Margins were
lower than the Company average. We were able to minimize the impact of labor and material
16
cost increases by leveraging our national purchasing power, thus limiting the impact on Home Gross
Margins across the Company.
Future Home Gross Margins may be impacted by, among other things: (1) increased competition,
which could affect our ability to raise home prices and maintain lower levels of incentives; (2)
increases in the costs of subcontracted labor, finished lots, building materials (for example,
lumber and steel have significantly increased year-over-year), and other resources, to the extent
that market conditions prevent the recovery of increased costs through higher selling prices; (3)
adverse weather; (4) shortages of subcontractor labor, finished lots and other resources, which can result
in delays in the delivery of homes under construction and increases in related cost of sales; (5)
the impact of changes in demand for housing in Nevada, California and Arizona, and (6) other
general risk factors. See
Forward-Looking Statements
below.
Orders for Homes and Backlog
. Home orders during 2004 particularly were strong in Arizona,
despite having fewer actively selling communities than a year ago, aided by the continued strong
demand for new homes in this market. Also, we received a combined increase of 1,324 home orders in
2004 from our new markets in Utah, Texas, Florida, Illinois and Philadelphia/Delaware Valley.
Colorado home orders were lower for 2004, compared with 2003, primarily resulting from a reduction
in the number of our active Colorado subdivisions. In addition, we intentionally slowed the pace of
new home orders over the last year in Virginia, one of the countrys strongest markets for new
homes, to allow construction activities to catch-up with our Backlog of homes sold but not yet
started in this market.
The
13% increase in orders for 2004 compared with 2003 was impacted by
the extraordinary levels of demand experienced in Nevada and
California during the first half of 2004. During the second half of
2004, we saw our overall level of net home orders decline to a level comparable to the same period in 2003. This decline was driven by
Nevada and California, primarily due to a reduction in the number of
net home orders per active community. Higher home order cancellations
during the second half of 2004, compared with the same period in 2003, in both of these markets also contributed to the reduced number
of net home orders. In addition, the net home orders received in
California during the 2004 fourth quarter were impacted by a
temporary reduction in the number of active communities, due in part
to a higher than anticipated sales pace resulting from the
exceptional demand for new homes in the state through the first half
of 2004. Notwithstanding these changes in California and Nevada, we
generally maintained the significant price increases realized in
these markets earlier in the year.
We believe that both California and Nevada provide favorable environments for continued
strength in the demand for new homes for the foreseeable future, particularly in our locations and
price points, and we have allocated significant capital for growth in these markets in 2005. As a
result, we expect to have approximately twice as many active communities in Nevada by the end of
the 2005 first quarter as we had a year earlier. Additionally, in California, we plan to add as
many as ten active communities during the first quarter of 2005. Assuming no material changes in
market conditions and anticipation of continued increases in active communities in most of our
markets in 2005, we believe that our home order comparisons will improve as the 2005 year
progresses beyond the first quarter. See
Forward-Looking Statements
below.
Homes under contract but not yet delivered (Backlog) at December 31, 2004 increased 16% to
6,505 homes with an estimated sales value of $1.92 billion, compared with the Backlog of 5,593
homes with an estimated sales value of $1.60 billion at December 31, 2003. Assuming no significant
change in market conditions or mortgage interest rates, we expect approximately 70% to 75% of our
Backlog to close under existing sales contracts during the first nine months of 2005. The remaining
25% to 30% of the homes in Backlog are not expected to close under existing contracts due to
cancellations. See
Forward-Looking Statements
below.
Marketing
. Marketing expenses (which include sales commissions, advertising, amortization of
deferred marketing costs, model home expenses and other costs) totaled $198.5 million in 2004,
compared with $162.1 million in 2003. The increase in 2004 primarily was due to increases of (1)
$24.5 million in sales commissions resulting from our increased home sales revenues; (2) $7.7
million in product advertising and deferred marketing amortization in connection with the increased
number of active subdivisions and greater number of home closings in 2004; and (3) $3.7 million in
salaries and benefits attributable to our expanding homebuilding operations in new and existing
markets.
General and Administrative.
General and administrative expenses totaled $181.6 million in
2004, compared with $138.5 million in 2003. The increase in 2004 primarily was due to increased
compensation and other employee
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benefit costs associated with the expanded operations in many of
our markets, most notably California, Colorado, Nevada and Virginia, and in our new markets in
Utah, Texas, Florida, Philadelphia/Delaware Valley and Illinois.
Homebuilding Activities 2003 Compared With 2002 (dollars in thousands).
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Home Sales Revenues and Homes Closed.
Home sales revenues in 2003 increased 26% compared with
2002. The increase resulted from home closings which reached 11,211 for 2003, 26% higher than
2002.
Our home closings were higher in 2003, compared with 2002, in all of our markets except
Colorado. Home closings particularly were strong in Nevada and Arizona, primarily due to the strong
demand for new homes in these markets. In addition, the newly entered markets in Utah, Texas and
Florida contributed an increase of 429 home closings in 2003. We closed fewer homes in 2003,
compared with 2002, in Colorado, primarily due to lower home orders in this market, resulting from
fewer active subdivisions and the more challenging economic conditions experienced in this market.
Average Selling Price Per Home Closed.
The average selling price per home closed remained
relatively consistent at $254,300 in 2003, compared with $254,000 in 2002. Average selling prices
increased in Maryland, Virginia and Arizona, primarily resulting from the ability to increase sales
prices due to the strong demand for new homes in these markets throughout 2003. Also, a greater
number of homes were closed in relatively higher-priced subdivisions in the above noted markets, as
well as in Colorado and Utah. These increases partially were offset by the impact of increased home
closings in Nevada, Utah, Texas and Florida, where selling prices are lower than the Company
average. The following table displays our average selling price per home closed by market for the
years indicated below (in thousands).
Home Gross Margins.
Home Gross Margins were 24.1% for the year ended December 31, 2003,
compared with 23.0% in 2002. The increase in Home Gross Margins primarily was attributable to
increased demand and higher home selling prices in many of our markets, as well as the impact of
corporate initiatives directed at reducing construction costs. Additionally, insurance recoveries
relating to warranty expenses incurred in prior periods for water intrusion issues in Colorado and
reductions in previous estimates to complete land development and construction in certain markets
contributed to this increase. These Home Gross Margin increases partially were offset by the impact
of higher incentives in Colorado, as well as a greater number of homes closed in 2003 in Florida,
Utah and Texas, where Home Gross Margins were lower than the Company average.
Orders for Homes and Backlog
. Home orders during 2003 particularly were strong in Nevada and
Arizona, aided by the continued strong demand for new homes in these markets. Also, we received a
combined 725 home orders in 2003 from our new markets in Utah, Texas and Florida. Colorado home
orders were lower for 2003, compared with 2002, primarily resulting from the reduced number of
active subdivisions and the challenging economic environment
19
discussed above. We received net orders for 2,690 homes during the fourth quarter of 2003, 39%
higher than net orders for 1,931 homes for the same period in 2002.
Record home orders received during 2003 contributed to the 39% increase in Backlog at December
31, 2003 to 5,593 homes with an estimated sales value of $1.60 billion, compared with the Backlog
of 4,035 homes with an estimated sales value of $1.12 billion at December 31, 2002.
Marketing
. Marketing expenses totaled $162.1 million in 2003, compared with $125.1 million in
2002. The increase in 2003 primarily was due to (1) increased sales commissions resulting from our
increased home sales revenues; (2) higher product advertising and deferred marketing amortization
in connection with the increased number of active subdivisions and greater number of home closings
in 2003; (3) increased sales overhead resulting from our expanding home sales activities; and (4)
higher salaries and benefits attributable to our expanding homebuilding operations in new and
existing markets.
General and Administrative.
General and administrative expenses totaled $138.5 million in
2003, compared with $105.5 million in 2002. The increase in 2003 primarily was due to increased
compensation and other administrative costs associated with the expanded operations in many of our
markets, most notably Arizona, Nevada, California and Virginia, and in our new markets of Utah,
Texas, Florida, Philadelphia/Delaware Valley and Illinois.
Title Operations.
American Home Title provides title agency services to our homebuyers in Virginia, Maryland,
Colorado, Florida, Texas and Delaware. AHT Reinsurance, Inc., a wholly-owned subsidiary of MDC,
reinsures existing title insurance policies issued to our homebuyers in California, Nevada and
Utah. We are evaluating opportunities to provide title agency services in our other markets.
Income before income taxes from title operations totaled $5.0 million, $3.1 million and $2.4
million, respectively, in 2004, 2003 and 2002.
Land Sales.
Revenue from land sales totaled $8.9 million, $1.3 million and $6.0 million in 2004, 2003 and
2002, respectively. The land sales in 2004 primarily were in Florida, Texas and Colorado. The land
sales in 2003 were in Virginia, Utah and Northern California. Land sales in 2002 primarily were in
Colorado and Utah. Gross profits from these sales were $0.1 million, $0.5 million and $1.4 million
in 2004, 2003 and 2002, respectively.
Asset Impairment Charges.
No homebuilding asset impairment charges were recorded by the Company in 2004, 2003 or 2002.
New Homebuilding Operations.
In September 2003, we expanded our operations in the Florida homebuilding market by one of our
subsidiaries acquiring certain assets of Crawford Homes, Inc. in
Jacksonville, Florida and hiring approximately 40 of its former employees. The assets acquired included approximately 550 lots and
165 homes under construction in 15 subdivisions. In
September 2004, this same subsidary acquired certain assets of Watson Home Builders, Inc. in Jacksonville and hired approximately 55 of
its former employees. The assets acquired included control of approximately 2,000 lots and 330
homes under construction in 18 subdivisions. At December 31, 2004, we controlled more than 2,500
lots in this market. During 2004, this subsidiary received 446 home orders and closed 452 homes in
Jacksonville.
We expanded into the Houston and Philadelphia/Delaware Valley markets in the 2003 second
quarter and into the West Florida and Chicago markets in the third quarter of 2003. Each of these
expansion efforts was initiated by hiring a division president to manage start-up operations. In
September 2004, we expanded our Philadelphia/Delaware Valley operations by acquiring control of
approximately 600 residential lots from Patriot Homes, LLC, and others, in southern New Jersey. As
of December 31, 2004, we controlled 4,174 lots in all of these markets.
In January 2005, we expanded our
California operations by acquiring control of approximately 1,200 finished residential lots in the
Central Valley of California from Del Valle Homes.
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Financial Services Activities 2004 Compared With 2003.
The
table below sets forth selected financial data relating to our
financial services operations (dollars in thousands).
The decline in operating profit in 2004 primarily was due to a reduction in gains on sales of
mortgage loans, as well as higher general and administrative expenses incurred to handle the
higher volume of mortgage loan closings and the record backlog level of the homebuilding segment.
The decline was driven by a more competitive mortgage pricing environment during 2004, the impact
of originating a greater number of less-valuable adjustable rate mortgage loans and brokering to third party mortgage companies a
higher percentage of total loans processed in 2004.
The principal amount of originated and brokered loans increased 12% and 79%, respectively, in
2004 compared with 2003. These improvements primarily were due to the increases in homes closed by
the homebuilding segment. Our homebuyers were the source of approximately 99% of the principal
amount of mortgage loans originated and brokered by HomeAmerican in 2004. The number of mortgage
loans originated by HomeAmerican for our homebuyers as a percentage of total MDC home closings is
defined as our Capture Rate. The declines in the Capture Rate primarily resulted from HomeAmerican
brokering out a higher percentage of mortgage loans to outside lending institutions for our
homebuyers due to the competitive environment for mortgage loans that resulted from the
significant decline in refinancing activity in the marketplace over the last year. Brokered loans,
for which HomeAmerican receives a fee, have been excluded from the computation of the Capture
Rate.
Forward Sales Commitments.
HomeAmericans operations are affected by changes in mortgage
interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage price risk
related to fluctuations in interest rates on our fixed-rate mortgage loans held in inventory and
rate-locked mortgage loans in process that had not closed. Reported gains on sales of mortgage loans may vary
significantly from period to period depending on the volatility in the interest rate market.
Insurance Operations.
American Home Insurance provides third party homeowners, auto and other
types of casualty insurance to our homebuyers. The results of our insurance operations were not
material for any of the periods presented.
Financial Services Activities 2003 Compared With 2002.
The table below sets forth
selected financial data relating to our financial services operations (dollars
in thousands).
21
The increase in operating profit primarily was due to higher gains on sales of mortgage
loans, as well as higher origination fees received from record levels of mortgage loans originated
and brokered for our homebuyers. Revenues from mortgage loan origination fees in 2003, driven by
the record home closings from the homebuilding segment, partially were offset by higher general
and administrative expenses incurred to handle the higher volume of mortgage loans. Our
homebuyers were the source of approximately 99% of the principal amount of the mortgage loans
originated and brokered by HomeAmerican in 2003.
Mortgage loans originated by HomeAmerican for our homebuyers as a percentage of total MDC home
closings was 63% for the year ended December 31, 2003, compared with 71% for the same period in
2002. This decline in the Capture Rate primarily resulted from HomeAmerican brokering out a higher
percentage of mortgage loans to outside lending institutions for our homebuyers due to the
competitive pricing environment for mortgage loans that resulted from a significant decline in
refinancing activity in the marketplace toward the end of 2003.
Other Operating Results.
Interest Expense.
We capitalize interest on our homebuilding inventories during the period of
active development and through the completion of construction. Corporate and homebuilding interest
incurred but not capitalized is reflected as interest expense. All corporate and homebuilding
interest incurred in 2004, 2003 and 2002 was capitalized. Interest incurred by the financial
services segment is charged to interest expense, which is deducted from interest income and
reported as net interest income in Note B to our consolidated financial statements. Corporate and
homebuilding interest incurred increased to $32.9 million in 2004, compared with $26.8 million in
2003 and $21.1 million in 2002. The increase in 2004 compared with 2003 primarily was due to an
increase in the average debt balance, which was used to fund our long-term growth. For a
reconciliation of interest incurred, capitalized and expensed, see Note I to our consolidated
financial statements.
Expenses Related to Debt Redemption.
In May 2003, we redeemed $175.0 million principal amount
of our 8 3/8% senior notes due February 2008 (8 3/8%
Senior Notes). The 8 3/8% Senior Notes were redeemed
at 104.188% of their principal amount, or $182.3 million, plus accrued and unpaid interest through
the date of redemption. Expenses for 2003 related to this debt redemption of $9.3 million include
the above redemption premium of $7.3 million and the related unamortized discount and debt issuance
costs of $2.0 million. In compliance with the Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 145, the expenses related to this debt
redemption are no longer treated as an extraordinary loss.
Corporate General and Administrative Expenses.
Corporate general and administrative expenses
totaled $101.6 million for 2004, compared with $65.4 million and $46.7 million, respectively, for
2003 and 2002. The increase in 2004 primarily was due to greater compensation-related costs
principally resulting from our higher profitability and expansion in all of our new and existing
markets. Additionally, we contributed $6.3 million in the form
of MDC common stock to the M.D.C.
Holdings, Inc. Charitable Foundation (the Foundation) in 2004, compared with $4.0 million in 2003 and
no contributions in 2002.
The Foundation is a nonprofit organization operated exclusively for charitable, educational
and other purposes beneficial to social welfare within the meaning of section 501(c)(3) of the
Internal Revenue Code. Certain directors and officers of the Company are the trustees and officers
of the Foundation. The Foundation takes action with respect to shares held by it, including the
voting of such shares, by majority vote of the five member board of trustees and, accordingly none
of the trustees should be considered to beneficially own such shares.
Income Taxes.
Our overall effective income tax rate of 38.6% for 2004, and 39.0% for both
2003 and 2002, differed from the federal statutory rate of 35% primarily due to the impact of state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
We use our liquidity and capital resources to (1) support our operations, including our
homebuilding inventories; (2) provide working capital; and (3) provide mortgage loans for our
homebuyers. Liquidity and capital resources are generated internally from operations and from
external sources. During the 2004 third quarter, we filed a registration statement, which has been
declared effective, increasing our capacity to issue equity, debt or hybrid securities to $1
billion from $550 million. In December 2004, we issued $250 million principal amount of
5 3/8% medium-term senior notes, thereby reducing our capacity to issue equity, debt or hybrid
securities to $750 million.
22
Capital Resources.
Our capital structure is a combination of (1) permanent financing, represented by
stockholders equity; (2) long-term financing, represented by our publicly traded 7% senior notes
due 2012 (the 7% Senior Notes), 5 1/2% senior notes due
2013 (the 5 1/2% Senior Notes), 5 3/8%
medium-term senior notes due 2014 (the 5 3/8% Medium-Term Senior Notes) and our homebuilding line of
credit (the Homebuilding Line); and (3) current financing, primarily our mortgage lending line of
credit (the Mortgage Line). Based upon our current capital resources and additional capacity
available under existing credit agreements, we believe that our current financial condition is both
balanced to fit our current operating structure and adequate to satisfy our current and near-term
capital requirements, including the acquisition of land and expansion into new markets. We believe
that we can meet our long-term capital needs (including meeting future debt payments and
refinancing or paying off other long-term debt as it becomes due) from operations and external
financing sources, assuming that no significant adverse changes in our business or capital and
credit markets occur as a result of the various risk factors described elsewhere in this report.
See
Forward-Looking Statements
below.
Lines of Credit and Notes Payable.
Homebuilding.
Our Homebuilding Line is an unsecured revolving line of credit with a group of
lenders for support of our homebuilding operations. During April 2004, we renewed the Homebuilding
Line, increasing the aggregate commitment amount to $700 million and extending the maturity date to
April 7, 2009. In addition, the facilitys provision for letters of credit was increased to an
available aggregate amount of $350 million. At December 31, 2004, the facility permitted an
increase in the maximum commitment amount to $850 million upon our request, subject to receipt of
additional commitments from existing or additional participant lenders. In January 2005, the
facility was increased to $1.058 billion with the ability to increase the maximum commitment amount
to $1.25 billion with lender approval. At December 31,
2004, there were no borrowings outstanding and $67.0
million in letters of credit had been issued under the Homebuilding Line. We could have borrowed
funds at interest rates ranging from 2.5% to 5.25%.
Mortgage Lending.
Our Mortgage Line has a borrowing limit of $175 million with terms that
allow for increases of up to $50 million in the borrowing limit to a maximum of $225 million,
subject to concurrence by the participating banks. The terms of the Mortgage Line are set forth in
the Third Amended and Restated Warehousing Credit Agreement dated as of October 23, 2003, as
amended by the First Amendment dated as of February 27, 2004 and the Second Amendment dated as of
September 28, 2004. Available borrowings under the Mortgage Line are collateralized by mortgage
loans and mortgage-backed certificates and are limited to the value of eligible collateral as
defined. At December 31, 2004, $135.5 million was borrowed and an additional $23.9
million was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120
days notice. At December 31, 2004 and 2003, the interest rates on our Mortgage Line were 3.4% and
2.3%, respectively.
General.
The agreements for our bank lines of credit and the indentures for our senior notes
require compliance with certain representations, warranties and covenants. We believe that we are
in compliance with these representations, warranties and covenants and we are not aware of any
covenant violations. The agreements containing these representations, warranties and covenants for
the bank lines of credit and the indentures for our senior notes are on file with the Securities
and Exchange Commission and are listed in the Exhibit Table in Part IV of this Annual Report on
Form 10-K.
The financial covenants contained in the Homebuilding Line credit agreement include a leverage
test and a consolidated tangible net worth test. Under the leverage test, generally, our
consolidated indebtedness is not permitted to exceed 55% (subject to adjustment in certain
circumstances) of the sum of consolidated indebtedness and our adjusted consolidated tangible net
worth, as defined. Under the consolidated tangible net worth test, our adjusted consolidated
tangible net worth, as defined, must not be less than the sum of (1) $776,018,000; (2) 50% of
consolidated net income, as defined, of the borrower, as defined, and the guarantors, as
defined, after December 31, 2003; and (3) 50% of the net proceeds or other consideration received
for the issuance of capital stock after December 31, 2003. Failure to satisfy the financial
covenant tests could result in a scheduled term-out of the facility. In addition, consolidated
tangible net worth, as defined, must not be less than the sum of (1) $485,011,000; (2) 50% of the
quarterly consolidated net income of borrower and the guarantors earned after December 31,
2003; and (3) 50% of the net proceeds or other consideration received for the issuance of capital
stock after
23
December 31, 2003. Failure to satisfy this covenant could result in a termination of the facility.
We believe that we are in full compliance with these covenants and are not aware of any covenant
violations.
Our senior notes are not secured and the senior notes indentures do not contain financial
covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly
and severally, by most of our homebuilding segment subsidiaries.
As of December 31, 2004, the maximum amount of additional homebuilding and corporate
indebtedness that we could have incurred under the most restrictive of the debt limitations
described above was approximately $900 million.
MDC Common Stock Repurchase Program.
In January 2005, our board of directors authorized the repurchase of up to an additional
495,120 shares of MDC common stock, bringing the total authorization under our stock repurchase
program to 5,654,000 shares. We repurchased 155,000 shares of MDC common stock in 2004, adjusted
for the 1.3 for 1 stock split on January 10, 2005, bringing the total shares repurchased to
3,509,000 and leaving 2,145,000 shares available to be repurchased as of December 31, 2004 under
this program. The per share prices, including commissions, for the 155,000 shares repurchased
ranged from $43.17 to $44.42, with an average cost of $43.96, adjusted for the stock split. At
December 31, 2004 and 2003, we held 31,000 and 4,007,000 shares of treasury stock with average
purchase prices of $43.97 and $12.56 per share, respectively, adjusted for the stock split.
Consolidated Cash Flow.
During
2004, we used cash of $23.9 million for our operating activities. The 2004 operating
cash use primarily was the result of a $38.9 million increase in our mortgage loans held in
inventory and a $527.1 million increase in our homebuilding inventories and other assets in
conjunction with our expanded homebuilding operations partially offset by income before deferred taxes, depreciation and amortization of $424.2 million and an increase in accounts payable and
other accrued expenses of $135.1 million. We continued to expand our homebuilding operations in new
markets to complement our expansion in existing markets through increased active subdivisions and
controlled lot inventory, thereby expending cash to acquire additional homebuilding assets.
Financing
activities generated cash of $288.4 million in 2004 primarily due to the issuance of
$250 million principal amount of 5 3/8%
Senior Notes and the net advancement on our lines of credit of $56.2 million. Additionally, we
repurchased 155,000 shares of MDC common stock for $6.8 million,
paid dividends of $18.6 million
and received $11.0 million in proceeds from the exercise of stock options.
We used $29.9 million in investing activities during 2004. These cash outlays primarily
related to purchases of property and equipment, including a corporate aircraft, computer equipment
and office furniture.
During 2003, we generated cash of $83.9 million from our operating activities. The 2003
operating cash flow primarily was generated by income before deferred taxes, depreciation and
amortization and debt redemption expenses of $251.1 million, an increase in accounts payable and
other accrued expenses of $77.6 million and a decrease in mortgage loans held in inventory of $67.9
million. These cash inflows partially were offset by increases in homebuilding inventories and other assets of
$310.3 million in conjunction with our expanded homebuilding operations.
Financing activities generated cash of $67.5 million in 2003. The 2003 cash provided by
financing activities primarily was due to the issuance of
$350 million principal amount of 5 1/2%
Senior Notes, partially offset by the redemption of the
$175 million 8 3/8% Senior Notes, including a
premium of $7.3 million on the redemption, and the net repayment of our lines of credit of $74.8
million. Additionally, we repurchased 1,040,000 shares of MDC common
stock for $26.7 million, paid dividends of
$11.8 million and received $17.0 million in proceeds from the exercise of stock
options.
During 2002, operating activities used cash of $166.4 million, primarily resulting from a
significant increase in homebuilding and mortgage lending inventories in conjunction with our
expanded homebuilding operations. Financing activities generated cash of $171.2 million in 2002,
primarily due to the issuance of $150 million principal amount of 7% Senior Notes, as well as an
increase in our Mortgage Line, partially offset by a use of $29.4 million in cash to repurchase MDC
common stock.
24
Off-Balance Sheet Arrangements.
At December 31, 2004, we had outstanding performance bonds of $306.8 million issued by third
parties to secure our performance under various contracts. We expect that the obligations secured
by these performance bonds generally will be performed in the ordinary course of business and in
accordance with the applicable contractual terms. To the extent that the obligations are performed,
the related performance bonds will be released and we will not have any continuing obligations.
In the normal course of business, MDC enters into lot option purchase contracts, generally
through a deposit of cash, for the right to purchase land or lots at a future point in time with
predetermined terms. Our liability with respect to option contracts generally is limited to
forfeiture of the related non-refundable cash deposits and letters of
credit, which totaled approximately $41.8 million and $22.1 million, respectively, at December 31, 2004. At
December 31, 2004, we had the right to acquire 21,164 lots at an
aggregate purchase price of approximately $1.1 billion. Under FASBs Interpretation No. 46
(Consolidation of Variable Interest Entities) (FIN 46), certain of these contracts create a
variable interest, with the land seller being the variable interest entity (VIE). We have
evaluated, based on the provisions of FIN 46, all lot option purchase contracts outstanding as of
December 31, 2004. In connection with this evaluation, we requested financial information from
these VIEs, assessed the market conditions where we have contracted with these VIEs, and evaluated
whether we retain the risk of loss from the VIEs activities or are entitled to receive a majority
of the VIEs residual returns or both. Based on this evaluation, MDC has determined that its
interests in these VIEs do not result in significant variable interests or require consolidation as
our interests do not qualify it as the primary beneficiary of residual returns or losses.
We have made no material guarantees with respect to third-party obligations.
Contractual Obligations.
Our contractual obligations as of December 31, 2004 are as follows (in thousands).
IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS
Real estate and residential housing prices are affected by inflation, which can cause
increases in the price of land, raw materials and subcontracted labor. Unless these increased
costs are recovered through higher sales prices, Home Gross Margins would decrease. If interest
rates increase, construction and financing costs, as well as the cost
of borrowings, also could
increase, which can result in lower Home Gross Margins. Increases in home mortgage interest rates
make it more difficult for our customers to qualify for home mortgage loans, potentially decreasing
home sales revenue. Increases in interest rates also may affect adversely the volume of mortgage
loan originations.
The volatility of interest rates could have an adverse effect on our future operations and
liquidity. Reported gains on sales of mortgage loans may vary significantly from period to period
depending on the volatility in the interest rate market. Derivative instruments utilized in the
normal course of business by HomeAmerican include forward sales securities commitments, private
investor sales commitments and commitments to originate mortgage loans. We utilize these
commitments to manage the price risk on fluctuations in interest rates on our mortgage loans held
in inventory and
25
commitments to originate mortgage loans. Such contracts are the only significant financial
derivative instruments we utilize.
Among other things, an increase in interest rates may affect adversely the demand for housing
and the availability of mortgage financing and may reduce the credit facilities offered to us by
banks, investment bankers and mortgage bankers. See
Forward-Looking Statements
below.
Our business also is significantly affected by general economic conditions and, particularly,
the demand for new homes in the markets in which we build. The demand for new homes in Nevada
reached unprecedented levels during the last half of 2003 and the first six months of 2004. This
extraordinary demand, which has diminished in recent months, resulted in a substantial increase in
new home sales and median home prices. Our average home selling price in Nevada, along with our
Home Gross Margins, also increased significantly in 2004, compared with 2003, without a substantial
change in product mix.
We have increased our market share in Nevada to become the third-largest homebuilder in that
market, based on sales of single family detached homes, according to The Meyers Group. As a result,
we are well-positioned to continue to take advantage of the demand for new homes in Nevada.
Nevertheless, we have continued to follow our disciplined strategy of controlling approximately a
two-year supply of land in this market. Recently, we have experienced a decline in the rate of home
orders in Nevada, but market conditions generally have sustained the significant home price
increases realized earlier in 2004, and these conditions have continued to result in increased
prices in certain communities, albeit at a much slower rate. If demand for new homes in Nevada were
to continue to decline in the future, our financial results potentially could be impacted by the
recent significant appreciation in land costs, which could adversely affect our Home Gross Margins.
CRITICAL ACCOUNTING POLICIES
The
preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period. Management
bases its estimates and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from
other sources. Management evaluates such estimates and judgments on an ongoing basis and makes
adjustments as deemed necessary. Actual results could differ from these estimates using different
estimates and assumptions, or if conditions are significantly different in the future. See
Forward-Looking Statements
below.
Listed below are those policies that we believe are critical and require the use of complex
judgment in their application. Our critical accounting policies are those related to (1)
homebuilding inventory valuation; (2) estimates to complete land development and home construction;
(3) warranty costs; and (4) litigation reserves.
Homebuilding Inventory Valuation.
Homebuilding inventories under development and construction
are carried at cost unless facts and circumstances indicate that the carrying value of the
underlying projects may be impaired, in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Impairment is determined by comparing the estimated
future cash flows (undiscounted and without interest charges) from an individual project to its
carrying value. If such cash flows are less than the projects carrying value, the carrying value
of the project is written down to its estimated fair value, less cost
to sell. Homebuilding inventories held for sale are
carried at the lower of cost or fair value, less selling costs, and are evaluated on an individual
asset basis. Fair value is determined by management estimate and incorporates anticipated future
revenues and costs. Due to uncertainties in the estimation process, it is at least reasonably
possible that actual results could differ from those estimates. We continue to evaluate the
carrying value of our inventory and, based on historical results, believe that our existing
estimation process is accurate and do not anticipate the process to materially change in the
future.
Estimates
to Complete Land Development and Home Construction.
When home sales revenue is
recognized upon home closing, an estimate
is made by the Company as to certain construction and land development costs incurred but not
yet paid at the time of closing. Estimated costs to complete a home are determined for each closed
home based upon historical data with respect to similar product types and geographical areas. We
monitor the accuracy of each monthly estimate by comparing actual costs incurred
subsequent to closing to the estimate made at the time of closing. We have made slight
modifications to the estimates based on these comparisons and will continue to monitor actual
results in the future. At December 31, 2004 and 2003, we had accruals of $35.4 million and $37.0
million, respectively. Historical estimates have been materially consistent with actual results. We do not expect
the estimates to materially change in the future, however actual results could differ from such estimates.
26
Warranty Costs.
The Companys homes are sold with limited warranties that generally provide
for ten years of structural coverage (structural warranty), two years of coverage for plumbing,
electrical and heating, ventilation and air conditioning systems, and one year of coverage for
workmanship and materials (general warranty). Warranty reserves are initially established as homes close
on a per-unit basis in an amount estimated to be adequate to cover expected costs of materials and
outside labor during warranty periods. Reserves are determined based upon historical experience
with respect to similar product types and geographical areas. Certain factors are given
consideration in determining the per-house reserve amount, including (1) the historical range of
amounts paid per house; (2) the historical average amount paid per house; (3) any warranty
expenditures included in (1) and (2) not considered to be normal and recurring; (4) improvements in
quality control and construction techniques expected to impact future warranty expenditures; and
(5) conditions that may affect certain projects and require higher per-house reserves for those
specific projects.
Warranty expenditures are tracked on a house-by-house basis and are charged against the
warranty reserve established for the house. Any expenditures incurred within 120 days of closing a
home are recorded against the estimate to complete land development and home construction accrual discussed above,
unless it is clear that the expenditure is a warranty claim. Expenditures incurred after
120 days of closing a home are considered warranty expenditures. Additional reserves are
established for known unusual warranty-related expenditures not covered by the initial warranty
reserves. If warranty expenditures for an individual house exceed the
related reserve, then costs in excess of the reserve are evaluated in the aggregate to determine if
an adjustment to housing cost of sales should be recorded.
Warranty reserves are reviewed quarterly, using historical data and other relevant
information, to determine the reasonableness and adequacy of both the reserve and the per unit
reserve amount initially included in cost of sales, as well as the timing of the reversal of the
reserve. Warranty reserves are included in corporate and homebuilding accounts payable and accrued
expenses in the consolidated balance sheets and totaled $64.4 million and $51.1 million,
respectively, at December 31, 2004 and 2003. Reserves carried over from prior years primarily are
the result of the Companys volume of homes closed increasing by over 200% in the last ten years,
giving rise to continuing warranty reserves that exceed current
expenditures. In addition, the carryover reserve includes additional
warranty reserves created pursuant to the qualified settlement fund. Due to uncertainties
in the estimation process, it is at least reasonably possible that actual results could differ from
those estimates. We continue to evaluate warranty reserves and, based on historical results,
believe that our existing estimation process is accurate and do not anticipate the process to
materially change in the future.
Litigation Reserves.
MDC and certain of our subsidiaries have been named as defendants in
various cases arising in the normal course of business. We have accrued for costs to be incurred
with respect to these cases based upon information provided by its legal counsel. Due to
uncertainties in the estimation process, it is at least reasonably possible that actual results
could differ from those estimates. At December 31, 2004 and 2003, we had accruals of $8.2 million
and $10.1 million, respectively. Historical estimates have been materially consistent with actual results. We do not
expect the estimates to materially change in the future, however due to uncertainties in the estimation process actual results could
differ from such estimates.
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based Payment
(SFAS 123(R)), which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation
(
SFAS 123
). SFAS 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to
Employees
, and amends SFAS Statement No. 95,
Statement of Cash Flows
. Generally, the approach in
Statement 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires
all share-based payments to employees, including grants of employee stock options, to be recognized
in the income statement based on their fair values. Pro forma disclosure is no longer an
alternative.
SFAS 123(R) must be adopted no later than July 1, 2005. SFAS 123(R) permits public companies
to adopt its requirements using one of two methods:
27
We expect to adopt SFAS 123(R) on July 1, 2005, and we currently are evaluating adoption
alternatives.
As permitted by SFAS 123, we currently account for share-based payments to employees using APB
Opinion No. 25s intrinsic value method and, as such, generally recognizes no compensation cost for
employee stock options. Accordingly, the adoption of SFAS 123(R)s fair value method will have a
significant impact on our results of operations, although it will have no impact on our overall
financial position. The impact of adoption of SFAS 123(R) in future
periods will depend on levels of share-based payments granted in the future. However, had we adopted
SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of
SFAS 123 as described in the disclosure of pro forma net income and
earnings per share as disclosed
in Note A under Stock-Based Compensation to our consolidated financial statements.
SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost
to be reported as a financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and increase net
financing cash flows in periods after adoption.
The amount of operating cash flows recognized in prior periods for the benefit of tax
deductions in excess of recognized compensation cost were $10.5 million, $7.2 million and $0 in 2004, 2003 and 2002, respectively.
OTHER
Forward-Looking Statements.
Certain statements in this Form 10-K Annual Report, the Companys Annual Report to
Shareowners, as well as statements made by us in periodic press releases, oral statements made by
our officials to analysts and shareowners in the course of presentations about the Company and
conference calls following quarterly earnings releases, constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. We have identified the
forward-looking statements in this Form 10-K by cross-referencing this section at the end of the
paragraph in which the forward-looking statement is located. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause the 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 factors
include, among other things, those listed below:
28
We undertake no obligation to publicly update any forward-looking statements, whether as a result
of new information, future events or otherwise. However, any further disclosures made on related
subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.
29
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks related to fluctuations in interest rates on mortgage loans
held in inventory and debt. Derivative instruments utilized in the normal course of business by
HomeAmerican include forward sales securities commitments, private investor sales commitments and
commitments to originate mortgage loans. We utilize these commitments to manage the price risk on
fluctuations in interest rates on our mortgage loans owned and commitments to originate mortgage
loans. Such contracts are the only significant financial derivative instruments utilized by MDC.
HomeAmerican provides mortgage loans that generally are sold forward and subsequently
delivered to a third-party purchaser within approximately 45 days. Forward commitments are used for
non-trading purposes to sell mortgage loans and hedge price risk due to fluctuations in interest
rates on rate-locked mortgage loans in process that have not closed. Due to this hedging
philosophy, the market risk associated with these mortgages is limited.
We utilize both short-term and long-term debt in our financing strategy. For fixed rate debt,
changes in interest rates generally affect the fair value of the debt instrument, but not our
earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do
not impact the fair value of the debt instrument, but may affect our future earnings and cash
flows. We do not have an obligation to prepay fixed rate debt prior to maturity and, as a result,
interest rate risk and changes in fair value should not have a significant impact on the fixed rate
debt until we would be required to refinance such debt.
As of December 31, 2004, short-term debt was $135.5 million, which consisted of amounts
outstanding on our Mortgage Line. The Mortgage Line is collateralized by mortgage loans and
mortgage-backed certificates and are limited to the value of eligible collateral as defined. We
borrow on a short-term basis from banks under committed lines of credit, which bear interest at the
prevailing market rates. Long-term debt obligations outstanding, their maturities and estimated
fair value at December 31, 2004 are as follows (in thousands).
We believe that our overall balance sheet structure has repricing and cash flow
characteristics that mitigate the impact of interest rate changes.
30
Item 8.
Consolidated Financial Statements.
M.D.C. HOLDINGS, INC.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
We have audited the accompanying consolidated balance sheets of M.D.C. Holdings, Inc. and
subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of income, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2004. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of M.D.C. Holdings, Inc. and subsidiaries at December
31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2004, in conformity with United States generally
accepted accounting principles.
We
also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of M.D.C. Holdings, Inc.s internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 15, 2005 expressed an unqualified opinion thereon.
Denver, Colorado
F-2
M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
F-3
M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
F-4
M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
F-5
M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
F-6
M.D.C. HOLDINGS, INC.
Supplemental Disclosure of Cash Flow Information (in thousands)
See notes to consolidated financial statements.
F-7
M.D.C. HOLDINGS, INC.
A. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of M.D.C.
Holdings, Inc. (MDC or the Company, which, unless otherwise indicated, refers to M.D.C.
Holdings, Inc. and its subsidiaries) include the accounts of MDC and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation.
Description of Business
The Company has determined that its reportable segments are
those that are based on its method of internal reporting, which disaggregates its business by
product category. MDCs products come from two segments, homebuilding and financial services. In
its homebuilding segment, through separate subsidiaries, the Company is engaged in the design,
construction and sale of single-family homes, as well as provides title agency services through its
wholly owned subsidiary American Home Title and Escrow Company. In the Companys financial services
segment, HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings, Inc.,
HomeAmerican) provides mortgage loans primarily to the Companys homebuyers (the mortgage lending
operations). The Company also makes available to its homebuyers third party homeowners, auto and
other types of insurance products through its wholly owned subsidiary American Home Insurance
Agency, Inc.
Presentation
The Companys balance sheet presentation is unclassified due to the
fact that certain assets and liabilities have both short and long-term characteristics.
Homebuilding.
Prepaid Expenses and Other Assets, Net
Homebuilding prepaid expenses and other
assets include qualified settlement fund (QSF) assets that are held for the processing and
disposition of eligible claims made under the warranties created pursuant to the settlement of
litigation commenced in 1994 and settled in November 1996. Available for sale investments included
in QSF assets are recorded on the consolidated balance sheets at fair value, which is based on
quoted prices, with the related unrealized gain or loss included in accumulated other comprehensive
income (loss). At December 31, 2004, MDC had intercompany notes payable (including accrued
interest) to the QSF, and the QSF had offsetting intercompany notes receivable from MDC, of $12.5
million, under a borrowing arrangement that was approved by the Colorado Division of Insurance.
The following table sets forth the information relating to homebuilding prepaid expenses and
other assets, net (in thousands).
Deferred Marketing Costs
Certain marketing costs related to model homes and sales
offices are capitalized as prepaid assets and amortized to selling, general and administrative
expenses as the homes in the related subdivision are closed. All other marketing costs are expensed
as incurred.
F-8
Intangible
Assets
The Companys intangible assets primarily consist of architectural
plans and third-party developer, subcontractor and customer relationships. Intangible amortization
expense was $2.0 million in 2004 and $0.2 million in 2003. No amortization expense was recorded in
2002. The estimated future aggregate amortization expense for existing intangible assets as of
December 31, 2004 is $3.2 million in 2005, $3.2 million in 2006 and $2.3 million in 2007.
The Company evaluates
the carrying value of these intangible assets in accordance with SFAS
No. 144. Intangible assets are reviewed for impairment on an annual basis and whenever events
indicate that their carrying amount may not be recoverable. Impairment is determined by comparing
the estimated future cash flows (undiscounted and without interest charges) from an individual
asset to its carrying value. If such cash flows are less than the assets carrying value, the
carrying value of the asset is written down to its fair value. As of December 31, 2004, the Company
did not have any impairments.
Revenue Recognition
Revenues from real estate sales are recognized in accordance
with SFAS No. 66 Accounting for Sales of Real Estate. The
Company records revenue at closing when a sufficient down payment has been received, financing has
been arranged, and title, possession and other attributes of ownership have been transferred to the
buyer and the Company is not obligated to perform significant additional activities after sale and
delivery.
Warranty Costs
The Companys homes are sold with limited warranties that generally
provide for ten years of structural coverage (structural warranty), two years of coverage for
plumbing, electrical and heating, ventilation and air conditioning systems, and one year of
coverage for workmanship and materials (general warranty). Warranty reserves are initially established as
homes close on a per-unit basis in an amount estimated to be adequate to cover expected costs of
materials and outside labor during warranty periods. Reserves are determined based upon historical
experience with respect to similar product types and geographical areas. Certain factors are given
consideration in determining the per-house reserve amount, including (1) the historical range of
amounts paid per house; (2) the historical average amount paid per
house; (3) any warranty
expenditures included in (1) and (2) not considered to be
normal and recurring; (4) improvements in
quality control and construction techniques expected to impact future
warranty expenditures; and (5)
conditions that may affect certain projects and require higher per-house reserves for those
specific projects.
Warranty expenditures are
tracked on a house-by-house basis and are charged against the
warranty reserve established for the house. Any expenditures incurred within 120 days of closing a
home are recorded against the estimate to complete land development and home construction accrual discussed below,
unless it is clear that the expenditure is a warranty claim. Expenditures incurred after
120 days of closing a home are considered warranty expenditures. Additional reserves are established for known unusual warranty-related expenditures not
covered by the initial warranty reserves. If warranty
expenditures for an individual house exceed the related reserve, then costs in excess of the
reserve are evaluated in the aggregate to determine if an adjustment to housing cost
of sales should be recorded.
Warranty reserves are reviewed quarterly, using historical data and other relevant
information, to determine the reasonableness and adequacy of both the reserve and the per unit
reserve amount initially included in cost of sales, as well as the timing of the reversal of the
reserve. Warranty reserves are included in corporate and homebuilding accounts payable and accrued
expenses in the consolidated balance sheets and totaled $64.4 million and $51.1 million,
respectively, at December 31, 2004 and 2003. The Companys volume of homes closed has increased by
over 200% in the last ten years, giving rise to warranty reserves that exceed current expenditures.
In addition, the carryover reserve includes additional warranty reserves created pursuant to the
QSF.
F-9
The following table summarizes the warranty activity for the years ended December 31, 2004,
2003 and 2002 (in thousands).
Homebuilding
Inventory Valuation
Homebuilding inventories under development and
construction are carried at cost unless facts and circumstances indicate that the carrying value of
the underlying projects may be impaired, in accordance with SFAS No. 144. Impairment is determined
by comparing the estimated future cash flows (undiscounted and without interest charges) from an
individual project to its carrying value. If such cash flows are less than the projects carrying
value, the carrying value of the project is written down to its estimated fair value, less cost to sell. Homebuilding
inventories held for sale are carried at the lower of cost or fair value, less selling costs, and
are evaluated on an individual asset basis. Fair value is determined by management estimate and
incorporates anticipated future revenues and costs. Due to uncertainties in the estimation process,
it is at least reasonably possible that actual results could differ from those estimates. The Company
continues to evaluate the carrying value of our inventory and, based on
historical results, believes that the existing estimation process is accurate and does not
anticipate the process to materially change in the future.
Estimates to Complete Land Development and Home Construction
When home sales revenue is
recognized upon home closing, an estimate
is made by the Company as to certain construction and land development costs incurred but not
yet paid at the time of closing. Estimated costs to complete a home are determined for each closed
home based upon historical data with respect to similar product types and geographical areas. The
Company monitors the accuracy of each monthly estimate by comparing actual costs incurred
subsequent to closing to the estimate made at the time of closing. The Company has made slight
modifications to the estimates based on these comparisons and will continue to monitor actual
results in the future. At December 31, 2004 and 2003, the Company had accruals of $35.4 million and
$37.0 million, respectively. Historical estimates have been materially consistent with actual results.
The Company does not expect the estimates to materially
change in the future, however actual results could differ from such estimates.
Variable interest entities
In the normal course of business, MDC enters into lot option purchase contracts, generally through a deposit of cash, for the right
to purchase land or lots at a future point in time with predetermined terms. The Companys liability with respect to option contracts generally is limited to
forfeiture of the related non-refundable cash deposits and letters of credit, which totaled approximately
$41.8 million and $22.1 million, respectively, at
December 31, 2004. At December 31, 2004, the Company had
the right to acquire 21,164 lots at an aggregate purchase price of
approximately $1.1 billion. Under FASBs Interpretation No. 46
(Consolidation of Variable Interest Entities) (FIN 46), certain of these contracts create a variable interest, with the land
seller being the variable interest entity (VIE). The Company has evaluated, based on the provisions of FIN 46, all lot option purchase contracts outstanding
as of December 31, 2004. In connection with this evaluation, the
Company requested financial information from these VIEs, assessed the market conditions where the Company has contracted with these VIEs, and evaluated whether the Company retains the risk
of loss from the VIEs activities or are entitled to receive a majority of the VIEs residual returns or both.
Based on this evaluation, MDC has determined that its interests in these VIEs do not result in significant variable interests or
require consolidation as MDCs interests do not qualify it as the primary beneficiary of residual returns or losses.
Financial Services.
Mortgage Loans Held in Inventory
The Company generally purchases forward commitments
to deliver mortgage loans held for sale. Mortgage loans held in inventory are stated at the lower
of aggregate cost or fair value based upon such commitments for loans to be delivered or prevailing
market for uncommitted loans. Substantially all of the loans originated by the Company are sold to
investors within 45 days of origination. Gains or losses on mortgage loans held in inventory are
realized when the loans are sold. Credit losses related to mortgage loans in inventory have been insignificant.
F-10
Revenue Recognition
Loan origination fees, net of certain direct loan origination
costs incurred, and loan commitment fees are deferred until the related loans are sold. Loan
servicing fees are recorded as revenue when the mortgage loan payments are received. Revenues from
the sale of mortgage loan servicing are recognized when title and all risks and rewards of
ownership have irrevocably passed to the buyer and there are no significant unresolved
contingencies.
Derivative Financial Instruments
Financial Accounting Standards Board (FASB) SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging Activities and SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No.
133), requires companies to recognize all of their derivative instruments as either assets or
liabilities in the balance sheets at fair value. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument depends on whether it has been properly
designated by a company as a hedging relationship and is determined to qualify for hedge
accounting. To qualify for hedge accounting under SFAS No. 133, at the inception of a hedge, a
company must formally document the relationship between the derivative instrument and the hedged
item, as well as the risk management objective, the strategy for undertaking the hedge
transactions, and the method the company will use to assess the hedges effectiveness in achieving
offsetting changes in fair value. In addition, the company must document the results of the method
used to assess hedge effectiveness on an ongoing basis.
If a company either does not properly designate the hedging relationship or subsequently
determines that the derivative instruments do not qualify for hedge accounting, the derivative
instruments are considered free standing derivatives. Free standing derivatives are
marked-to-market and included in the balance sheet as either derivative assets or liabilities with
corresponding changes in fair value recorded in income as they occur.
The Company utilizes certain derivative instruments in the normal course of operations. These
instruments include forward sales of mortgage-backed securities commitments, private investor sales
commitments and commitments to originate mortgage loans (interest rate lock commitments or locked
pipeline), all of which typically are short-term in nature. Forward sales securities commitments
and private investor sales commitments are utilized to hedge changes in fair value of mortgage loan
inventory and commitments to originate mortgage loans.
For the year ended December 31, 2002, the Company determined that its derivative instruments
qualified for SFAS No. 133 hedge accounting as fair value hedges and the resulting adjustments
related to this qualification were immaterial to the Companys financial position and results of
operations. Additionally, the Company marked-to-market its mortgage loan inventory in accordance
with SFAS No. 133. During 2004 and 2003, the Company did not designate its derivatives as hedging
instruments and recorded its forward sales commitments and its locked pipeline as free standing
derivatives and applied the lower-of-cost-or-market method to account for mortgage loan inventory
in accordance with SFAS No. 65, Accounting for Certain Mortgage Banking Activities. The effect of
not designating the derivatives as hedging instruments did not impact materially the Companys
results of operations for 2004 and 2003.
Mortgage Servicing Rights
The Company allocates the cost of mortgage loans
originated between the mortgage loans and the right to service those mortgage loans, based on
relative fair value, on the date the loan is sold. Mortgage servicing rights (Servicing Rights)
of $8.9 million and $11.6 million were capitalized during 2004 and 2003, respectively. Servicing
Rights are amortized over the estimated period of net servicing revenues. The cost attributed to
the Servicing Rights sold and the amortization of Servicing Rights was $8.9 million and $11.7
million for 2004 and 2003, respectively. Servicing Rights are evaluated for impairment by
stratifying the portfolio based on loan type and interest rate. As of December 31, 2004 and 2003,
the Company had unamortized Servicing Rights of $0.1 million
with no related impairment as of both periods ended, included in financial services other assets, net in the consolidated balance sheets.
F-11
General.
Cash and Cash Equivalents
The Company periodically invests funds not immediately
required for operating purposes in highly liquid, short-term investments with an original maturity
of 90 days or less, such as
commercial paper, money market funds and repurchase agreements, which are included in cash and cash
equivalents in the consolidated balance sheets and consolidated statements of cash flows.
Property and Equipment
Property and equipment is carried at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets, which range from two to 15 years.
Depreciation expense was $8.0 million, $5.1 million and $3.5 million for the years ended December
31, 2004, 2003 and 2002, respectively. Accumulated depreciation as of December 31, 2004 and 2003
was $22.0 million and $15.6 million, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising
expense was $26.4 million, $23.6 million and $20.4 million for the years ended December 31, 2004,
2003 and 2002, respectively.
Stock-Based Compensation
The Company grants options to certain employees and
directors to acquire a fixed number of shares with an exercise price not less than the fair market
value of the Companys common stock on the date of grant. The Company also makes restricted stock
grants to employees, which are valued based on the market price of MDCs common stock at the grant
dates and vest over four years. Unearned compensation arising from the restricted stock grants is
shown as a reduction in stockholders equity in the consolidated balance sheets and is amortized to
expense over the vesting period. The expense recognized in the consolidated income statement for
the years ended December 31, 2004, 2003 and 2002 was $0.5 million, $0.5 million and $0.2 million,
respectively.
The Company has elected to account for stock options using the intrinsic value method as
prescribed by Accounting Principles Board Opinion (APB) No. 25 and related interpretations and,
has recorded no compensation expense in the determination of net income in the years ended
December 31, 2004, 2003 and 2002. The following table illustrates the effect on net income and
earnings per share if the fair value method had been applied to all outstanding and unvested awards
in each of the following years (in thousands, except per share amounts).
The following table is a summary of the average fair values of options granted during 2004,
2003 and 2002 on the date of grant using the Black-Scholes option pricing model with the
assumptions used for the expected volatility, risk free interest rate and dividend yield rate.
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Other Comprehensive Income
The accumulated balances related to each component of
other comprehensive income (loss) are as follows (in thousands).
Estimates in Financial Statements
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Such
estimates include warranty, other accrued expenses, litigation reserves, estimates to complete land
development and construction and estimates related to potential asset impairment charges.
Litigation Reserves
MDC and certain of our subsidiaries have been named as
defendants in various cases arising in the normal course of business.
The Company has accrued for
costs to be incurred with respect to these cases based upon information provided by its legal
counsel. Due to uncertainties in the estimation process, it is at least reasonably possible that
actual results could differ from those estimates. At December 31, 2004 and 2003, the Company had
accruals of $8.2 million and $10.1 million, respectively.
Historical estimates have been materially consistent with actual
results. We do not expect the estimates to materially change in the
future, however due to uncertainties in the estimation process actual
results could differ from such estimates.
Recent Statements of Financial Accounting Standards
On December 16, 2004, the FASB
issued SFAS No. 123 (revised 2004),
Share-Based Payment
(SFAS 123(R)), which is a revision of
SFAS No. 123,
Accounting for Stock-Based
Compensation
(
SFAS 123
). SFAS 123(R) supersedes APB
Opinion No. 25,
Accounting for Stock Issued to
Employees
, and amends SFAS Statement No. 95,
Statement of Cash Flows
. Generally, the approach in Statement 123(R) is similar to the approach
described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative.
SFAS 123(R) must be adopted no later than July 1, 2005. SFAS 123(R) permits public companies
to adopt its requirements using one of two methods:
The
Company expects to adopt SFAS 123(R) on July 1, 2005 and is
currently evaluating adoption alternatives.
As permitted by SFAS 123, the Company currently accounts for share-based payments to employees
using Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of SFAS 123(R)s fair value method will have
a significant impact on the Companys results of operations, although it will have no impact on the
Companys overall financial position. The impact of adoption of
SFAS 123(R) in future periods will depend on levels of share-based payments granted in the future. However,
had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would have
approximated the impact of SFAS 123 as described in the disclosure of pro forma net
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income and earnings per share
as disclosed above in this Note A under Stock-Based Compensation to
the Companys consolidated financial statements. SFAS 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash flows
in periods after adoption. The amount of operating cash flows
recognized in prior periods for the benefit of tax deductions in
excess of recognized compensation cost were $10.5 million, $7.2 million and $0
in 2004, 2003 and 2002, respectively.
B. Information on Business Segments
The Company operates in two business segments homebuilding and financial services. A
summary of the Companys business segments is shown below (in thousands).
Corporate general and administrative expenses consist principally of salaries and other
administrative expenses that are not identifiable to a specific segment. Transfers between
segments are recorded at cost. Capital expenditures and related depreciation and amortization for
the years ended December 31, 2004, 2003 and 2002 were not material. Identifiable segment assets
are shown on the face of the consolidated balance sheets.
F-14
C. Mortgage Loans Held in Inventory
The following table sets forth the information relating to mortgage loans held in inventory
(in thousands).
Mortgage loans held in inventory consist primarily of loans collateralized by first mortgages
and deeds of trust due over periods of up to 30 years. The weighted-average effective yield on
mortgage loans held in inventory was approximately 5.7% and 5.9% at December 31, 2004 and 2003,
respectively.
D. Lines of Credit
Homebuilding
The Companys homebuilding line of credit (Homebuilding Line) is an
unsecured revolving line of credit with a group of lenders for support of our homebuilding
operations. During April 2004, the Company renewed the Homebuilding Line, increasing the aggregate
commitment amount to $700 million and extending the maturity date to April 7, 2009. In addition,
the facilitys provision for letters of credit was increased to an available aggregate amount of
$350 million. The facility permitted an increase in the maximum commitment amount to $850 million
upon the Companys request, subject to receipt of additional commitments from existing or
additional participant lenders. At December 31, 2004, there were
no borrowings outstanding and $67.0 million in
letters of credit had been issued under the Homebuilding Line. The Company could have borrowed
funds at interest rates ranging from 2.5% to 5.25%.
Mortgage Lending
The Companys mortgage line of credit (Mortgage Line) has a
borrowing limit of $175 million with terms that allow for increases of up to $50 million in the
borrowing limit to a maximum of $225 million, subject to concurrence by the participating banks.
The terms of the Mortgage Line are set forth in the Third Amended and Restated Warehousing Credit
Agreement dated as of October 23, 2003, as amended by the First Amendment dated as of February 27,
2004 and the Second Amendment dated as of September 28, 2004. Available borrowings under the
Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited
to the value of eligible collateral as defined. At December 31, 2004, $135.5 million was
borrowed and an additional $23.9 million was collateralized and available to be borrowed. The
Mortgage Line is cancelable upon 120 days notice. At December 31, 2004 and 2003, the interest rates
on the Mortgage Line were 3.4% and 2.3%, respectively.
General
The agreements for the Companys bank lines of credit and the indentures for
the Companys senior notes require compliance with certain representations, warranties and
covenants. The Company believes that it is in compliance with these representations, warranties
and covenants and the Company is not aware of any covenant violations. The agreements containing
these representations, warranties and covenants for the bank lines of credit and the indentures for
the Companys senior notes are on file with the Securities and Exchange Commission and are listed
in the Exhibit Table in Part IV of this Annual Report on Form 10-K.
The financial covenants contained in the Homebuilding Line credit agreement include a leverage
test and a consolidated tangible net worth test. Under the leverage test, generally, the Companys
consolidated indebtedness is not permitted to exceed 55% (subject to adjustment in certain
circumstances) of the sum of consolidated indebtedness and the Companys adjusted consolidated
tangible net worth, as defined. Under the consolidated
F-15
tangible net worth test, the Companys adjusted consolidated tangible net worth, as defined, must
not be less than the sum of (1) $776,018,000; (2) 50% of consolidated net income, as defined, of
the borrower, as defined, and the guarantors, as defined, after December 31, 2003; and (3) 50%
of the net proceeds or other consideration received for the issuance of capital stock after
December 31, 2003. Failure to satisfy the financial covenant tests could result in a scheduled
term-out of the facility. In addition, consolidated tangible net worth, as defined, must not be
less than the sum of (1) $485,011,000; (2) 50% of the quarterly consolidated net income of
borrower and the guarantors earned after December 31, 2003; and (3) 50% of the net proceeds or
other consideration received for the issuance of capital stock after December 31, 2003. Failure to
satisfy this covenant could result in a termination of the facility. The Company believes that it
is in full compliance with these covenants and is not aware of any covenant violations.
The Companys senior notes are not secured and the senior notes indentures do not contain
financial covenants. The senior notes are fully and unconditionally guaranteed on an unsecured
basis, jointly and severally, by most of the Companys homebuilding segment subsidiaries.
E. Senior Notes and Total Debt Obligations
In December 2002, the Company completed a public offering of $150 million principal amount of
7% senior notes due December 2012 (the 7% Senior Notes) at a discount, with an effective yield of
7.30%. The principal amount outstanding, net of unamortized discount, at December 31, 2004 was
$148.7 million. Interest is due and payable on June 1 and December 15 of each year until maturity.
The Company does not make any principal payments and the 7% Senior Notes are fully due in December
2012. The 7% Senior Notes are guaranteed by certain of the Companys subsidiaries and may be
redeemed, at the election of the Company, in whole at any time or in part from time to time, at the
redemption prices set forth in the 7% Senior Notes supplemental indenture.
In May 2003, the Company completed a public offering of $150 million principal amount of 5 1/2%
senior notes due May 2013 (the 5 1/2% Senior Notes) at a discount, with an effective yield of 5.74%.
Also in May 2003, the Company redeemed $175 million
principal amount of its 8 3/8% senior notes due
2008 (the 8 3/8% Senior Notes). The 8 3/8% Senior Notes were redeemed at 104.188% of their principal
amount, or $182.3 million, plus accrued and unpaid interest through the date of redemption. In
compliance with SFAS No. 145, the expenses related to this debt redemption of $9.3 million are no
longer treated as an extraordinary loss. In December 2003, the Company issued an additional $200
million principal amount of the 5 1/2% Senior Notes at a premium, with an effective yield of 5.57%.
The 5 1/2% Senior Notes have interest due and payable on May 15 and November 15 of each year until
maturity. The Company does not make any principal payments and the 5 1/2% Senior Notes are fully due
in May 2013. The 5 1/2% Senior Notes are guaranteed by certain of the Companys subsidiaries and may
be redeemed, at the election of the Company, in whole at any time or in part from time to time, at
the redemption prices set forth in the 5 1/2% Senior Notes supplemental indenture.
In December 2004, the Company completed a public offering of $250 million principal amount of
5 3/8% medium-term senior notes due December 2014 (the 5 3/8% Medium-Term Senior Notes) at a discount,
with an effective yield of 5.55%. The 5 3/8% Medium-Term Senior Notes have interest due and payable
on June 15 and December 15 of each year until maturity. The Company does not make any principal
payments and the 5 3/8% Medium-Term Senior Notes are fully due in December 2014. The 5 3/8% Medium-Term
Senior Notes are guaranteed by certain of the Companys subsidiaries and may be redeemed, at the
election of the Company, in whole at any time or in part from time to time, at the redemption
prices set forth in the 5 3/8% Medium-Term Senior Notes supplemental indenture.
F-16
The Company classifies the senior notes as corporate liabilities due to the fact that M.D.C.
Holdings, Inc. is the borrower and the senior notes are guaranteed by certain homebuilding
subsidiaries. The Companys total debt obligations as of December 31, 2004 and 2003 are as follows
(in thousands).
F. Retirement Plans
In October 1997, the Company established a defined benefit retirement plan (the Retirement
Plan) for two executive officers of the Company under which the Company agreed to make future
payments that have a projected benefit obligation of $11.8 million at December 31, 2004. The
Retirement Plan is not funded and benefits were fully vested as of December 31, 2004, the
measurement date, for both participants. Unrecognized prior service cost of $1.6 million at
December 31, 2004 is being recognized over the officers average estimated service periods.
Included on the December 31, 2004 consolidated balance sheet is an intangible asset of $1.6 million
related to unamortized prior service cost and a corresponding accrued pension liability of $2.1
million and an accumulated other comprehensive loss of $0.5 million. Accrued benefit costs as of
December 31, 2004 and 2003 were $8.1 million and
$6.9 million, respectively. The aggregate benefit payments over
the next five years are expected to be $1.5 million. Below is a summary of
the changes in the projected benefit obligation, the assumptions used in its calculation and the
components of Retirement Plan expense for each of the years ended December 31, 2004, 2003 and 2002
(dollars in thousands).
The Company sponsors a Section 401(k) defined contribution plan that is available to all
of the Companys eligible employees. At its discretion, the Company may make annual matching
contributions. The matching
F-17
contributions have been funded with shares of MDC common stock, and the expense recognized by
the Company for 2004, 2003 and 2002 was $3.2 million, $3.7 million and $3.4 million, respectively.
G. Stockholders Equity
Stock Dividends and Stock Splits
On December 14, 2004, MDCs board of directors
declared a stock split in the form of a stock dividend that was distributed on January 10,
2005. On February 23, 2004, MDCs board of directors declared a 10% stock dividend that was
distributed on March 23, 2004 to shareowners of record on March 8, 2004. In accordance with SFAS
No. 128, Earnings per Share, basic and diluted net income per share amounts, weighted-average
shares outstanding, and dividends declared per share have been
restated for all periods presented to
reflect the effect of all stock dividends and splits.
Equity Incentive Plans
A summary of the Companys equity incentive plans follows.
Employee Equity Incentive Plans In June 1993, the Company adopted the Employee Equity
Incentive Plan (the Employee Plan). The Employee Plan provided for an initial authorization of
2,795,100 shares of MDC common stock (restated for stock dividends and the stock split) for
issuance thereunder, plus an additional annual authorization equal to 10% of the then authorized
shares of MDC common stock under the Employee Plan as of each succeeding annual anniversary of the
effective date of the Employee Plan. Under the Employee Plan, the Company could grant awards of
restricted stock, incentive and non-statutory stock options and dividend equivalents, or any
combination thereof, to officers and employees of the Company or any of its subsidiaries. The
incentive and non-statutory stock options granted under the Employee Plan are exercisable at prices
not less than the market value on the date of grant over periods of up to six years. In 2003,
options to purchase 325,611 shares of MDC common stock and 12,793 shares of restricted stock were
awarded under the Employee Plan. The Companys ability to make further grants under the Employee
Plan terminated pursuant to its terms on April 20, 2003.
In March 2001, the Company adopted the M.D.C. Holdings, Inc. 2001 Equity Incentive Plan (the
Equity Incentive Plan). The Equity Incentive Plan provided for an initial authorization of
3,460,000 shares of MDC common stock (restated for all stock dividends and the stock split) for
issuance thereunder, plus an additional annual authorization equal to 10% of the authorized shares
of MDC common stock under the Equity Incentive Plan. In April 2003, an additional 1,573,000 shares
were authorized for issuance by vote of the Companys shareowners (restated for the March 23, 2004
stock dividend and the January 10, 2005 stock split). The Equity Incentive Plan provides for the
grant of non-qualified stock options, incentive stock options, stock appreciation rights,
restricted stock, stock units and other stock grants to employees of the Company. Incentive stock
options granted under the Equity Incentive Plan must have an exercise price that is at least equal
to the fair market value of the common stock on the date the incentive stock option is granted. In
2004, options to purchase 1,080,755 shares of MDC common stock and 13,391 shares of restricted
stock were awarded under the Equity Incentive Plan, which vest over a period of up to seven years.
Director Equity Incentive Plans In March 2001, the Company adopted the M.D.C. Holdings, Inc.
Stock Option Plan for Non-Employee Directors (the Director Stock Option Plan). Under the
Director Stock Option Plan, non-employee directors of the Company are granted non-qualified stock
options. The Director Stock Option Plan provided for an initial authorization of 865,000 shares of
MDC common stock (restated for all stock dividends and the stock split) for issuance thereunder,
plus an additional annual authorization of shares equal to 10% of the then authorized shares of MDC
common stock under the Director Stock Option Plan. Pursuant to the Director Stock Option Plan, on
October 1 of each year, each non-employee director of the Company is granted options to purchase
25,000 shares of MDC common stock. Each option granted under the Director Stock Option Plan vests
immediately and expires ten years from the date of grant. The option exercise price must be equal
to 100% of the market value of the MDC common stock on the date of grant of the option.
F-18
A summary of the changes in stock options during each of the years ended December 31,
2004, 2003 and 2002 is as follows, restated as applicable for stock dividends and the stock split
(in shares of MDC common stock).
The following table summarizes information concerning outstanding and exercisable options
at December 31, 2004.
MDC Common Stock Repurchase Programs
On March 24, 2003, the MDC board of
directors authorized the repurchase of up to an additional 1,350,000 shares of MDC common stock,
bringing the total authorization under the Companys stock repurchase program to 4,350,000 shares.
The Company repurchased a total of 727,100 shares, prior to the March 23, 2004 10% stock dividend
and the January 10, 2005 1.3 for 1 stock split, of MDC common stock in the first quarter of 2003,
bringing the total shares repurchased to 2,580,400. No shares of MDC common stock were repurchased
in the second, third or fourth quarters of 2003, leaving 1,769,600 shares available to be
repurchased as of December 31, 2003 under this program. The per share prices, including
commissions, for the 727,100 shares repurchased ranged from $25.15 to $27.29 with an average cost
of $25.71, adjusted for the March 23, 2004 10% stock dividend and January 10, 2005 1.3 for 1 stock
split. At December 31, 2003, the Company held 4,007,000 shares of treasury stock with an average
purchase price of approximately $12.56 per share.
During
the 2004 second quarter, the Company repurchased 155,000 shares of MDC common stock,
adjusted for the 1.3 for 1 stock split. No shares of MDC common stock were repurchased in the
first, third or fourth quarters of 2004. As of December 31, 2004 the Company had repurchased
3,509,000 shares of MDC common stock, leaving 2,145,000 shares available to be repurchased as of
December 31, 2004 under this program. At December 31, 2004, the Company held 31,000 shares of
treasury stock with an average purchase price of approximately $43.97 per share.
F-19
H. Supplemental Balance Sheet Information
The following table sets forth information relating to homebuilding accounts payable and
accrued liabilities (in thousands):
I. Interest Activity
The Company capitalizes interest incurred on its corporate and homebuilding debt during the
period of active development and through the completion of construction of its homebuilding
inventories. Corporate and homebuilding interest incurred but not capitalized is reported as
interest expense. Interest incurred by the financial services segment is charged to interest
expense, which is deducted from interest income and reported as net interest income in Note B.
Interest activity, in total and by business segment, is shown below (in thousands).
F-20
J. Income Taxes
The significant components of the provision for income taxes are as follows (in thousands).
The provision for income taxes differs from the amount that would be computed by applying the
statutory federal income tax rate of 35% to income before income taxes as a result of the following
(in thousands).
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of the assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The tax effects of significant temporary differences that give rise
to the net deferred tax asset are as follows (in thousands).
F-21
K. Earnings Per Share
Pursuant to SFAS No. 128, Earnings per Share, the computation of diluted earnings per share
takes into account the effect of dilutive stock options. Weighted-average shares outstanding and
per share amounts have been adjusted for the effects of the 10% stock dividend distributed on March
23, 2004, as well as the 1.3 for 1 stock split effective January 10, 2005. The basic and diluted
earnings per share calculations are shown below (in thousands, except per share amounts).
L. Legal Proceedings
In the normal course of business, the Company is a defendant in cases primarily relating to
construction defects. These cases seek relief from the Company under various theories, including
breach of implied and express warranty, negligence, strict liability, misrepresentation and
violation of consumer protection statutes. The Company has reserved for these cases based upon
information provided to it by its legal counsel, including counsels ongoing evaluation of the
merits of the claims and defenses and the likelihood of the Company prevailing in these cases. In
the opinion of management, the outcome of these matters will not have a material adverse effect
upon the financial condition, results of operations or cash flows of the Company.
M. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments at December 31, 2004 and 2003.
Cash and Cash Equivalents
For cash and cash equivalents, the carrying value is a
reasonable estimate of fair value.
Investments and Marketable Securities, Net
Investments in marketable equity
securities (other than the QSF assets, see Note A) are recorded on the balance sheet at cost, which
approximates market value. Accordingly, the carrying value of the investment is a reasonable
estimate of the fair value.
Mortgage Loans Held in Inventory
The Company generally purchases forward commitments
to deliver mortgage loans held for sale. For loans that have no forward commitments, loans in
inventory are stated at the lower of cost or market. The carrying value is a reasonable estimate
of fair value.
Lines of Credit
The Companys lines of credit are at floating rates or at fixed
rates that approximate current market rates and have relatively short-term maturities. The
carrying value is a reasonable estimate of fair value.
F-22
Senior Notes
The estimated fair value of the senior notes in the following table are
based on dealer quotes (in thousands).
N. Commitments and Contingencies
The Company believes that it is subject to risks and uncertainties common to the homebuilding
industry, including (1) cyclical markets sensitive to changes in general and local economic
conditions; (2) volatility of interest rates, which affects homebuilding demand and may affect
credit availability; (3) seasonal nature of the business due to weather-related factors; (4)
significant fluctuations in the price of building materials, particularly lumber, and of finished
lots and subcontract labor; (5) counter-party non-performance risk associated with performance
bonds; (6) competition; (7) the availability and cost of performance bonds and insurance covering
risks associated with our business; (8) slow growth initiatives; (9) building moratoria; (10)
governmental regulation, including the interpretation of tax, labor and environmental laws; and
(11) changes in consumer confidence and preferences. The Companys operations are concentrated in
the geographic regions of Colorado, Virginia, Maryland, California,
Arizona, Nevada, Utah, Texas, Illinois, Philadelphia/Delaware Valley and Florida.
The
Company has purchase obligations relating to open work orders and
estimates for land to be developed and homes under construction for
which the Company has not received an invoice for work to be
completed totaling $142.9 million at December 31, 2004.
To reduce exposure to fluctuations in interest rates, HomeAmerican makes commitments to
originate (buy) and sell loans and mortgage-backed securities. At December 31, 2004, commitments
by HomeAmerican to originate mortgage loans totaled $69.9 million at market rates of interest. At
December 31, 2004, unexpired short-term forward commitments to sell loans totaled $77.1 million at
market rates of interest.
MDC leases office space, equipment and certain of its model show homes under non-cancelable
operating leases. Future minimum rental payments for leases with initial terms in excess of one
year total $12.5 million in 2005, $10.6 million in 2006, $9.3 million in 2007, $8.6 million in 2008
and $6.2 million in 2009 and thereafter. Rent expense under cancelable and non-cancelable leases
totaled $16.4 million, $12.1 million and $8.4 million in 2004, 2003 and 2002, respectively.
The Company often is required to obtain bonds and letters of credit in support of its related
obligations with respect to subdivision improvement, homeowners association dues and start-up
expenses, warranty work, contractors license fees, earnest money deposits, etc. At December 31,
2004, the Company had issued and outstanding performance bonds and letters of credit totaling
$306.8 million and $94.7 million, respectively, including
$25.6 million in letters of credit issued by HomeAmerican. In
the event any such bonds or letters of credit issued by third parties are called, MDC would be
obligated to reimburse the issuer of the bond or letter of credit.
O. Related Party Transactions
MDC has transacted business with related or affiliated companies and with certain officers and
directors of the Company.
Certain affiliates of an officer and director of the Company sublease office space from the
Company, for which they paid rent, including parking, of approximately $0.1 million for the years
ended December 31, 2004 and 2003, respectively.
Gilbert Goldstein, P.C., a law firm of which a director of the Company is the sole
shareholder, was paid legal fees of $0.3 million, $0.2 million, and $0.2 million in 2004, 2003, and
2002.
F-23
The spouse of an officer and director of the Company owns a company that provides consulting
services to the Company. Total fees paid for these services were $0.2 million in 2004, 2003 and
2002, respectively.
During 2004, the Company contributed 115,296 shares, adjusted for the 1.3 for 1 stock split,
of MDC common stock then valued at $6.3 million to the M.D.C. Holdings, Inc. Charitable Foundation
(the Foundation), a Delaware not-for-profit corporation that was incorporated on September 30,
2000. During 2003, the Company contributed 88,989 shares, adjusted for 1.3 for 1 stock split, then
valued at $4.0 million to the Foundation. The Company made no contributions to the Foundation in 2002. The
Foundation is a nonprofit organization operated exclusively for charitable, educational and other
purposes beneficial to social welfare within the meaning of section 501 (c)(3) of the Internal
Revenue Code. Certain directors and officers of the Company are the trustees and officers of the
Foundation. The Foundation takes action with respect to shares held by it, including the voting of
such shares, by majority vote of the five member board of trustees and, accordingly, none of the
trustees should be considered to beneficially own such shares.
P. Summarized Quarterly Consolidated Financial Information (Unaudited)
Unaudited summarized quarterly consolidated financial information for the two years ended
December 31, 2004 is as follows (in thousands, except per share amounts). Weighted-average shares
outstanding and per share amounts have been adjusted for the effects of the 10% stock dividend
distributed on March 23, 2004, as well as the January 10, 2005 1.3 for 1 stock split.
F-24
Q. Supplemental Guarantor Information
The Companys senior notes are fully and unconditionally guaranteed on an unsecured basis,
jointly and severally by the following subsidiaries (collectively, the Guarantor Subsidiaries).
Subsidiaries that do not guarantee the Companys senior notes (collectively, the
Non-Guarantor Subsidiaries) primarily consist of.
The Company has determined that separate, full financial statements of the Guarantor
Subsidiaries would not be material to investors and, accordingly, supplemental financial
information for the Guarantor Subsidiaries is presented.
F-25
M.D.C. Holdings, Inc.
F-26
M.D.C. Holdings, Inc.
F-27
M.D.C. Holdings, Inc.
Year Ended December 31, 2003
F-28
M.D.C. Holdings, Inc.
F-29
M.D.C. Holdings, Inc.
Year Ended December 31, 2003
F-30
M.D.C. Holdings, Inc.
F-31
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
.
None.
Item 9A.
Controls and Procedures
.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Companys disclosure
controls and procedures was performed under the supervision, and with the participation, of the
Companys management, including the chief executive officer and the chief financial officer. Based
on that evaluation, the Companys management, including the chief executive officer and chief
financial officer, concluded that the Companys disclosure controls and procedures were effective
as of the end of the period covered by this report.
Managements Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting. Under the supervision and with the participation of our management, including
the chief executive officer and the chief financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in
Internal
Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in
Internal Control Integrated Framework,
management concluded that our internal control over financial reporting was effective as of
December 31, 2004.
Managements assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
the fourth quarter that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of M.D.C. Holdings, Inc.
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that M.D.C. Holdings, Inc. and subsidiaries (the
Company) maintained effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Companys management
is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that M.D.C. Holdings, Inc. and subsidiaries maintained
effective internal control over financial reporting as of December 31, 2004, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, M.D.C. Holdings, Inc. and
subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO criteria
.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the accompanying consolidated balance sheets of M.D.C. Holdings, Inc. and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three years in the period ended December 31,
2004, and our report dated February 15, 2005 expressed an unqualified opinion thereon.
32
Item 9B.
Other Information.
None
PART III
Item 10.
Directors and Executive Officers of the Registrant
.
The information required with respect to directors and executive officers is incorporated
herein by reference, when filed, from the Companys proxy statement (the Proxy Statement) for the
Annual Meeting of Stockholders to be held on or about April 21, 2005, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act
of 1934, as amended (the Exchange Act). The information with respect to our audit committee
financial expert is incorporated herein by reference, when filed, from the Proxy Statement.
We will provide to any shareholder or other person without charge, upon request, a copy of our
Corporate Code of Conduct, Corporate Governance Guidelines, code of ethics applicable to our chief
executive officer and senior financial officers and the charters for our Audit Committee,
Compensation Committee and Corporate Governance/Nominating Committee. You may obtain these
documents on our website at http://www.richmondamerican.com, under our Investor Relations section
or by contacting our Investor Relations department at 303-804-7708. Our intention is to post on our
website any amendments to or waivers from our code of ethics applicable to our chief executive
officer and senior financial officers if such disclosure is required.
The information regarding filings under Section 16(a) of the Exchange Act is incorporated
herein by reference, when filed from the Proxy Statement.
Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, the
Company submitted the Annual CEO Certification to the NYSE on May 14, 2004.
Item 11.
Executive Compensation
.
Information required to be set forth hereunder has been omitted and will be incorporated by
reference, when filed, from the Companys Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management
.
The following table provides information as of December 31, 2004 with respect to the shares of
MDC common stock that may be issued under existing equity compensation plans, all of which have
been approved by the shareowners.
Please refer to the discussion of the Companys equity incentive plans in Note G to the
Companys consolidated financial statements for a description of the plans and the types of grants,
in addition to options, that may be made under the plans. The referenced discussion also describes
the formula by which the number of securities available for issuance under the current plans
automatically increases.
33
Other information required to be set forth hereunder has been omitted and will be incorporated
by reference, when filed, from the Companys Proxy Statement.
Item 13.
Certain Relationships and Related Transactions
.
Information required to be set forth hereunder has been omitted and will be incorporated by
reference, when filed, from the Companys Proxy Statement.
Item 14.
Principal Accountant Fees and Services.
Information required to be set forth hereunder has been omitted and will be incorporated by
reference, when filed, from the Companys Proxy Statement.
34
PART IV
Item 15.
Exhibits, Financial Statement Schedules
.
(a)(1) Financial Statements.
The following consolidated financial statements of the Company and its subsidiaries are
included in Part II, Item 8.
(a)(2) Financial Statement Schedules.
All schedules are omitted because they are not applicable, not material, not required or the
required information is included in the applicable financial statements or notes thereto.
(a)(3) Exhibits.
35
36
37
38
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on this 17
th
day of February,
2005 on its behalf by the undersigned, thereunto duly authorized.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or directors of the
Registrant, by virtue of their signatures to this report, appearing below, hereby constitute and
appoint Larry A. Mizel, David D. Mandarich and Paris G. Reece III, or any one of them, with full
power of substitution, as attorneys-in-fact in their names, places and steads to execute any and
all amendments to this report in the capacities set forth opposite their names and hereby ratify
all that said attorneys-in-fact do by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
(A Majority of the Board of Directors)
40
INDEX TO EXHIBITS
41
42
43
44
Three Months Ended
March 31
June 30
September 30
December 31
$
55.26
$
55.19
$
58.15
$
67.11
$
40.04
$
43.13
$
46.19
$
51.54
$
26.54
$
37.17
$
38.52
$
49.58
$
22.66
$
23.93
$
33.05
$
37.48
Date of
Date of
Dividend
Declaration
Payment
per Share
Dollars
January 26, 2004
February 26, 2004
$
0.0874
$
3,694
April 27, 2004
May 26, 2004
0.1154
4,892
July 27, 2004
August 25, 2004
0.1154
4,898
October 25, 2004
November 23, 2004
0.1154
5,140
$
0.4336
$
18,624
January 21, 2003
February 21, 2003
$
0.0509
$
2,121
April 28, 2003
May 27, 2003
0.0572
2,341
August 4, 2003
August 28, 2003
0.0874
3,629
October 20, 2003
November 19, 2003
0.0874
3,721
$
0.2829
$
11,812
Table of Contents
Registration Statement No.
Additional Number of Shares
433,915
202,658
878,334
435,562
330,421
Table of Contents
Year Ended December 31,
2004
2003
2002
2001
2000
$
4,009,072
$
2,920,070
$
2,318,524
$
2,125,874
$
1,751,545
$
719,197
$
393,879
$
295,604
$
279,267
$
227,319
16,579
26,983
24,194
21,116
14,282
1,904
1,294
18,483
28,277
24,194
21,116
14,282
(100,766
)
(73,933
)
(45,754
)
(44,996
)
(38,400
)
$
636,914
$
348,223
$
274,044
$
255,387
$
203,201
$
391,165
$
212,229
$
167,305
$
155,715
$
123,303
$
9.19
$
5.11
$
3.97
$
3.75
$
3.02
$
8.79
$
4.90
$
3.83
$
3.64
$
2.95
42,560
41,521
42,103
41,560
40,858
44,498
43,333
43,657
42,836
41,773
$
0.434
$
0.283
$
0.197
$
0.153
$
0.126
December 31,
2004
2003
2002
2001
2000
$
408,150
$
173,565
$
28,942
$
36,600
$
14,115
$
851,628
$
732,744
$
578,475
$
456,752
$
443,512
$
1,109,953
$
763,569
$
656,843
$
450,502
$
388,711
$
2,790,044
$
1,969,800
$
1,595,180
$
1,190,956
$
1,061,598
$
$
$
$
$
90,000
$
746,310
$
497,700
$
322,990
$
174,503
$
174,444
$
$
2,479
$
$
$
$
746,310
$
500,179
$
322,990
$
174,503
$
264,444
$
1,418,821
$
1,015,920
$
800,567
$
653,831
$
482,230
$
32.80
$
24.06
$
19.25
$
15.64
$
11.96
.53
.49
.40
.27
.55
.24
.32
.37
.21
.52
.34
.33
.29
.21
.35
.19
.24
.27
.17
.34
Table of Contents
Year Ended December 31,
2004
2003
2002
2001
2000
$
3,932,013
$
2,851,328
$
2,260,291
$
2,076,807
$
1,701,108
14,248
12,630
9,899
7,701
7,835
13,876
11,211
8,900
8,174
7,484
6,505
5,593
4,035
2,882
3,292
$
1,920,000
$
1,600,000
$
1,120,000
$
760,000
$
775,000
$
283.4
$
254.3
$
254.0
$
254.1
$
227.3
27.7
%
24.1
%
23.0
%
23.2
%
22.3
%
$
(23,864
)
$
83,927
$
(166,429
)
$
93,251
$
(63,457
)
$
(29,917
)
$
(6,785
)
$
(12,441
)
$
(3,219
)
$
(3,160
)
$
288,366
$
67,481
$
171,212
$
(67,547
)
$
41,802
12.3
%
12.8
%
12.3
%
12.1
%
11.9
%
(1)
Net corporate expenses represent (a) net realized gains and losses on corporate investments
and marketable securities; (b) interest, dividend and other income; and (c) corporate general
and administrative expense.
(2)
Excludes mortgage lending debt from the calculation.
Table of Contents
Table of Contents
Year Ended December 31,
2004
2003
2002
$
4,009,072
$
2,920,070
$
2,318,524
$
636,914
$
348,223
$
274,044
$
391,165
$
212,229
$
167,305
$
9.19
$
5.11
$
3.97
$
8.79
$
4.90
$
3.83
Table of Contents
Year Ended December 31,
2004 Increase (Decrease)
2004
2003
Amount
%
$
3,932,013
$
2,851,328
$
1,080,685
38
%
$
719,197
$
393,879
$
325,318
83
%
$
283.4
$
254.3
$
29.1
11
%
27.7
%
24.1
%
3.6
%
15
%
4,066
3,229
837
26
%
2,034
2,116
(82
)
-4
%
2,276
2,433
(157
)
-6
%
446
58
388
669
%
20
20
N/A
341
372
(31
)
-8
%
2,596
2,595
1
0
%
23
23
N/A
807
289
518
179
%
753
378
375
99
%
886
1,160
(274
)
-24
%
14,248
12,630
1,618
13
%
3,256
2,972
284
10
%
2,346
1,919
427
22
%
2,318
2,656
(338
)
-13
%
452
93
359
386
%
2
2
N/A
385
291
94
32
%
2,736
2,059
677
33
%
694
162
532
328
%
615
277
338
122
%
1,072
782
290
37
%
13,876
11,211
2,665
24
%
2,143
1,333
810
61
%
807
1,119
(312
)
-28
%
692
734
(42
)
-6
%
638
104
534
513
%
18
18
N/A
225
269
(44
)
-16
%
746
886
(140
)
-16
%
23
23
N/A
256
143
113
79
%
289
151
138
91
%
668
854
(186
)
-22
%
6,505
5,593
912
16
%
$
1,920,000
$
1,600,000
$
320,000
20
%
$
295.2
$
286.1
$
9.1
3
%
Table of Contents
Year Ended December 31,
2004 Increase (Decrease)
2004
2003
Amount
%
32
38
(6
)
-16
%
22
26
(4
)
-15
%
53
49
4
8
%
18
9
9
100
%
1
1
N/A
11
9
2
22
%
31
17
14
82
%
2
2
N/A
24
11
13
118
%
22
11
11
100
%
26
28
(2
)
-7
%
242
198
44
22
%
Year Ended December 31,
2004
2003
$
192.7
$
184.3
459.5
390.0
265.3
254.2
180.6
168.3
496.9
N/A
419.6
388.2
247.2
186.3
157.7
161.4
184.7
174.5
436.8
375.1
$
283.4
$
254.3
Table of Contents
Table of Contents
Year Ended December 31,
2003 Increase (Decrease)
2003
2002
Amount
%
$
2,851,328
$
2,260,291
$
591,037
26
%
$
393,879
$
295,604
$
98,275
33
%
$
254.3
$
254.0
$
0.3
0
%
24.1
%
23.0
%
1.1
%
5
%
3,229
2,669
560
21
%
2,116
2,086
30
1
%
2,433
2,681
(248
)
-9
%
58
58
N/A
372
277
95
34
%
2,595
1,260
1,335
106
%
289
17
272
N/A
378
111
267
241
%
1,160
798
362
45
%
12,630
9,899
2,731
28
%
2,972
2,218
754
34
%
1,919
1,654
265
16
%
2,656
2,919
(263
)
-9
%
93
93
N/A
291
246
45
18
%
2,059
1,204
855
71
%
162
1
161
N/A
277
102
175
172
%
782
556
226
41
%
11,211
8,900
2,311
26
%
December 31,
2003 Increase (Decrease)
2003
2002
Amount
%
1,333
1,076
257
24
%
1,119
922
197
21
%
734
957
(223
)
-23
%
104
104
N/A
269
188
81
43
%
886
350
536
153
%
143
16
127
794
%
151
50
101
202
%
854
476
378
79
%
5,593
4,035
1,558
39
%
$
1,600,000
$
1,120,000
$
480,000
43
%
$
286.0
$
278.0
$
8.0
3
%
Table of Contents
December 31,
2003 Increase (Decrease)
2003
2002
Amount
%
38
44
(6
)
-14
%
26
24
2
8
%
49
61
(12
)
-20
%
9
9
N/A
9
6
3
50
%
17
18
(1
)
-6
%
11
1
10
N/A
11
4
7
175
%
28
20
8
40
%
198
178
20
11
%
Year Ended December 31,
2003
2002
$
184.3
$
167.0
390.0
390.4
254.2
250.5
168.3
N/A
388.2
345.2
186.3
188.8
161.4
176.8
174.5
166.0
375.1
330.3
254.3
254.0
Table of Contents
Table of Contents
Year Ended December 31,
2004 Increase (Decrease)
2004
2003
Amount
%
$
24,728
$
22,245
$
2,483
11
%
$
2,093
$
1,972
$
121
6
%
$
22,657
$
28,622
$
(5,965
)
-21
%
$
18,483
$
28,277
$
(9,794
)
-35
%
$
1,652,206
$
1,478,334
$
173,872
12
%
$
749,440
$
418,999
$
330,441
79
%
53
%
63
%
-10
%
74
%
79
%
-5
%
Year Ended December 31,
2003 Increase (Decrease)
2003
2002
Amount
%
$
22,245
$
18,771
$
3,474
19
%
$
1,972
$
1,773
$
199
11
%
$
28,622
$
19,587
$
9,035
46
%
$
28,277
$
24,194
$
4,083
17
%
$
1,478,334
$
1,322,237
$
156,097
12
%
$
418,999
$
221,090
$
197,909
90
%
63
%
71
%
-8
%
79
%
81
%
-2
%
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Payments due by Period
Less than
After
Total
1 Year
1 3 Years
4 5 Years
5 Years
$
746,310
$
$
$
$
746,310
387,500
43,188
86,375
86,375
171,562
47,339
12,522
19,955
14,176
686
142,890
142,890
$
1,324,039
$
198,600
$
106,330
$
100,551
$
918,558
(1)
Our purchase obligations relate to open work orders and estimates for land to be
developed and homes under construction for which we have not received an invoice for
work to be completed.
(2)
The table above excludes $135.5 million of short-term indebtedness related to
the Mortgage Line.
Table of Contents
Table of Contents
1.
A modified prospective method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS 123(R) for all share-based
payments granted after the effective date and (b) based on the requirements of SFAS 123 for
all awards granted to employees prior to the effective date of SFAS 123(R) that remain
unvested on the effective date.
Table of Contents
2.
A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either
(a) all prior periods presented or (b) prior interim periods of the year of adoption.
General Economic and Business Conditions
Changes in national, regional and
local economic conditions, as well as changes in consumer confidence and preferences, can
have a negative impact on our business.
Interest Rate Changes
Our homebuilding and mortgage lending operations are
impacted by the availability and cost of mortgage financing.
Changes in Federal Lending Programs
The availability of mortgage financing
under federal lending programs is an important factor in our business. Any change in the
availability of this financing could reduce our home sales and mortgage lending volume.
Availability of Capital
Our ability to grow our business is dependent on our
ability to generate or obtain capital. Increases in interest rates and changes in the
capital markets could increase our costs of borrowing or reduce the availability of funds.
Competition
The real estate industry is fragmented and highly competitive.
Our homebuilding subsidiaries compete with numerous homebuilders, including a number that
are substantially larger and have greater financial resources.
The Availability and Cost of Land, Labor and Materials
Our operations depend
on our ability to continue to obtain land, labor and materials at reasonable prices.
Changes in the general availability or cost of these items may hurt our ability to build
homes and develop new residential communities.
Table of Contents
The Availability and Cost of Performance Bonds and Insurance
Our operations
also are affected by our ability to obtain performance bonds and insurance at reasonable
prices. Changes in the availability and cost of bonds and insurance can adversely impact
our business operations.
Weather and Geology
The climates and geology of many of the states in which
we operate present increased risks of natural disasters and adverse weather. To the extent
that such events occur, our business may be adversely affected.
Governmental Regulation and Environmental Matters
Our operations are subject
to continuing compliance requirements mandated by applicable federal, state and local
statutes, ordinances, rules and regulations, including environmental laws, moratoriums on
utility availability, growth restrictions, zoning and land use ordinances, building,
plumbing and electrical codes, contractors licensing laws, state insurance laws, federal
and state human resources laws and regulations and health and safety regulations and laws.
Product Liability Litigation and Warranty Claims
As a homebuilder, we are
subject to construction defect and home warranty claims, including moisture intrusion and
related mold claims that can be costly and adversely affect our business.
Other Factors
Other factors over which we have little or no control, such as
required accounting changes and terrorist acts and other acts of war, can also adversely
affect us.
Table of Contents
Maturities through December 31,
Estimated
2005
2006
2007
2008
2009
Thereafter
Total
Fair Value
$
$
$
$
$
$
746,310
$
746,310
$
773,113
5.76
%
5.76
%
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
F-2
F-3
F-5
F-6
F-7
F-8
Table of Contents
M.D.C. HOLDINGS, INC.
/s/ Ernst & Young LLP
February 15, 2005
Table of Contents
(In thousands)
December 31,
2004
2003
$
389,828
$
163,133
28,932
10,152
40,963
32,096
5,671
4,232
9,022
7,460
474,416
217,073
16,961
8,246
31,018
8,394
851,628
732,744
1,109,953
763,569
115,544
88,419
2,125,104
1,601,372
1,361
2,186
178,925
140,040
10,238
9,129
190,524
151,355
$
2,790,044
$
1,969,800
Table of Contents
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31,
2004
2003
$
94,178
$
72,212
50,979
25,011
746,310
497,700
891,467
594,923
325,468
259,294
2,479
325,468
261,773
18,810
17,944
135,478
79,240
154,288
97,184
1,371,223
953,880
433
424
660,699
484,052
760,780
582,927
(1,418
)
(1,169
)
(290
)
(9
)
1,420,204
1,066,225
(1,383
)
(50,305
)
1,418,821
1,015,920
$
2,790,044
$
1,969,800
Table of Contents
(In thousands, except per share amounts)
Year Ended December 31,
2004
2003
2002
$
3,951,644
$
2,859,086
$
2,272,195
56,610
60,216
45,356
818
768
973
4,009,072
2,920,070
2,318,524
3,232,447
2,465,207
1,976,591
38,127
31,939
21,162
9,315
101,584
65,386
46,727
3,372,158
2,571,847
2,044,480
636,914
348,223
274,044
(245,749
)
(135,994
)
(106,739
)
$
391,165
$
212,229
$
167,305
$
9.19
$
5.11
$
3.97
$
8.79
$
4.90
$
3.83
42,560
41,521
42,104
44,498
43,333
43,657
$
.434
$
.283
$
.197
Table of Contents
(In thousands)
Accumulated
Additional
Other
Unearned
Common
Paid-In
Retained
Comprehensive
Restricted
Treasury
Stock
Capital
Earnings
Income (Loss)
Stock
Stock
Total
$
408
$
356,943
$
342,485
$
(163
)
$
(412
)
$
(45,430
)
$
653,831
167,305
167,305
(41
)
(41
)
206
206
167,470
5
8,939
2,307
11,251
5,525
5,525
34
34
(29,403
)
(29,403
)
(8,292
)
(8,292
)
360
(559
)
199
151
151
413
371,801
501,498
2
(820
)
(72,327
)
800,567
212,229
212,229
(158
)
(158
)
147
147
212,218
12
20,333
3,425
23,770
12,561
12,561
896
896
2,882
1,118
4,000
(26,731
)
(26,731
)
(11,812
)
(11,812
)
(1
)
75,013
(118,988
)
43,976
566
(800
)
234
451
451
424
484,052
582,927
(9
)
(1,169
)
(50,305
)
1,015,920
391,165
391,165
(21
)
(21
)
(260
)
(260
)
390,884
10
13,840
1,063
14,913
16,030
16,030
1,231
5,069
6,300
(6,812
)
(6,812
)
(18,624
)
(18,624
)
(1
)
145,358
(194,688
)
49,331
328
(748
)
420
(140
)
262
(149
)
(27
)
237
237
$
433
$
660,699
$
760,780
$
(290
)
$
(1,418
)
$
(1,383
)
$
1,418,821
Table of Contents
(In thousands)
Year Ended December 31,
2004
2003
2002
$
391,165
$
212,229
$
167,305
9,315
41,906
35,677
26,907
(8,867
)
(6,116
)
4,101
(22,624
)
(4,875
)
(898
)
(467,747
)
(258,516
)
(328,064
)
(59,346
)
(51,793
)
(37,900
)
(38,885
)
67,898
(62,967
)
135,138
77,551
63,846
5,396
2,557
1,241
(23,864
)
83,927
(166,429
)
(29,917
)
(6,785
)
(12,441
)
1,816,738
2,353,400
2,627,632
(1,760,500
)
(2,428,234
)
(2,573,200
)
246,575
346,148
146,791
(175,000
)
(7,329
)
(18,624
)
(11,812
)
(8,292
)
(6,812
)
(26,731
)
(29,403
)
10,989
17,039
7,684
288,366
67,481
171,212
234,585
144,623
(7,658
)
173,565
28,942
36,600
$
408,150
$
173,565
$
28,942
Year Ended December 31,
2004
2003
2002
$
31,742
$
30,217
$
20,276
$
212,610
$
126,298
$
85,304
$
$
2,479
$
Table of Contents
December 31,
2004
2003
$
14,465
$
15,116
(12,500
)
46,510
19,574
28,200
26,307
1,681
1,093
8,188
4,815
7,250
9,888
5,503
10,162
3,254
8,950
5,507
$
115,544
$
88,419
Table of Contents
Table of Contents
Year Ended December 31,
2004
2003
2002
$
51,068
$
44,743
$
38,430
37,985
36,014
24,529
(24,629
)
(29,689
)
(18,216
)
$
64,424
$
51,068
$
44,743
Table of Contents
Table of Contents
Year Ended December 31,
2004
2003
2002
$
391,165
$
212,229
$
167,305
(8,799
)
(8,574
)
(9,144
)
$
382,366
$
203,655
$
158,161
$
9.19
$
5.11
$
3.97
$
8.98
$
4.90
$
3.76
$
8.79
$
4.90
$
3.83
$
8.59
$
4.70
$
3.62
Year Ended December 31,
2004
2003
2002
$
29.23
$
18.16
$
13.31
45.3
%
47.6
%
54.9
%
3.9
%
3.9
%
3.8
%
0.8
%
0.8
%
0.8
%
6.0 yrs.
6.0 yrs.
7.0 yrs.
Table of Contents
December 31,
2004
2003
$
(295
)
$
(274
)
5
265
$
(290
)
$
(9
)
1.
A modified prospective method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS 123(R) for all share-based
payments granted after the effective date and (b) based on the requirements of SFAS 123 for
all awards granted to employees prior to the effective date of SFAS 123(R) that remain
unvested on the effective date.
2.
A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either
(a) all prior periods presented or (b) prior interim periods of the year of adoption.
Table of Contents
Year Ended December 31,
2004
2003
2002
$
3,932,013
$
2,851,328
$
2,260,291
8,898
1,298
6,022
10,733
6,460
5,882
3,951,644
2,859,086
2,272,195
2,843,543
2,163,696
1,741,449
8,783
842
4,600
198,541
162,148
125,060
181,580
138,521
105,482
3,232,447
2,465,207
1,976,591
719,197
393,879
295,604
3,838
4,616
4,348
24,728
22,245
18,771
2,093
1,972
1,773
22,657
28,622
19,587
3,294
2,761
877
56,610
60,216
45,356
38,127
31,939
21,162
18,483
28,277
24,194
737,680
422,156
319,798
818
768
973
(9,315
)
(101,584
)
(65,386
)
(46,727
)
(100,766
)
(73,933
)
(45,754
)
$
636,914
$
348,223
$
274,044
Table of Contents
December 31,
2004
2003
$
157,687
$
117,620
20,961
21,200
178,648
138,820
52
(72
)
(815
)
159
1,050
1,133
(10
)
$
178,925
$
140,040
Table of Contents
Table of Contents
December 31,
December 31,
2004
2003
148,688
148,565
349,197
349,135
248,425
746,310
497,700
2,479
746,310
500,179
135,478
79,240
$
881,788
$
579,419
Year Ended December 31,
2004
2003
2002
$
11,328
$
10,391
$
9,667
116
684
691
649
(167
)
246
(41
)
$
11,845
$
11,328
$
10,391
$
10,209
$
9,328
$
8,209
6.00
%
6.25
%
6.75
%
3.25
%
3.50
%
4.00
%
$
$
$
116
684
691
649
325
325
325
162
171
116
$
1,171
$
1,187
$
1,206
Table of Contents
Table of Contents
2004
2003
2002
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
Shares
Price
Shares
Price
Shares
Price
6,432,452
$
23.36
6,460,713
$
16.49
5,567,358
$
13.28
1,243,255
$
60.68
1,649,925
$
39.97
1,904,091
$
22.60
(975,927
)
$
11.26
(1,405,078
)
$
12.13
(830,887
)
$
9.22
(463,023
)
$
29.81
(273,108
)
$
18.80
(179,849
)
$
15.65
6,236,757
$
32.21
6,432,452
$
23.36
6,460,713
$
16.49
2,641,376
3,057,190
2,280,874
8,878,133
9,489,642
8,741,587
2,441,048
$
21.98
2,430,152
$
16.49
2,715,822
$
12.97
Options Outstanding
Options Exercisable
Average
Weighted
Weighted
Range of
Number
Remaining
Average
Number
Average
Exercise Price
Outstanding
Contract Life
Exercise Price
Exercisable
Exercise Price
$15.35 - $17.95
891,894
1.28
$
15.36
890,228
$
15.36
$18.47 - $20.78
1,248,413
6.88
$
18.47
907,098
$
18.47
$20.85 - $21.39
1,211,607
4.75
$
21.39
180,828
$
21.39
$21.73 - $43.81
734,831
5.83
$
30.32
300,394
$
33.21
$44.68 - $46.92
939,387
8.88
$
44.69
$49.05 - $68.06
1,210,625
9.86
$
61.10
162,500
$
57.66
6,236,757
6.42
$
32.21
2,441,048
$
21.98
Table of Contents
December 31,
2004
2003
$
150,769
$
136,960
8,994
2,443
159,763
139,403
55,053
41,663
38,791
31,433
71,861
46,795
165,705
119,891
$
325,468
$
259,294
Year Ended December 31,
2004
2003
2002
$
32,879
$
26,779
$
21,116
1,946
1,967
1,822
$
34,825
$
28,746
$
22,938
$
20,043
$
17,783
$
17,358
32,879
26,779
21,116
(28,702
)
(24,519
)
(20,691
)
$
24,220
$
20,043
$
17,783
$
5,785
$
6,583
$
6,170
(1,946
)
(1,967
)
(1,822
)
$
3,839
$
4,616
$
4,348
Table of Contents
Year Ended December 31,
2004
2003
2002
$
220,662
$
123,630
$
88,999
33,954
18,480
13,639
254,616
142,110
102,638
(8,486
)
(5,473
)
3,906
(381
)
(643
)
195
(8,867
)
(6,116
)
4,101
$
245,749
$
135,994
$
106,739
Year Ended December 31,
2004
2003
2002
$
222,920
$
121,878
$
95,915
192
175
175
22,292
13,929
8,615
345
12
2,034
$
245,749
$
135,994
$
106,739
38.6
%
39.0
%
39.0
%
December 31,
2004
2003
$
35,474
$
27,160
1,879
2,284
7,484
7,012
10,576
11,295
55,413
47,751
7,342
8,014
1,193
1,153
1,615
1,305
2,082
2,345
2,218
2,838
14,450
15,655
$
40,963
$
32,096
Table of Contents
Year Ended December 31,
2004
2003
2002
$
391,165
$
212,229
$
167,305
42,560
41,521
42,103
$
9.19
$
5.11
$
3.97
$
391,165
$
212,229
$
167,305
42,560
41,521
42,103
1,938
1,812
1,553
44,498
43,333
43,656
$
8.79
$
4.90
$
3.83
Table of Contents
December 31, 2004
December 31, 2003
Recorded
Estimated
Recorded
Estimated
Amount
Fair Value
Amount
Fair Value
$
148,688
$
168,225
$
148,565
$
166,805
$
349,197
$
356,188
$
349,135
$
350,970
$
248,425
$
248,700
$
$
Table of Contents
Quarter
Fourth
Third
Second
First
$
1,343,858
$
1,026,129
$
875,483
$
763,604
$
371,528
$
283,894
$
237,643
$
195,405
$
142,623
$
105,073
$
82,568
$
60,901
$
3.31
$
2.47
$
1.95
$
1.44
$
3.17
$
2.36
$
1.87
$
1.38
43,117
42,493
42,318
42,306
44,960
44,442
44,233
44,282
Quarter
Fourth
Third
Second
First
$
862,080
$
798,906
$
689,442
$
596,642
$
211,718
$
193,487
$
156,454
$
125,973
$
67,022
$
65,476
$
42,694
$
37,037
$
1.59
$
1.57
$
1.04
$
.90
$
1.52
$
1.51
$
1.00
$
.87
42,073
41,564
41,024
41,463
44,041
43,333
42,781
42,804
Table of Contents
M.D.C. Land Corporation
RAH of Texas, LP
RAH Texas Holdings, LLC
RAH of Florida, Inc.
Richmond American Construction, Inc.
Richmond American Homes of Arizona, Inc.
Richmond American Homes of California, Inc.
Richmond American Homes of Colorado, Inc.
Richmond American Homes of Florida, LP.
Richmond American Homes of Maryland, Inc.
Richmond American Homes of Nevada, Inc.
Richmond American Homes of Texas, Inc.
Richmond American Homes of Utah, Inc.
Richmond American Homes of Virginia, Inc.
Richmond American Homes of West Virginia, Inc.
Richmond American Homes of Delaware, Inc.
Richmond American Homes of Illinois, Inc.
Richmond American Homes of New Jersey, Inc.
Richmond American Homes of Pennsylvania, Inc.
American Home Insurance Agency, Inc.
American Home Title and Escrow Company
HomeAmerican Mortgage Corporation
Lion Insurance Company
StarAmerican Insurance Ltd.
Allegiant Insurance Company, Inc., A Risk Retention Group
AHT Reinsurance, Inc
Table of Contents
Supplemental Combining Balance Sheet
December 31, 2004
(In thousands)
Table of Contents
Supplemental Combining Balance Sheet
December 31, 2003
(In thousands)
Table of Contents
Supplemental Combining Statements of Income
(In thousands)
Year Ended December 31, 2004
Table of Contents
Supplemental Combining Statements of Income
(In thousands)
Year Ended December 31, 2002
Table of Contents
Supplemental Combining Statements of Cash Flows
(In thousands)
Year Ended December 31, 2004
Non-
Guarantor
Guarantor
Eliminating
Consolidated
MDC
Subsidiaries
Subsidiaries
Entries
MDC
$
(26,147
)
$
34,228
$
(31,298
)
$
(647
)
$
(23,864
)
(23,358
)
(6,198
)
(361
)
(29,917
)
44,719
(22,113
)
(22,606
)
1,760,500
56,238
1,816,738
(1,760,500
)
(1,760,500
)
246,575
246,575
(19,271
)
647
(18,624
)
(6,812
)
(6,812
)
10,989
10,989
276,200
(22,113
)
33,632
647
288,366
226,695
5,917
1,973
234,585
163,133
6,335
4,097
173,565
$
389,828
$
12,252
$
6,070
$
$
408,150
Non-
Guarantor
Guarantor
Eliminating
Consolidated
MDC
Subsidiaries
Subsidiaries
Entries
MDC
$
21,846
$
(34,120
)
$
96,623
$
(422
)
$
83,927
(2,088
)
(3,700
)
(997
)
(6,785
)
(21,682
)
39,984
(18,302
)
2,353,400
2,353,400
(2,353,400
)
(74,834
)
(2,428,234
)
346,148
346,148
(175,000
)
(175,000
)
(7,329
)
(7,329
)
(12,234
)
422
(11,812
)
(26,731
)
(26,731
)
17,039
17,039
120,211
39,984
(93,136
)
422
67,481
139,969
2,164
2,490
144,623
23,164
4,171
1,607
28,942
$
163,133
$
6,335
$
4,097
$
$
173,565
Table of Contents
Supplemental Combining Statements of Cash Flows
(In thousands)
Year Ended December 31, 2002
Non-
Guarantor
Guarantor
Eliminating
Consolidated
MDC
Subsidiaries
Subsidiaries
Entries
MDC
$
14,770
$
(140,207
)
$
(40,698
)
$
(294
)
$
(166,429
)
(10,177
)
(2,018
)
(246
)
(12,441
)
(129,237
)
142,044
(12,807
)
2,573,200
54,432
2,627,632
(2,573,200
)
(2,573,200
)
146,791
146,791
(8,586
)
294
(8,292
)
(29,403
)
(29,403
)
7,684
7,684
(12,751
)
142,044
41,625
294
171,212
(8,158
)
(181
)
681
(7,658
)
31,322
4,352
926
36,600
$
23,164
$
4,171
$
1,607
$
$
28,942
Table of Contents
Table of Contents
/s/Ernst & Young LLP
February 15, 2005
Table of Contents
Common Shares
Common Shares Remaining
to be Issued Upon
Weighted-Average
Available for Future
Exercise of
Exercise Price of
Issuance Under Equity
Outstanding Options
Outstanding Options
Compensation Plans
1,948,345
$
19.74
3,831,520
$
37.58
2,244,024
456,892
$
40.37
397,352
6,236,757
$
32.21
2,641,376
Table of Contents
Table of Contents
Page
F-2
F-3
F-5
F-6
F-7
F-8
3.1
Form of Amendment to the Certificate of Incorporation of M.D.C. Holdings, Inc.
(hereinafter sometimes referred to as MDC, the Company or the Registrant) regarding
director liability, filed with the Delaware Secretary of State on July 1, 1987
(incorporated herein by reference to Exhibit 3.1(a) of the Companys Quarterly Report on
Form 10-Q dated June 30, 1987). *
3.2
Form of Certificate of Incorporation of MDC, as amended (incorporated herein by
reference to Exhibit 3.1(b) of the Companys Quarterly Report on Form 10-Q dated June 30,
1987). *
3.3
Form of Amendment to the Bylaws of MDC regarding indemnification adopted by its board
of directors and effective as of March 20, 1987 (incorporated herein by reference to
Exhibit 3.2(a) of the Companys Quarterly Report on Form 10-Q dated June 30, 1987). *
3.4
Form of Bylaws of MDC, as amended (incorporated herein by reference to Exhibit 3.2(b)
of the Companys Quarterly Report on Form 10-Q dated June 30, 1987). *
4.1
Indenture dated as of December 3, 2002, by and among MDC and U.S. Bank National
Association (incorporated herein by reference to Exhibit 4.2 to
the Companys Form S-3/A filed September 1, 2004). *
4.2
Form of Supplemental Indenture dated as of December 3, 2002, by and among MDC, the
Guarantors party thereto and U.S. Bank National Association (including without limitation
the form of 7.0% Senior Notes due 2012 and form of Guarantee appended to such Supplemental
Indenture) (incorporated herein by reference to Exhibit 4.3 to the Companys Form 8-K filed
December 3, 2002). *
Table of Contents
4.3
Form of Supplemental Indenture dated as of May 19, 2003, by and among MDC, the
Guarantors party thereto and U.S. Bank National Association (including without limitation
the form of 5 1/2% Senior Notes due 2013 and form of Guarantee appended to such
Supplemental Indenture) (incorporated herein by reference to Exhibit 4.3 to the Companys
Form 8-K dated May 19, 2003). *
4.4
Second Supplemental Indenture (7.0% Senior Notes Due 2012), dated as of September 29,
2003, by and among MDC, U.S. Bank National Association, as Trustee, and Richmond American
Homes of Florida, LP, a Colorado limited partnership and a wholly owned subsidiary of the
Company, as Additional Guarantor, including the Guaranty signed by the Additional Guarantor
(incorporated herein by reference to Exhibit 4.1 to the Companys Form 10-Q dated September
30, 2003). *
4.5
Second Supplemental Indenture (5.5% Senior Notes Due 2013), dated as of September 29,
2003, by and among MDC, U.S. Bank National Association, as Trustee, and Richmond American
Homes of Florida, LP, a Colorado limited partnership and a wholly owned subsidiary of the
Company, as Additional Guarantor, including the Guaranty signed by the Additional Guarantor
(incorporated herein by reference to Exhibit 4.2 to the Companys Form 10-Q dated September
30, 2003). *
4.6
Third Supplemental Indenture (7.0% Senior Notes Due 2012), dated as of February 12,
2004, by and among MDC, U.S. Bank National Association, as Trustee, and the following
wholly owned subsidiaries of the Company: Richmond American Homes of Delaware, Inc., a
Colorado corporation, Richmond American Homes of Illinois, Inc., a Colorado corporation,
Richmond American Homes of New Jersey, Inc., a Colorado corporation, and Richmond American
Homes of Pennsylvania, Inc., a Colorado corporation, as Additional Guarantors, including
the Guaranty signed by the Additional Guarantors (incorporated herein by reference to
Exhibit 4.6 of the Companys Annual Report on Form 10-K dated December 31, 2003). *
4.7
Third Supplemental Indenture (5.5% Senior Notes Due 2013), dated as of February 12,
2004, by and among MDC, U.S. Bank National Association, as Trustee, and the following
wholly owned subsidiaries of the Company: Richmond American Homes of Delaware, Inc., a
Colorado corporation, Richmond American Homes of Illinois, Inc., a Colorado corporation,
Richmond American Homes of New Jersey, Inc., a Colorado corporation, and Richmond American
Homes of Pennsylvania, Inc., a Colorado corporation, as Additional Guarantors, including
the Guaranty signed by the Additional Guarantors (incorporated herein by reference to
Exhibit 4.7 of the Companys Annual Report on Form 10-K dated December 31, 2003). *
4.8
Supplemental Indenture, dated as of October 6, 2004, by and among MDC, the
Guarantors party thereto and U.S. Bank National Association, as Trustee, with respect to
MDCs Medium Term Senior Notes (incorporated herein by reference to Exhibit 10.3 to the
Companys Form 8-K dated October 6, 2004). *
4.9
Pricing Supplement No. 1, dated December 6, 2004, with respect to MDCs 5.375% Medium Term
Senior Notes due 2014 (incorporated herein by reference to the Companys Rule 424(b)(2)
filing on December 8, 2004). *
10.1
Amended and Restated Credit Agreement dated as of January 28, 2005, among MDC as
Borrower and the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative
Agent, including form of Amended and Restated Guaranty and form of Promissory Note.
10.2
Third Amended and Restated Warehousing Credit Agreement dated as of October 23, 2003,
among HomeAmerican Mortgage Corporation and the Banks that are signatories thereto and U.S.
Bank National Association, as administrative agent (incorporated herein by reference to
Exhibit 10.1 of the Companys Form 10-Q dated September 30, 2003). *
Table of Contents
10.3
First Amendment to Third Amended and Restated Warehousing Credit Agreement dated
February 27, 2004 among HomeAmerican Mortgage Corporation and the Banks that are
signatories thereto and U.S. Bank National Association as administrative agent
(incorporated herein by reference to Exhibit 10.1 of the Companys Form 10-Q dated June 30,
2004). *
10.4
Second Amendment to Third Amended and restated Warehousing Credit Agreement, dated
September 28, 2004, among HomeAmerican Mortgage Corporation and the Banks that are
signatories thereto and U.S. Bank National Associations as administrative agent
(incorporated herein by reference to Exhibit 10.1 of the Companys Form 10-Q dated
September 30, 2004). *
10.5
The Companys Employee Equity Incentive Plan (incorporated herein by reference to
Exhibit A of the Companys Proxy Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *
10.6
Form of Non-Statutory Option Agreement (Employee Equity Incentive Plan).
10.7
Form of Restricted Stock Agreement (Employee Equity Incentive Plan) (incorporated
herein by reference to Exhibit 10.10 to the Companys Form 10-K dated December 31, 1998). *
10.8
M.D.C. Holdings, Inc. 2001 Equity Incentive Plan Effective March 26, 2001 (incorporated
herein by reference to Exhibit B of the Companys Proxy Statement dated March 31, 2001
relating to the 2001 Annual Meeting of Stockholders). *
10.9
First Amendment to M.D.C. Holdings, Inc. 2001 Equity Incentive Plan, effective April
28, 2003 (incorporated herein by reference to Exhibit 10.2 of the Companys Form 10-Q dated
March 31, 2003). *
10.10
Form of Non-Qualified Stock Option Certificate (2001 Equity Incentive Plan).
10.11
Form of Restricted Stock Agreement (2001 Equity Incentive Plan).
10.12
M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors Effective March 26,
2001 (incorporated herein by reference to Exhibit C of the Companys Proxy Statement dated
March 31, 2001 relating to the 2001 Annual Meeting of Stockholders). *
10.13
First Amendment to M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors,
October 20, 2003.
10.14
Form of Non-Qualified Stock Option Agreement (Stock Option Plan for Non-Employee
Directors).
10.15
Form of Indemnity Agreement entered into between the Registrant and each member of its
board of directors as of March 20, 1987 (incorporated herein by reference to Exhibit 19.1
of the Companys Quarterly Report on Form 10-Q dated June 30, 1987). *
10.16
Form of Indemnity Agreement entered into between the Registrant and certain officers
of the Registrant on various dates during 1988 and early 1989 (incorporated herein by
reference to Exhibit 10.18(b) to the Companys Annual Report on Form 10-K for the year
ended December 31, 1988). *
10.17
Indemnification Agreements by and among the Company and Larry A. Mizel and David D.
Mandarich dated December 21, 1989 (incorporated herein by reference to Exhibit 9 of the
Companys Form 8-K dated December 28, 1989). *
Table of Contents
10.18
Consulting Agreement, effective as of March 1, 2003, by and between Gilbert Goldstein,
P.C. and the Company (incorporated herein by reference to Exhibit 10.1 of the Companys
Form 10-Q dated March 31, 2003). *
10.19
Amendment to Consulting Agreement, July 26, 2004, by and between Gilbert Goldstein,
P.C. and the Company (incorporated by reference to Exhibit 10.2 of the Companys Quarterly
Report on Form 10-Q dated June 30, 2004). *
10.20
M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan
(incorporated herein by reference to Exhibit A to the Companys Proxy Statement dated May
25, 1994 related to the 1994 Meeting of Stockholders). *
10.21
Employment Agreement between the Company and Larry A. Mizel, restated as of February
26, 2003 (incorporated herein by reference to Exhibit 99.1 of the Companys Form 8-K dated
February 26, 2003). *
10.22
Employment Agreement between the Company and David D. Mandarich, restated as of
February 26, 2003 (incorporated herein by reference to Exhibit 99.2 of the Companys Form
8-K dated February 26, 2003). *
10.23
Change in Control Agreement between the Company and Paris G. Reece III effective
January 26, 1998 (incorporated herein by reference to Exhibit 10.1 to the Companys Form
8-K dated March 27, 1998). *
10.24
Change in Control Agreement between the Company and Michael Touff effective January
26, 1998 (incorporated herein by reference to Exhibit 10.2 to the Companys Form 8-K dated
March 27, 1998). *
10.25
Form of Change in Control Agreement between the Company and certain employees of
M.D.C. Holdings, Inc. (incorporated herein by reference to Exhibit 10.3 to the Companys
Form 8-K dated March 27, 1998). *
10.26
Independent Contractor Agreement between Mizel Design and Decorating Company and the
Company effective as of January 1, 2005.
10.27
M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan and Trust
(incorporated herein by reference to Exhibit 10.20 of the Companys Annual Report on Form
10-K dated December 31, 2002). *
10.28
M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan and Trust Adoption
Agreement between M.D.C. Holdings, Inc. and INVESCO/BankOne, as of January 1, 2003
(incorporated herein by reference to Exhibit 10.21 of the Companys Annual Report on Form
10-K dated December 31, 2002). *
10.29
2003 Post-EGTRRA Amendments (401(k) Savings Plan Prototype Retirement Plan and Trust),
dated December 30, 2003. (incorporated herein by reference to Exhibit 10.31 of the
Companys Annual Report on Form 10-K dated December 31, 2003). *
12
Ratio of Earnings to Fixed Charges Schedule.
21
Subsidiaries of the Company.
23
Consent of Ernst & Young LLP.
Table of Contents
31.1
Certification of Chief Executive Officer required by 17 CFR 240.13a-14(a), pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer required by 17 CFR 240.13a-14(a), pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer required by 17 CFR 240.13a-14(b), pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer required by 17 CFR 240.13a-14(b), pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
*
Incorporated herein by reference.
Table of Contents
M.D.C. HOLDINGS, INC.
(Registrant)
By:
/s/ LARRY A. MIZEL
Larry A. Mizel
Chief Executive Officer
By:
/s/ PARIS G. REECE III
Paris G. Reece III
Executive Vice President, Chief Financial
Officer and Principal Accounting Officer
Signature
Title
Date
Chairman of the Board of Directors
and Chief Executive Officer
February 17, 2005
Director, President and Chief Operating Officer
February 17, 2005
Director
February 17, 2005
Director
February 17, 2005
Director
February 17, 2005
Director
February 17, 2005
Director
February 17, 2005
Table of Contents
Exhibit
Number
Description
Form of Amendment to the Certificate of Incorporation of M.D.C. Holdings, Inc.
(hereinafter sometimes referred to as MDC, the Company or the Registrant) regarding
director liability, filed with the Delaware Secretary of State on July 1, 1987
(incorporated herein by reference to Exhibit 3.1(a) of the Companys Quarterly Report on
Form 10-Q dated June 30, 1987). *
Form of Certificate of Incorporation of MDC, as amended (incorporated herein by
reference to Exhibit 3.1(b) of the Companys Quarterly Report on Form 10-Q dated June 30,
1987). *
Form of Amendment to the Bylaws of MDC regarding indemnification adopted by its board
of directors and effective as of March 20, 1987 (incorporated herein by reference to
Exhibit 3.2(a) of the Companys Quarterly Report on Form 10-Q dated June 30, 1987). *
Form of Bylaws of MDC, as amended (incorporated herein by reference to Exhibit 3.2(b)
of the Companys Quarterly Report on Form 10-Q dated June 30, 1987). *
Indenture dated as of December 3, 2002, by and among MDC and U.S. Bank National
Association (incorporated herein by reference to Exhibit 4.2 to
the Companys Form S-3/A
filed September 1, 2004). *
Form of Supplemental Indenture dated as of December 3, 2002, by and among MDC, the
Guarantors party thereto and U.S. Bank National Association (including without limitation
the form of 7.0% Senior Notes due 2012 and form of Guarantee appended to such Supplemental
Indenture) (incorporated herein by reference to Exhibit 4.3 to the Companys Form 8-K filed
December 3, 2002). *
Form of Supplemental Indenture dated as of May 19, 2003, by and among MDC, the
Guarantors party thereto and U.S. Bank National Association (including without limitation
the form of 5 1/2% Senior Notes due 2013 and form of Guarantee appended to such
Supplemental Indenture) (incorporated herein by reference to Exhibit 4.3 to the Companys
Form 8-K dated May 19, 2003). *
Second Supplemental Indenture (7.0% Senior Notes Due 2012), dated as of September 29,
2003, by and among MDC, U.S. Bank National Association, as Trustee, and Richmond American
Homes of Florida, LP, a Colorado limited partnership and a wholly owned subsidiary of the
Company, as Additional Guarantor, including the Guaranty signed by the Additional Guarantor
(incorporated herein by reference to Exhibit 4.1 to the Companys Form 10-Q dated September
30, 2003). *
Second Supplemental Indenture (5.5% Senior Notes Due 2013), dated as of September 29,
2003, by and among MDC, U.S. Bank National Association, as Trustee, and Richmond American
Homes of Florida, LP, a Colorado limited partnership and a wholly owned subsidiary of the
Company, as Additional Guarantor, including the Guaranty signed by the Additional Guarantor
(incorporated herein by reference to Exhibit 4.2 to the Companys Form 10-Q dated September
30, 2003). *
Third Supplemental Indenture (7.0% Senior Notes Due 2012), dated as of February 12,
2004, by and among MDC, U.S. Bank National Association, as Trustee, and the following
wholly owned subsidiaries of the Company: Richmond American Homes of Delaware, Inc., a
Colorado corporation, Richmond American Homes of Illinois, Inc., a Colorado corporation,
Richmond
Table of Contents
Exhibit
Number
Description
American Homes of New Jersey, Inc., a Colorado corporation, and Richmond American
Homes of Pennsylvania, Inc., a Colorado corporation, as Additional Guarantors,
including the Guaranty signed by the Additional Guarantors (incorporated herein by
reference to Exhibit 4.6 of the Companys Annual Report on Form 10-K dated December
31, 2003). *
Third Supplemental Indenture (5.5% Senior Notes Due 2013), dated as of February 12,
2004, by and among MDC, U.S. Bank National Association, as Trustee, and the following
wholly owned subsidiaries of the Company: Richmond American Homes of Delaware, Inc., a
Colorado corporation, Richmond American Homes of Illinois, Inc., a Colorado corporation,
Richmond American Homes of New Jersey, Inc., a Colorado corporation, and Richmond American
Homes of Pennsylvania, Inc., a Colorado corporation, as Additional Guarantors, including
the Guaranty signed by the Additional Guarantors (incorporated herein by reference to
Exhibit 4.7 of the Companys Annual Report on Form 10-K dated December 31, 2003). *
Supplemental Indenture, dated as of
October 6, 2004, by and among MDC, the
Guarantors party thereto and U.S. Bank National Association, as Trustee, with respect to
MDCs Medium Term Senior Notes (incorporated herein by reference to Exhibit 10.3 to the
Companys Form 8-K dated October 6, 2004). *
Pricing Supplement No. 1, dated December 6, 2004, with respect to MDCs 5.375% Medium Term
Senior Notes due 2014 (incorporated herein by reference to the Companys Rule 424(b)(2)
filing on December 8, 2004). *
Amended and Restated Credit Agreement dated as of January 28, 2005, among MDC as
Borrower and the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative
Agent, including form of Amended and Restated Guaranty and form of Promissory Note.
Third Amended and Restated Warehousing Credit Agreement dated as of October 23, 2003,
among HomeAmerican Mortgage Corporation and the Banks that are signatories thereto and U.S.
Bank National Association, as administrative agent (incorporated herein by reference to
Exhibit 10.1 of the Companys Form 10-Q dated September 30, 2003). *
First Amendment to Third Amended and Restated Warehousing Credit Agreement dated
February 27, 2004 among HomeAmerican Mortgage Corporation and the Banks that are
signatories thereto and U.S. Bank National Association as administrative agent
(incorporated herein by reference to Exhibit 10.1 of the Companys Form 10-Q dated June 30,
2004). *
Second Amendment to Third Amended and restated Warehousing Credit Agreement, dated
September 28, 2004, among HomeAmerican Mortgage Corporation and the Banks that are
signatories thereto and U.S. Bank National Associations as administrative agent
(incorporated herein by reference to Exhibit 10.1 of the Companys Form 10-Q dated
September 30, 2004). *
The Companys Employee Equity Incentive Plan (incorporated herein by reference to
Exhibit A of the Companys Proxy Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *
Form of Non-Statutory Option Agreement (Employee Equity Incentive Plan).
Form of Restricted Stock Agreement (Employee Equity Incentive Plan) (incorporated
herein by reference to Exhibit 10.10 to the Companys Form 10-K dated December 31, 1998). *
M.D.C. Holdings, Inc. 2001 Equity Incentive Plan Effective March 26, 2001 (incorporated
herein by reference to Exhibit B of the Companys Proxy Statement dated March 31, 2001
relating to the 2001 Annual Meeting of Stockholders). *
Table of Contents
Exhibit
Number
Description
First Amendment to M.D.C. Holdings, Inc. 2001 Equity Incentive Plan, effective April
28, 2003 (incorporated herein by reference to Exhibit 10.2 of the Companys Form 10-Q dated
March 31, 2003). *
Form of Non-Qualified Stock Option Certificate (2001 Equity Incentive Plan).
Form of Restricted Stock Agreement (2001 Equity Incentive Plan).
M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors Effective March 26,
2001 (incorporated herein by reference to Exhibit C of the Companys Proxy Statement dated
March 31, 2001 relating to the 2001 Annual Meeting of Stockholders). *
First Amendment to M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors,
October 20, 2003.
Form of Non-Qualified Stock Option Agreement (Stock Option Plan for Non-Employee
Directors).
Form of Indemnity Agreement entered into between the Registrant and each member of its
board of directors as of March 20, 1987 (incorporated herein by reference to Exhibit 19.1
of the Companys Quarterly Report on Form 10-Q dated June 30, 1987). *
Form of Indemnity Agreement entered into between the Registrant and certain officers
of the Registrant on various dates during 1988 and early 1989 (incorporated herein by
reference to Exhibit 10.18(b) to the Companys Annual Report on Form 10-K for the year
ended December 31, 1988). *
Indemnification Agreements by and among the Company and Larry A. Mizel and David D.
Mandarich dated December 21, 1989 (incorporated herein by reference to Exhibit 9 of the
Companys Form 8-K dated December 28, 1989). *
Consulting Agreement, effective as of March 1, 2003, by and between Gilbert Goldstein,
P.C. and the Company (incorporated herein by reference to Exhibit 10.1 of the Companys
Form 10-Q dated March 31, 2003). *
Amendment to Consulting Agreement, July 26, 2004, by and between Gilbert Goldstein,
P.C. and the Company (incorporated by reference to Exhibit 10.2 of the Companys Quarterly
Report on Form 10-Q dated June 30, 2004). *
M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan
(incorporated herein by reference to Exhibit A to the Companys Proxy Statement dated May
25, 1994 related to the 1994 Meeting of Stockholders). *
Employment Agreement between the Company and Larry A. Mizel, restated as of February
26, 2003 (incorporated herein by reference to Exhibit 99.1 of the Companys Form 8-K dated
February 26, 2003). *
Employment Agreement between the Company and David D. Mandarich, restated as of
February 26, 2003 (incorporated herein by reference to Exhibit 99.2 of the Companys Form
8-K dated February 26, 2003). *
Change in Control Agreement between the Company and Paris G. Reece III effective
January 26, 1998 (incorporated herein by reference to Exhibit 10.1 to the Companys Form
8-K dated March 27, 1998). *
Table of Contents
Exhibit
Number
Description
Change in Control Agreement between the Company and Michael Touff effective January
26, 1998 (incorporated herein by reference to Exhibit 10.2 to the Companys Form 8-K dated
March 27, 1998). *
Form of Change in Control Agreement between the Company and certain employees of
M.D.C. Holdings, Inc. (incorporated herein by reference to Exhibit 10.3 to the Companys
Form 8-K dated March 27, 1998). *
Independent Contractor Agreement between Mizel Design and Decorating Company and the
Company effective as of January 1, 2005.
M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan and Trust
(incorporated herein by reference to Exhibit 10.20 of the Companys Annual Report on Form
10-K dated December 31, 2002). *
M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan and Trust Adoption
Agreement between M.D.C. Holdings, Inc. and INVESCO/BankOne, as of January 1, 2003
(incorporated herein by reference to Exhibit 10.21 of the Companys Annual Report on Form
10-K dated December 31, 2002). *
2003 Post-EGTRRA Amendments (401(k) Savings Plan Prototype Retirement Plan and Trust),
dated December 30, 2003. (incorporated herein by reference to Exhibit 10.31 of the
Companys Annual Report on Form 10-K dated December 31, 2003). *
Ratio of Earnings to Fixed Charges Schedule.
Subsidiaries of the Company.
Consent of Ernst & Young LLP.
Certification of Chief Executive Officer required by 17 CFR 240.13a-14(a), pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer required by 17 CFR 240.13a-14(a), pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer required by 17 CFR 240.13a-14(b), pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer required by 17 CFR 240.13a-14(b), pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
EXHIBIT 10.1
EXECUTION COPY
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF JANUARY 28, 2005
AMONG
M.D.C. HOLDINGS, INC.
as Borrower
AND
THE LENDERS NAMED HEREIN
AND
JPMORGAN CHASE BANK, N.A.
as Administrative Agent
AND
WACHOVIA BANK, NATIONAL ASSOCIATION
as Syndication Agent
AND
BNP PARIBAS, CITICORP NORTH AMERICA, INC., GUARANTY BANK, THE ROYAL
BANK OF SCOTLAND PLC, SUNTRUST BANK,
and U.S. BANK NATIONAL ASSOCIATION
as Documentation Agents
AND
BANK OF AMERICA, N.A., CALIFORNIA BANK & TRUST, COMERICA BANK,
KEYBANK NATIONAL ASSOCIATION and WASHINGTON MUTUAL BANK, FA
as Managing Agents
AND
AMSOUTH BANK, MIZUHO CORPORATE BANK, LTD., PNC BANK NATIONAL
ASSOCIATION and RBC CENTURA BANK
as Co-Agents
J.P. MORGAN SECURITIES, INC.
Sole Arranger and Sole Bookmanager
TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS..................................................................................... 1 ARTICLE II THE CREDITS.................................................................................... 21 2.1 Commitment............................................................................... 21 2.2 Required Payments........................................................................ 21 2.3 Ratable Loans............................................................................ 21 2.4 Types of Advances........................................................................ 21 2.5 Fees; Reduction and Increase in Commitment............................................... 21 2.6 Minimum Amount of Each Advance........................................................... 25 2.7 Optional Principal Payments.............................................................. 25 2.8 Method of Selecting Types and Interest Periods for New Advances.......................... 25 2.9 Conversion and Continuation of Outstanding Advances...................................... 26 2.10 Changes in Interest Rate, etc............................................................ 26 2.11 Determination of Applicable LIBOR Rate Margin and Applicable Unused Commitment Rate..................................................................................... 26 2.12 Rates Applicable After Event of Default.................................................. 28 2.13 Method of Payment........................................................................ 29 2.14 Notes; Telephonic Notices................................................................ 29 2.15 Interest Payment Dates; Interest Basis................................................... 29 2.16 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions.......... 30 2.17 Lending Installations.................................................................... 30 2.18 Non-Receipt of Funds by Administrative Agent............................................. 30 2.19 Swing Line............................................................................... 30 2.20 Withholding Tax Exemption................................................................ 32 2.21 Extension of Facility Maturity Date...................................................... 33 2.22 Term Out Period.......................................................................... 34 2.23 Replacement of Certain Lenders........................................................... 35 ARTICLE III CHANGE IN CIRCUMSTANCES....................................................................... 36 3.1 Yield Protection......................................................................... 36 3.2 Changes in Capital Adequacy Regulations.................................................. 38 3.3 Availability of Types of Advances........................................................ 38 3.4 Funding Indemnification.................................................................. 38 3.5 Lender Statements; Survival of Indemnity................................................. 38 |
ARTICLE IV THE LETTER OF CREDIT FACILITY.................................................................. 39 4.1 Facility Letters of Credit............................................................... 39 4.2 Limitations.............................................................................. 39 4.3 Conditions............................................................................... 40 4.4 Procedure for Issuance of Facility Letters of Credit..................................... 40 4.5 Duties of LC Issuer...................................................................... 42 4.6 Participation............................................................................ 43 4.7 Compensation for Facility Letters of Credit.............................................. 45 4.8 LC Issuer Reporting Requirements......................................................... 45 4.9 Indemnification; Nature of LC Issuer's Duties............................................ 46 4.10 Facility LC Collateral Account........................................................... 47 4.11 Obligations of LC Issuer and Other Lenders............................................... 48 ARTICLE V CONDITIONS PRECEDENT............................................................................ 48 5.1 Initial Advance.......................................................................... 48 5.2 Each Advance............................................................................. 50 ARTICLE VI REPRESENTATIONS AND WARRANTIES................................................................. 51 6.1 Existence and Standing................................................................... 51 6.2 Authorization and Validity............................................................... 51 6.3 No Conflict; Government Consent.......................................................... 51 6.4 Financial Statements..................................................................... 52 6.5 Material Adverse Change.................................................................. 52 6.6 Taxes.................................................................................... 52 6.7 Litigation and Contingent Obligations.................................................... 52 6.8 Subsidiaries............................................................................. 53 6.9 ERISA.................................................................................... 53 6.10 Accuracy of Information.................................................................. 53 6.11 Regulation U............................................................................. 53 6.12 Material Agreements...................................................................... 53 6.13 Labor Disputes and Acts of God........................................................... 53 6.14 Ownership................................................................................ 53 6.15 Operation of Business.................................................................... 54 6.16 Laws; Environment........................................................................ 54 6.17 Investment Company Act................................................................... 55 6.18 Public Utility Holding Company Act....................................................... 55 6.19 Subordinated Indebtedness................................................................ 55 6.20 Indenture Provisions..................................................................... 55 6.21 SDN List Designation..................................................................... 55 |
ARTICLE VII AFFIRMATIVE COVENANTS......................................................................... 55 7.1 Financial Reporting...................................................................... 55 7.2 Use of Proceeds.......................................................................... 58 7.3 Notice of Event of Default............................................................... 58 7.4 Conduct of Business...................................................................... 58 7.5 Taxes.................................................................................... 58 7.6 Insurance................................................................................ 59 7.7 Compliance with Laws..................................................................... 59 7.8 Maintenance of Properties................................................................ 59 7.9 Inspection............................................................................... 59 7.10 Environment.............................................................................. 59 7.11 New Guarantors........................................................................... 59 7.12 Change in Schedules...................................................................... 60 ARTICLE VIII NEGATIVE COVENANTS........................................................................... 60 8.1 Dividends; Repurchase of Stock........................................................... 60 8.2 Indebtedness............................................................................. 60 8.3 Merger................................................................................... 62 8.4 Sale of Assets........................................................................... 62 8.5 Investments and Acquisitions............................................................. 63 8.6 Liens.................................................................................... 65 8.7 Affiliates............................................................................... 67 8.8 Modifications to Certain Indebtedness.................................................... 67 8.9 Amendments of Indenture or Senior Notes.................................................. 68 8.10 Negative Pledge.......................................................................... 68 ARTICLE IX FINANCIAL COVENANTS............................................................................ 68 9.1 Consolidated Tangible Net Worth Test..................................................... 68 9.2 Leverage Test; Interest Coverage Test.................................................... 69 9.3 Consolidated Tangible Net Worth Floor.................................................... 70 ARTICLE X EVENTS OF DEFAULT............................................................................... 70 10.1 Representations and Warranties........................................................... 70 10.2 Non-payment.............................................................................. 71 10.3 Other Defaults........................................................................... 71 10.4 Other Indebtedness....................................................................... 71 10.5 Bankruptcy............................................................................... 71 10.6 Receiver................................................................................. 72 10.7 Judgment................................................................................. 72 |
10.8 Unfunded Liabilities..................................................................... 72 10.9 Withdrawal Liability..................................................................... 72 10.10 Increased Contributions.................................................................. 72 10.11 Change in Control........................................................................ 73 10.12 Dissolution.............................................................................. 73 10.13 Guaranty................................................................................. 73 10.14 Consolidated Tangible Net Worth Covenant................................................. 73 10.15 No Defaults.............................................................................. 73 ARTICLE XI ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES................................................. 74 11.1 Acceleration; Remedies................................................................... 74 11.2 Amendments............................................................................... 75 11.3 Preservation of Rights................................................................... 76 ARTICLE XII GENERAL PROVISIONS............................................................................ 77 12.1 Survival of Representations.............................................................. 77 12.2 Governmental Regulation.................................................................. 77 12.3 Taxes.................................................................................... 77 12.4 Headings................................................................................. 77 12.5 Entire Agreement......................................................................... 77 12.6 Nature of Obligations; Benefits of this Agreement........................................ 77 12.7 Expenses; Indemnification................................................................ 77 12.8 Numbers of Documents..................................................................... 78 12.9 Accounting............................................................................... 78 12.10 Severability of Provisions............................................................... 78 12.11 Nonliability of Lenders and LC Issuer.................................................... 78 12.12 CHOICE OF LAW............................................................................ 78 12.13 Arbitration.............................................................................. 79 12.14 CONSENT TO JURISDICTION.................................................................. 80 12.15 WAIVER OF JURY TRIAL..................................................................... 80 12.16 Confidentiality.......................................................................... 80 12.17 USA PATRIOT ACT.......................................................................... 81 ARTICLE XIII ADMINISTRATIVE AGENT......................................................................... 81 13.1 Appointment; Nature of Relationship...................................................... 81 13.2 Powers................................................................................... 81 13.3 General Immunity......................................................................... 82 13.4 No Responsibility for Loans, Recitals, etc............................................... 82 13.5 Action on Instructions of Lenders........................................................ 82 |
13.6 Employment of Agents and Counsel......................................................... 82 13.7 Reliance on Documents; Counsel........................................................... 83 13.8 Agent's Reimbursement and Indemnification................................................ 83 13.9 Notice of Default........................................................................ 83 13.10 Rights as a Lender and LC Issuer......................................................... 84 13.11 Lender Credit Decision................................................................... 84 13.12 Successor Administrative Agent........................................................... 84 13.13 Agent and Arranger Fees.................................................................. 85 13.14 Delegation to Affiliates................................................................. 85 13.15 Co-Agents, Co-Documentation Agents, Co-Managing Agents, Syndication Agent, etc........... 85 ARTICLE XIV RATABLE PAYMENTS.............................................................................. 86 14.1 Ratable Payments......................................................................... 86 ARTICLE XV BENEFIT OF AGREEMENT, ASSIGNMENTS; PARTICIPATIONS.............................................. 86 15.1 Successors and Assigns................................................................... 86 15.2 Participations........................................................................... 87 15.3 Assignments.............................................................................. 87 15.4 Dissemination of Information............................................................. 89 15.5 Tax Treatment............................................................................ 89 ARTICLE XVI NOTICES....................................................................................... 89 16.1 Giving Notice............................................................................ 89 16.2 Change of Address........................................................................ 89 ARTICLE XVII COUNTERPARTS................................................................................. 89 |
LIST OF SCHEDULES AND EXHIBITS
EXHIBITS:
Exhibit A Form of Guaranty Exhibit B Form of Note Exhibit C Form of Commitment and Acceptance Exhibit D Form of Borrowing Notice Exhibit E Form of Opinion of General Counsel Exhibit F Form of Compliance Certificate of Authorized Officer (Financial Covenant Tests) Exhibit G Form of Assignment and Assumption Agreement SCHEDULES: Schedule 1 Non-Guarantor Subsidiaries Schedule 2 Commitments Schedule 4.4 Existing Letters of Credit Schedule 6.3 Required Orders, Consents and Approvals Schedule 6.8 Subsidiaries Schedule 8.2 Existing Indebtedness Schedule 8.6 Existing Liens |
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of January 28, 2005, among M.D.C. HOLDINGS, INC., a Delaware corporation, as Borrower, the Lenders listed on the signature pages of this Agreement, JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, NA), as Administrative Agent and BANK ONE, ARIZONA, N.A. (solely for the purposes set forth in Section 4.4(f)).
RECITALS
A. M.D.C. Holdings, Inc., as borrower, JPMorgan Chase Bank, N.A. (successor by merger to Bank One, NA), as administrative agent and certain lenders are party to a certain Credit Agreement dated April 8, 2004 (the "Prior Credit Agreement").
B. The parties hereto desire to increase the amount of the Aggregate Commitment and otherwise amend and restate the Prior Credit Agreement in its entirety.
NOW THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"AAA" is defined in Section 12.13.
"Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which Borrower or any Guarantor (i) acquires any going concern or all or substantially all of the assets of any firm, corporation 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 partnership or other ownership interests of a partnership, joint venture, limited liability company or other similar business organization.
"Additional Lender" is defined in Section 2.5(d)(i).
"Adjusted Consolidated Tangible Net Worth" means, at any date, (a) Consolidated Tangible Net Worth, plus (b) the lesser of (i) fifty percent (50%) of the Subordinated Indebtedness of Borrower and Guarantors (taken as a whole on a consolidated basis) and (ii) $100,000,000.
"Administrative Agent" means JPMorgan Chase Bank, N.A. (successor by merger to Bank One, NA), in its capacity as administrative agent for Lenders pursuant to Article XIII, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article XIII.
"Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by Lenders (or Swing Line Advances made by Swing Line Lender) to Borrower of the same Type and, in the case of a LIBOR Advance, for the same Interest Period.
"Affected Lender" is defined in Section 2.23.
"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 beneficially owns (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) 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.
"Aggregate Commitment" means the aggregate of the Commitments of all Lenders, as increased or reduced from time to time pursuant to the terms hereof. As of the date of this Agreement, the Aggregate Commitment is $1,058,000,000.
"Agreement" means this Credit Agreement, as it may be amended or modified and in effect from time to time.
"Agreement Accounting Principles" is defined in Section 12.9.
"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 (a) the Federal Funds Effective Rate for such day plus (b) 1/2 of 1% per annum.
"Applicable Letter of Credit Rate" means, as at any date of determination, a rate per annum equal to the Applicable LIBOR Rate Margin.
"Applicable LIBOR Rate Margin" means, as at any date of determination, the margin indicated in Section 2.11 as then applicable in the determination of LIBOR Rates.
"Applicable Unused Commitment Rate" means, as at any date of determination, the rate per annum indicated in Section 2.11 as then applicable in the determination of the Unused Commitment Fee under Section 2.5(a).
"Arranger" means J.P. Morgan Securities Inc.
"Article" means an article of this Agreement unless another document is specifically referenced.
"Assignment and Assumption" is defined in Section 15.3.1.
"Authorized Officer" means any one or more of the Chairman, President, Senior Vice President or any Vice President, Chief Financial Officer, Treasurer, or other officer of Borrower or a Guarantor, as applicable, acting singly or together, in accordance with the applicable resolutions and bylaws of Borrower or such Guarantor.
"Available Credit" means, at any date with respect to any Lender, the amount (if any) by which such Lender's Commitment exceeds the sum of (i) the outstanding principal balance of such Lender's Loans as of such date, plus (ii) such Lender's ratable share (determined in accordance with Section 4.6) of the Facility LC Obligations as of such date, plus (iii) an amount equal to such Lender's ratable share of the outstanding Swing Line Advances.
"Average Daily Outstandings" means, for any quarter (or portion thereof), the sum of (i) the outstanding principal balance of the Loans (including the outstanding principal balance of the Swing Line Advances) plus (ii) the outstanding amount of the Facility Letters of Credit, all calculated for each day during the quarter (or portion thereof) for which the Unused Commitment Fee is being computed, divided by the number of days in that quarter (or portion thereof).
"Bank One, Arizona" means Bank One, Arizona, N.A., in its capacity as an LC Issuer under Section 4.4(f).
"Bank One, Arizona LCs" is defined in Section 4.4(f).
"Borrower" means M.D.C. Holdings, Inc., a Delaware corporation, its successors and assigns.
"Borrowing Base" means, with respect to an Inventory Valuation Date for which it is to be determined, an amount equal to the sum (without duplication) of the following assets of Borrower and each Guarantor (but only to the extent that such assets are not subject to any Liens other than Permitted Liens):
(i) the Receivables, multiplied by ninety percent (90%); plus
(ii) the book value of Presold Units, multiplied by ninety percent (90%); plus
(iii) the book value of Spec Units, multiplied by eighty percent (80%); plus
(iv) the book value of Model Units, multiplied by seventy percent (70%); plus
(v) the book value of Finished Lots, multiplied by seventy percent (70%); plus
(vi) the book value of Land Under Development, multiplied by fifty percent (50%); plus
(vii) the book value of Entitled Land, multiplied by thirty percent (30%);
provided, however, that the aggregate (without duplication) of the amounts calculated pursuant to clauses (v), (vi) and (vii) shall not exceed at any time forty percent (40%) of the Borrowing Base.
"Borrowing Base Certificate" means a written certificate in a form acceptable to Administrative Agent setting forth the amount of the Borrowing Base with respect to the calendar month most recently completed, certified as true and correct by an Authorized Officer of Borrower.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate selection of LIBOR Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which 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 Chicago and New York for the conduct of substantially all of their commercial lending activities.
"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 Agreement Accounting Principles.
"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 Agreement Accounting Principles.
"Cash Equivalents" means:
(a) U.S. Treasury bills and notes;
(b) GNMA securities;
(c) debt insured by other agencies guaranteed by the full faith and credit of the United States of America;
(d) commercial paper rated either "A1" or better by S&P or "P1" by Moody's;
(e) Dutch Auction Preferred Stocks (DAP) rated either "AA" or better by S&P or "Aa2" or better by Moody's;
(f) certificates of deposit issued by commercial banks, savings banks or savings and loan associations whose short-term debt is rated either "A1" or better by S&P or "P1" or better by Moody's, or if such an institution is a subsidiary whose short-term debt is unrated, then its parent corporation must have such a rating;
(g) bankers acceptances issued by financial institutions that meet the requirements for certificates of deposit;
(h) deposits in institutions having the same qualifications required for investments in certificates of deposit;
(i) repurchase agreements collateralized by any otherwise acceptable collateral as defined above; and
(j) money market accounts a majority of whose assets are composed of items described by any of the foregoing clauses (a) through (i) through brokerage firms deemed acceptable by Borrower's management.
"Change in Control" means (a) as to Borrower, 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 Borrower, or (b) as to any Guarantor, the acquisition by any Person (except Borrower or one or more of the Guarantors), or two or more Persons acting in concert of any beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of any of the outstanding shares of voting stock of such Guarantor.
"Co-Agent" means each entity identified as such on the cover page of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time.
"Co-Documentation Agent" means each entity identified as such on the cover page of this Agreement.
"Collateral Shortfall Amount" is defined in Section 11.1(a).
"Co-Managing Agent" means each entity identified as such on the cover page of this Agreement.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans, and to participate in the Facility Letters of Credit in accordance with
Section 4.6(a), not exceeding the amount set forth in Schedule 2 or as set forth
in any Commitment and Acceptance delivered pursuant to Section 2.5(d) or as set
forth in any Assignment and Assumption relating to any assignment that has
become effective pursuant to Section 15.3.3, as such amount may be modified from
time to time pursuant to the terms hereof.
"Commitment and Acceptance" is defined in Section 2.5(d)(i).
"Consolidated Indebtedness" means, at any date, the outstanding amount of all Indebtedness (including without limitation any Subordinated Indebtedness) of Borrower and Guarantors, without duplication, (taken as a whole on a consolidated basis in conformity with
Agreement Accounting Principles). "Consolidated Indebtedness" shall specifically exclude Indebtedness of any Non-Guarantor Subsidiary.
"Consolidated Interest Expense" means for any period, without duplication, the aggregate amount of interest which, in conformity with Agreement Accounting Principles, would be set opposite the caption "interest expense" or any like caption on a consolidated income statement for Borrower and Guarantors (specifically excluding the Non-Guarantor Subsidiaries), including, without limitation, imputed interest included on Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to Letters of Credit and bankers' acceptance financing, the net costs associated with Rate Hedging Obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premiums, if any, and all other noncash interest expense, other than interest and other charges amortized to cost of sales. Consolidated Interest Expense includes, with respect to Borrower and Guarantors (specifically excluding the Non-Guarantor Subsidiaries), without duplication, all interest included as a component of cost of sales for such period.
"Consolidated Interest Incurred" means for any period, without duplication, the aggregate amount of interest which, in conformity with Agreement Accounting Principles, would be set opposite the caption "interest expense" or any like caption on a consolidated income statement for Borrower and Guarantors (specifically excluding the Non-Guarantor Subsidiaries), including, without limitation, imputed interest included on Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to Letters of Credit and bankers' acceptance financing, the net costs associated with Rate Hedging Obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other noncash interest expense other than interest and other charges amortized to cost of sales. Consolidated Interest Incurred includes, with respect to Borrower and Guarantors, without duplication, all capitalized interest for such period, all interest attributable to discontinued operations for such period to the extent not set forth on the income statement under the caption "interest expense" or any like caption, and all interest actually paid by Borrower or any Guarantor (specifically excluding the Non-Guarantor Subsidiaries) under any contingent obligation during such period.
"Consolidated Net Income" means, for any period, the net income (or loss) of Borrower on a consolidated basis for such period taken as a single accounting period, determined in conformity with Agreement Accounting Principles.
"Consolidated Senior Debt Borrowings" means, at any date, with respect to
Borrower and Guarantors, without duplication (taken as a whole on a consolidated
basis), the outstanding principal amount of all obligations described in clauses
(i), (iv) or (viii) of the definition of "Indebtedness" (including the
Obligations and the Senior Debt) calculated in accordance with Agreement
Accounting Principles but excluding (i) Indebtedness of any Non-Guarantor
Subsidiary, (ii) Indebtedness of Borrower to a Guarantor, a Guarantor to
Borrower or a Guarantor to another Guarantor, (iii) any Subordinated
Indebtedness and (iv) Indebtedness secured by collateral having a value in
excess of the amount of such Indebtedness.
"Consolidated Tangible Net Worth" means, at any date, (a) the stockholders' equity of Borrower determined on a consolidated basis in conformity with Agreement Accounting Principles less (i) its consolidated Intangible Assets, and less (ii) loans and advances to directors, officers and employees of Borrower but excluding (A) loans for purposes of exercising options to purchase capital stock in Borrower to the extent not otherwise netted out in the determination of stockholders' equity, and (B) any arms-length mortgage loans made by any Subsidiary in the ordinary course of such Subsidiary's business, and (C) any advances made to employees in the ordinary course of business for travel and other items, and (D) other such loans and advances not to exceed $5,000,000 in the aggregate outstanding at any one time, all determined as of such date less (b) the Net Worth of the Non-Guarantor Subsidiaries (taken as a whole on a consolidated basis). For purposes of this definition "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholders' equity) of (1) all write-ups in the book value of any asset owned by Borrower or any Subsidiary, (2) any amount, however designated on the balance sheet, representing the excess of the purchase price paid for assets or stock acquired over the value assigned thereto on the books of Borrower or any Subsidiary, (3) all unamortized debt discount, goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible items, and (4) all items that would be considered intangible assets under Agreement Accounting Principles.
"Consolidated Tangible Net Worth Test" is defined in Section 9.1.
"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 Borrower, a Guarantor or any of their respective Subsidiaries, are treated as a single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.9.
"Coverage Test Failure Quarter" is defined in Section 9.2(b).
"Dividend" means (i) any dividend paid or declared by Borrower or any Guarantor, as applicable; (ii) any purchase, redemption, retirement or other acquisition by Borrower or any Guarantor, as applicable, for value, or the setting aside of any funds or issuance of any warrants for such purpose, of any of the capital stock of Borrower or such Guarantor, as applicable, now or hereafter outstanding or any interest therein; and (iii) as to any Guarantor, any distribution of assets, properties, cash, rights, obligations or other consideration or securities of such Guarantor, directly or indirectly, to Borrower.
"Dollars" and the sign "$" mean lawful money of the United States of America.
"EBITDA" means, for any period, without duplication, the following, all as determined on a consolidated basis for Borrower and Guarantors (specifically excluding the Non-Guarantor Subsidiaries) in conformity with Agreement Accounting Principles,
(i) the sum of the amounts for such period of (a) Consolidated Net Income (specifically excluding for purposes of this definition net income of the Non-Guarantor Subsidiaries but including, however, any dividends and reimbursements of taxes paid by any Non-Guarantor Subsidiary to Borrower or any Guarantor), (b) Consolidated Interest
Expense, (c) charges against income for all federal, state and local taxes, (d) depreciation expense, (e) amortization expense, (f) other non-cash charges and expenses, and (g) any losses arising outside of the ordinary course of business which have been included in the determination of such Consolidated Net Income, less
(ii) any gains arising outside of the ordinary course of business which have been included in the determination of such Consolidated Net Income.
"Entitled Land" means parcels of land owned by Borrower or any Guarantor which are zoned for the construction of single-family dwellings, whether detached or attached (excluding mobile homes); provided, however, that the term "Entitled Land" shall not include Land under Development, Finished Lots or any real property upon which the construction of Housing Units has commenced (as described in the definition of "Housing Unit").
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder.
"Event of Default" means an event described in Article X after the expiration of any applicable cure or notice period provided in Article X.
"Excluded Taxes" is defined in Section 3.1(i).
"Existing Letters of Credit" means, collectively, the Bank One, Arizona LCs and the Other Existing LCs.
"Extension Request" is defined in Section 2.21(a).
"Facility Increase Request" is defined in Section 2.5(d)(i).
"Facility LC Collateral Account" is defined in Section 4.10.
"Facility LC Obligations" means, at any date, the sum of (i) the aggregate undrawn face amount of all outstanding Facility Letters of Credit, plus (ii) the aggregate amount paid by an LC Issuer on any Facility Letters of Credit to the extent (if any) not reimbursed by Borrower or by Lenders under Section 4.4.
"Facility Letter of Credit" means each Existing Letter of Credit and any Letter of Credit issued by the LC Issuer for the account of Borrower or any Guarantor in accordance with Article IV.
"Facility Letter of Credit Fee" means a fee, payable with respect to each Facility Letter of Credit issued by the LC Issuer, in an amount per annum equal to the product of (i) the Applicable Letter of Credit Rate (determined as of the date on which the quarterly installment of such fee is due) and (ii) the face amount of such Facility Letter of Credit. The Applicable Letter of Credit Rate shall be adjusted, as applicable, from time to time, effective on the first January 1, April 1, June 1 or October 1 to occur on or after any change in the Applicable LIBOR Rate Margin.
"Facility Maturity Date" means April 7, 2009, as the same may be extended as provided in Section 2.21.
"Facility Rating" means the publicly announced ratings by Moody's and S&P on Borrower's Indebtedness evidenced by this Agreement and the Notes; provided, however, (i) in the event of a difference in such ratings between S&P and Moody's when both of such ratings are BBB- and Baa3 or better, the Facility Rating shall be the higher of the two ratings, (ii) in the event of a difference in such ratings between S&P and Moody's when one of such ratings is BB+ or Ba1, the Facility Rating shall be the lower of the two ratings and (iii) in the event Moody's or S&P (but not both) publicly announces such a rating, such rating shall be the Facility Rating. The Facility Rating shall change if and when such rating(s) change.
"Facility Termination Date" means the earlier of (i) the Facility Maturity Date, or (ii) the last day of the Term Out Period (if applicable) then in effect, as calculated pursuant to Section 2.22.
"Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m., Chicago time, for such day on such transactions received by Administrative Agent from three (3) Federal funds brokers of recognized standing selected by Administrative Agent in its sole discretion.
"Financial Covenant Test" means each of the Consolidated Tangible Net Worth Test and the Leverage Test. The covenant set forth in Section 9.3 shall not constitute a Financial Covenant Test.
"Finished Lots" means parcels of land owned by Borrower or any Guarantor which are duly recorded and platted for the construction of single-family dwelling units, whether detached or attached (but excluding mobile homes) and zoned for such use, with respect to which all requisite governmental consents and approvals required for a building permit to be issued have been, or could be, obtained; provided, however, that the term "Finished Lots" shall not include any real property upon which the construction of a Housing Unit has commenced (as described in the definition of "Housing Unit").
"Floating Rate" means, for any day, a rate per annum equal to the Alternate Base Rate for such day.
"Floating Rate Advance" means an Advance which bears interest at the Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating Rate.
"Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
"GAAP" means generally accepted accounting principles in effect from time to time, consistently applied.
"Guarantors" means RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF MARYLAND, INC., a Maryland corporation, RICHMOND AMERICAN HOMES OF NEVADA, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a Virginia corporation, RICHMOND AMERICAN HOMES OF ARIZONA, INC., a Delaware corporation, RICHMOND AMERICAN HOMES OF COLORADO, INC., a Delaware corporation, RICHMOND AMERICAN HOMES OF WEST VIRGINIA, INC., a Colorado corporation, RAH OF FLORIDA, INC. (formerly known as Richmond American Homes of California (Inland Empire), Inc.), a Colorado corporation, RICHMOND AMERICAN HOMES OF UTAH, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF TEXAS, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF FLORIDA, LP, a Colorado limited partnership, RICHMOND AMERICAN HOMES OF DELAWARE, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF ILLINOIS, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF NEW JERSEY, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF PENNSYLVANIA, INC., a Colorado corporation, M.D.C. LAND CORPORATION, a Colorado corporation, RICHMOND AMERICAN CONSTRUCTION, INC., a Delaware corporation, RAH TEXAS HOLDINGS, LLC, a Colorado limited liability company and RAH OF TEXAS, LP, a Colorado limited partnership, and their successors and assigns, and any Subsidiary that shall hereafter become a Guarantor in accordance with Section 7.11 hereof, and any successors and assigns of any of the foregoing. "Guarantor" means any one of the Guarantors.
"Guaranty" means the Amended and Restated Guaranty, in substantially the form of Exhibit A hereto, duly executed by the Guarantors, as the same may be supplemented, amended or modified and in effect from time to time.
"Housing Unit" means a single-family dwelling (where construction has commenced), whether detached or attached (including condominiums but excluding mobile homes), including the parcel of land on which such dwelling is located, that is or will be available for sale by Borrower or a Guarantor. The construction of a Housing Unit shall be deemed to have commenced upon commencement of the trenching for the foundation of the Housing Unit. Each "Housing Unit" is either a Presold Unit, a Spec Unit or a Model Unit.
"Housing Unit Closing" means a closing of the sale of a Housing Unit by Borrower or a Guarantor to a bona fide purchaser for value.
"Increase Date" is defined in Section 2.5(d)(ii).
"Indebtedness" of a Person means, without duplication, such Person's
(i) obligations for borrowed money,
(ii) obligations representing the deferred purchase price of Property or services (other than (A) trade accounts payable and accrued expenses arising or occurring
in the ordinary course of such Person's business, and (B) obligations evidenced by the Permitted Liens described in clause (vi) of the definition of Permitted Liens),
(iii) obligations, whether or not assumed, secured by Liens on, or payable out of the proceeds or production from, Property now or hereafter owned or acquired by such Person (other than the obligations evidenced by the Permitted Liens described in clause (vi) of the definition of Permitted Liens),
(iv) obligations which are evidenced by notes, bonds, debentures, or other similar instruments,
(v) Capitalized Lease Obligations,
(vi) net liabilities under Rate Hedging Obligations,
(vii) all liabilities and obligations of others of the kind described in clauses (i) through (vi) and (viii) that such Person has guaranteed, or that are secured by Liens on Property now or hereafter owned or acquired by such Person (other than the obligations evidenced by the Permitted Liens described in clause (vi) of the definition of Permitted Liens) or that are otherwise the legal liability of such Person,
(viii) reimbursement obligations for which such Person is obligated with respect to a Letter of Credit (which shall be included in the face amount of such Letter of Credit, whether or not such reimbursement obligations are due and payable), provided, however, that Letters of Credit supporting performance obligations shall not be included in Indebtedness unless and until such Letter of Credit is drawn upon, and
(ix) a pro rata share of the Indebtedness of any joint venture in which such Person holds an interest.
Indebtedness includes, without limitation, in the case of Borrower, the Obligations (subject to clause (viii) above) and the obligations evidenced by the Senior Notes and the documents executed in connection therewith.
"Indenture" means that certain Senior Debt Securities Indenture, dated as
of December 3, 2002 (the "Base Indenture"), as supplemented by (i) that certain
Supplemental Indenture dated December 3, 2002 relating to the issuance of the
7.0% Senior Notes (as that term is defined in the definition of "Senior Notes"),
(ii) that certain Supplemental Indenture dated May 19, 2003 relating to the
issuance of the 5.5% Senior Notes (as that term is defined in the definition of
"Senior Notes"), (iii) that certain Second Supplemental Indenture dated
September 29, 2003 relating to the 7.0% Senior Notes, (iv) that certain Second
Supplemental Indenture dated September 29, 2003 relating to the 5.5% Senior
Notes, (v) that certain Third Supplemental Indenture dated February 12, 2004
relating to the 7.0% Senior Notes, (vi) that certain Third Supplemental
Indenture dated as of February 12, 2004 relating to the 5.5% Senior Notes and
(vii) that certain Supplemental Indenture dated as of October 6, 2004 relating
to Medium Term Senior Notes in the maximum principal amount of $500,000,000,
including the 5.375% Medium Term Senior Notes (as that term is defined in the
definition of "Senior Notes"), all between
Borrower and U.S. Bank National Association and pursuant to which the Senior Notes were issued.
"Interest Coverage Test" is defined in Section 9.2(b).
"Interest Period" means, with respect to a LIBOR Advance, a period of one, two, three or six months commencing on a Business Day selected by Borrower pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth 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 said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. No Interest Period shall extend beyond the Facility Termination Date (or, if the provisions of Section 2.21(c) apply, the Previous Maturity Date).
"Inventory Valuation Date" means the last day of the most recent calendar month with respect to which a Borrower is required to have delivered a Borrowing Base Certificate pursuant to Section 7.1(vi) hereof.
"Investment" of a Person means any loan, advance, extension of credit (other than accounts receivable arising in the ordinary course of business), or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership, joint venture or limited liability company interests, notes, debentures or other securities of any other Person made by such Person.
"Investment Grade Rating" means a Facility Rating of Baa3 (or higher) from Moody's or BBB- (or higher) from S&P or, if there is no Facility Rating, a Senior Public Debt Rating of Baa3 (or higher) from Moody's or BBB- (or higher) from S&P.
"Issuance Date" means the date on which a Facility Letter of Credit is issued, amended or extended.
"JPMorgan Chase Bank" means JPMorgan Chase Bank, N.A. (successor by merger to Bank One, NA), in its individual capacity, and its successors and assigns.
"Land Under Development" means parcels of land owned by Borrower or any Guarantor which are zoned for the construction of single-family dwelling units, whether attached or detached (excluding mobile homes) and upon which the construction of site improvements has commenced and is proceeding; provided, however, that the term "Land Under Development" shall not include (i) Finished Lots, (ii) Entitled Land, (iii) any real property upon which the construction of a Housing Unit has commenced, or (iv) vacant land held by Borrower or any Guarantor for future development or sale and designated as inactive land in the footnotes to Borrower's or such Guarantor's financial statements.
"LC Issuer" means (i) solely with respect to the Bank One, Arizona LCs, Bank One, Arizona, (ii) solely with respect to the Other Existing LCs, the Prior LC Issuers, and (iii) with
respect to all Facility Letters of Credit issued after the date hereof, JPMorgan Chase Bank or such other Lender as Borrower, Administrative Agent and such other Lender may agree upon, that may from time to time issue Facility Letters of Credit.
"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 Administrative Agent, any office, branch, banking subsidiary of the holding company of a Lender or Administrative Agent, or banking Affiliate of such Lender or Administrative Agent located in each event in the United States.
"Letter of Credit" means a letter of credit or similar instrument which is issued by a financial institution upon the application of a Person or upon which such Person is an account party or for which such Person is in any way liable.
"Leverage Ratio" means, at any date, the ratio (expressed as a percentage) of (i) Consolidated Indebtedness to (ii) the sum of Consolidated Indebtedness and Adjusted Consolidated Tangible Net Worth.
"Leverage Test" is defined in Section 9.2(a).
"LIBOR Advance" means an Advance which bears interest at a LIBOR Rate.
"LIBOR Base Rate" means, with respect to a LIBOR Advance for the relevant Interest Period, the applicable British Bankers' Association London interbank offered rate for deposits in U.S. dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period.
"LIBOR Loan" means a Loan which bears interest at a LIBOR Rate.
"LIBOR Rate" means, with respect to a LIBOR Advance for the relevant
Interest Period, the sum of (i) the quotient of (a) the LIBOR 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 LIBOR Rate Margin. The LIBOR Rate shall be rounded to the
next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment (the purpose of which is to grant a security interest), deposit arrangement (the purpose of which is to grant a security interest), encumbrance or other security agreement or arrangement of any kind or nature whatsoever the purpose of which is to grant a security interest, whether or not filed or recorded or otherwise perfected (including the interest of a vendor or lessor under any conditional sale, any Capitalized Lease or any lease deemed to constitute a security interest or any other title retention agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any Advance. For purposes of a Swing Line Advance, Swing Line Lender's portion of such Advance is 100%.
"Loan Documents" means this Agreement, the Notes, any Reimbursement Agreements and the Guaranty.
"Material Adverse Effect" means a material adverse effect, based on commercially reasonable standards, on (i) the business, Property, condition (financial or otherwise), or results of operations of Borrower and Guarantors, taken as a whole, (ii) the ability of Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability under applicable law of any of the Loan Documents or the rights or remedies of Administrative Agent, Lenders or any LC Issuer thereunder (other than as to clause (iii), a Material Adverse Effect resulting solely from the acts or omissions of Administrative Agent and/or any Lender(s)). Items disclosed by Borrower in its form 10-Q and form 10-K or any other filings with the Securities and Exchange Commission shall not be deemed to have a Material Adverse Effect solely because of such disclosure, and the existence and content of such disclosure shall not be prima facie evidence of a Material Adverse Effect.
"Model Unit" means a Housing Unit constructed initially for inspection by prospective purchasers that is not intended to be sold until all or substantially all other Housing Units in the applicable subdivision are sold.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement as described in Section 3(37) of ERISA to which Borrower, any Guarantor or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.
"Net Worth" means, at any date as to each Non-Guarantor Subsidiary (taken as a whole on a consolidated basis), the sum of (A) all stockholders' equity of such Non-Guarantor Subsidiary, less (B) all loans or advances made by such Subsidiary to Borrower or any Guarantor and outstanding at such date, all as determined in conformity with Agreement Accounting Principles.
"New Lender" is defined in Section 2.5(d)(i).
"Non-Guarantor Subsidiary" means each Subsidiary of Borrower that is not a Guarantor. The Non-Guarantor Subsidiaries as of the date of this Agreement are listed on Schedule 1.
"Non-Recourse Indebtedness" with respect to any Person means Indebtedness of such Person (i) for which the sole legal recourse for collection of principal and interest on such Indebtedness is against the specific property identified in the instruments evidencing or securing such Indebtedness and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was incurred within ninety (90) days after the acquisition of such property and for which no other assets of such Person may be realized upon in collection of principal or interest on such Indebtedness, or (ii) that refinances Indebtedness described in clause (i) and for which the recourse is limited to the same extent described in clause (i).
"Note" means a promissory note, in substantially the form of Exhibit B hereto, duly executed by Borrower and payable to the order of a Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note.
"Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, the Facility LC Obligations, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of Borrower to Lenders or to any Lender, Administrative Agent, any LC Issuer or any indemnified party hereunder arising under the Loan Documents.
"Other Existing LCs" is defined in Section 4.4(g).
"Participants" is defined in Section 15.2.1.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto.
"Permitted Leverage Ratio" means, at the date hereof, 55%, as such amount may hereafter be adjusted from time to time as provided in Sections 9.2(b) and 9.2(c).
"Permitted Liens" means, as to Borrower or any Guarantor, any of the following:
(i) Liens for taxes, assessments or governmental charges or levies on Borrower's or such Guarantor's Property if the same (A) shall not at the time be delinquent or thereafter can be paid without penalty, or (B) are being contested in good faith and by appropriate proceedings and for which adequate reserves shall have been established on Borrower's or such Guarantor's books in accordance with Agreement Accounting Principles.
(ii) Liens imposed by law, such as carriers', warehousemen's, mechanics' and materialmen's Liens and other similar Liens arising in the ordinary course of business with respect to amounts that either (A) are not yet delinquent, or (B) are delinquent but are being contested in a timely manner in good faith by appropriate proceedings and for which adequate reserves shall have been established on Borrower's or Guarantor's books in accordance with Agreement Accounting Principles.
(iii) Utility easements, rights of way, zoning restrictions, covenants, reservations, and such other burdens, encumbrances or charges against real property, or other minor irregularities of title, as are of a nature generally existing with respect to properties of a similar character and which do not in any material way interfere with the use thereof or the sale thereof in the ordinary course of business of Borrower or such Guarantor.
(iv) Easements, dedications, assessment district or similar Liens in connection with municipal financing and other similar encumbrances or charges, in each case reasonably necessary or appropriate for the development of real property of Borrower or such Guarantor, and which are granted in the ordinary course of the business of Borrower or such Guarantor, and which in the aggregate do not materially burden or impair the fair market value or use of such real property (or the project to which it is related) for the purposes for which it is or may reasonably be expected to be held.
(v) Any option or right of first refusal to purchase real property granted to the master developer or the seller of real property that arises as a result of the non-use or non-development of such real property by Borrower or such Guarantor.
(vi) Any agreement or contract to participate in the income or revenue or to pay lot premiums, in each case derived from the sale of Housing Units and granted in the ordinary course of business to the seller of the real property upon which the Housing Unit is constructed.
"Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, 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 Borrower, any Guarantor or any member of the Controlled Group may have any liability.
"Presold Unit" means a Housing Unit owned by Borrower or any Guarantor that is subject to a bona fide written agreement between Borrower or such Guarantor and a third Person purchaser for sale in the ordinary course of Borrower's or such Guarantor's business of such Housing Unit and the related lot, accompanied by a cash earnest money deposit or down payment in an amount that is customary, and subject only to ordinary and customary contingencies to the purchaser's obligation to buy the Housing Unit and related lot.
"Previous Maturity Date" is defined in Section 2.21(c).
"Prime Rate" means the per annum rate announced by the Lender acting as the Administrative Agent from time to time as its "prime rate" (it being acknowledged that such announced rate may not necessarily be the lowest rate charged by the Lender acting as Administrative Agent to any of its customers), which Prime Rate shall change simultaneously with any change in such announced rate.
"Prior Credit Agreement" is defined in Recital A.
"Prior LC Issuers" means those Lenders party to the Prior Credit Agreement that have issued the Other Existing LCs.
"Prior Lenders" means the "Lenders" as defined in the Prior Credit Agreement.
"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.
"Public Indebtedness" means Indebtedness evidenced by notes, debentures, or other similar instruments issued after the date of this Agreement pursuant to either (i) a registered public offering or (ii) a private placement of such instruments in accordance with an exemption from registration under the Securities Act of 1933 and/or the Securities Exchange Act of 1934 or similar law.
"Purchasers" is defined in Section 15.3.1.
"Rate Hedging 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 agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing.
"Receivables" means the net proceeds payable to, but not yet received by, Borrower or any Guarantor following a Housing Unit Closing.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or extends any Indebtedness (or that refunds, refinances or extends any refund, refinancing or extension of such Indebtedness), but only to the extent that
(i) the Refinancing Indebtedness is subordinated to or pari passu with the Obligations (or a Guarantor's obligations under its Guaranty, as applicable) to the same extent as the Indebtedness being refunded, refinanced or extended,
(ii) the Refinancing Indebtedness is scheduled to mature no earlier than the then current maturity date of such Indebtedness,
(iii) such Refinancing Indebtedness is in an aggregate amount that is equal to or less than the sum of the aggregate amount then outstanding plus all amounts committed but undisbursed under the Indebtedness being refunded, refinanced or extended,
(iv) the Person or Persons liable for the payment of such Refinancing Indebtedness are the same Person or Persons (or successor(s) thereto) that were liable for the Indebtedness being refunded, refinanced or extended when such Indebtedness was initially incurred, and
(v) such Refinancing Indebtedness is incurred within 120 days after the Indebtedness being refunded, refinanced or extended is so refunded, refinanced or extended.
"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 thereto 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.
"Reimbursement Agreement" means, with respect to a Facility Letter of Credit, such form of application therefor and form of reimbursement agreement therefor (whether in a single or several documents, taken together) as an LC Issuer may employ in the ordinary course of business for its own account, with such modifications thereto as may be agreed upon by such LC Issuer and Borrower and as are not materially adverse (in the reasonable judgment of such LC Issuer and Administrative Agent) to the interests of Lenders; provided, however, in the event of any conflict between the terms of any Reimbursement Agreement and this Agreement, the terms of this Agreement shall control.
"Rejecting Lender" is defined in Section 2.21(b).
"Related Business" means any of the following lines of business or
business activity of the type conducted by Borrower, Guarantors and their
Subsidiaries on the date hereof: (i) the home building business, (ii) the
residential mortgage loan business, (iii) the real estate development business,
(iv) the title insurance agency and settlement business, and (v) the insurance
agency business.
"Replacement Lender" is defined in Section 2.23.
"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 by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (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 waiver of the funding requirements under Section 412(d) of the Code.
"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.
"Reserve Requirement" means, with respect 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 (as defined therein).
"S&P" means Standard & Poor's Ratings Services.
"SEC Filing" means any form 10-K, form 10-Q or form 8-K of Borrower hereafter filed by Borrower with the Securities and Exchange Commission and delivered to Administrative Agent pursuant to Section 7.1(xii).
"Section" means a numbered section of this Agreement, unless another document is specifically referenced.
"Senior Debt" means the Senior Notes or, if the Senior Notes are refinanced, the Refinancing Indebtedness with respect thereto.
"Senior Notes" means (a) the 7.0% Senior Notes due 2012 of Borrower issued in the original principal amount of $150,000,000 pursuant to the Indenture (the "7% Senior Notes"), (b) the 5.5% Senior Notes due 2013 of Borrower issued in the original principal amounts of $150,000,000 and $200,000,000, respectively, pursuant to the Indenture (the "5.5% Senior Notes") and (c) the 5.375% Medium Term Senior Notes due 2014 of Borrower issued in the original principal amount of $250,000,000 pursuant to the Indenture (the "5.375% Medium Term Senior Notes").
"Senior Public Debt Rating" means the publicly announced ratings by Moody's and S&P on Borrower's Senior Debt or other Public Indebtedness of Borrower that is pari passu with the Obligations; provided, however, (i) in the event of a difference in such ratings between S&P and Moody's when each of such ratings is BBB- and Baa3 or better, the Senior Public Debt Rating shall be the higher of the two ratings, (ii) in the event of a difference in such ratings between S&P and Moody's when one of such ratings is BB+ or Ba1, the Senior Public Debt Rating shall be the lower of the two ratings and (iii) in the event Moody's or S&P (but not both) publicly announces such a rating, such rating shall be the Senior Public Debt Rating. The Senior Public Debt Rating shall change if and when such rating(s) change.
"Significant Subsidiary" means any Non-Guarantor Subsidiary that has a Net Worth equal to or exceeding $1,000,000.00.
"Single Employer Plan" means a Plan maintained by Borrower, any Guarantor or any member of the Controlled Group for employees of Borrower, any Guarantor or any member of the Controlled Group.
"Spec Unit" means any Housing Unit owned by Borrower or any Guarantor that is not a Presold Unit or a Model Unit.
"Subordinated Indebtedness" means any Indebtedness of Borrower or any Guarantor (a) which has a maturity date that is later than the Facility Maturity Date and (b) the payment of which Indebtedness is subordinated to payment of the Obligations or to such Guarantor's Guaranty of the Obligations (as applicable) to the satisfaction of the Required Lenders. Subordinated Indebtedness shall specifically not include Indebtedness of any Guarantor to Borrower or Borrower to any Guarantor.
"Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power for the election of the board of directors of which shall at the time be beneficially owned (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) 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, association, joint venture, limited liability company or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so
owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a direct or indirect Subsidiary of Borrower.
"Substantial Portion" means, with respect to the Property of Borrower and Guarantors, taken as a whole, Property which represents more than 10% of Consolidated Tangible Net Worth, as would be shown in the consolidated financial statements of Borrower as of the beginning of the fiscal quarter in which such determination is made.
"Swing Line Advances" has the meaning set forth in Section 2.19.
"Swing Line Advance Maturity Date" means that day that is the second Business Day following the date in which a Swing Line Advance was funded by Swing Line Lender.
"Swing Line Lender" means JPMorgan Chase Bank.
"Syndication Agent" means each entity identified as such on the cover page of this Agreement.
"Term Out Date" is defined in Section 2.22(a).
"Term Out Period" means the period of time commencing on the Term Out Date and expiring on the Facility Termination Date.
"Transferee" is defined in Section 15.4.
"Type" means, with respect to any Advance, its nature as a Floating Rate Advance or LIBOR Advance.
"Unfunded Liabilities" means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of the assets of such Plans allocable to such benefits, all determined as of the then most recent valuation date for such Plans, using the actuarial methods and assumptions utilized in the actuarial report for each such Plan as of such date.
"Unmatured Event of Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default.
"Unused Commitment" means, at any date with respect to any Lender, the amount (if any) by which such Lender's Commitment exceeds the sum of (i) the outstanding principal balance of such Lender's Loans as of such date (including, in the case of Swing Line Lender, the Swing Line Advances), plus (ii) such Lender's ratable share (determined in accordance with Section 4.6) of the outstanding amount of the Facility Letters of Credit.
"Unused Commitment Fee" means a fee payable by Borrower to each Lender
with respect to such Lender's Unused Commitment, calculated in accordance with
Section 2.5(a).
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities (or the power to elect the board of directors) of which shall at the time be
beneficially owned (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) 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, association, joint venture, limited liability company 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. From and including the date of this Agreement and prior to the Facility Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to Borrower and to participate in Facility Letters of Credit (as provided in Article IV) from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment; provided, however, that (i) a Lender shall not be required to make any Loan or Loans in excess of the amount of such Lender's then Available Credit, and (ii) at any time at which Borrower does not have an Investment Grade Rating, the aggregate principal amount of all Consolidated Senior Debt Borrowings outstanding at any time and from time to time shall not exceed the Borrowing Base determined as of the most recent Inventory Valuation Date. The Commitments to lend hereunder shall expire on the Facility Termination Date.
2.2 Required Payments. Any outstanding Advances and all other unpaid Obligations shall be paid in full by Borrower on the Facility Termination Date. Additionally, if for any reason at any time either (i) the principal amount of all Advances plus the aggregate amount of the Facility LC Obligations outstanding exceeds the Aggregate Commitment, or (ii) at any time at which Borrower does not have an Investment Grade Rating, the aggregate principal amount of all Consolidated Senior Debt Borrowings exceeds the Borrowing Base determined as of the most recent Inventory Valuation Date, then Borrower shall, within five (5) Business Days after notice from Administrative Agent, make a payment to Administrative Agent for the benefit of Lenders in an amount equal to such excess principal amount.
2.3 Ratable Loans. Each Advance hereunder, including without limitation, any Advance made by Lenders pursuant to Section 2.19(d), but excluding Swing Line Advances, shall consist of Loans made by the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. Swing Line Advances shall consist of Loans made by Swing Line Lender.
2.4 Types of Advances. The Advances may be Floating Rate Advances or LIBOR Advances, or a combination thereof, selected by Borrower in accordance with Sections 2.8 and 2.9.
2.5 Fees; Reduction and Increase in Commitment.
(a) Unused Commitment Fee. Borrower agrees to pay to Administrative Agent for the account of Lenders an Unused Commitment Fee, at a rate per annum equal to the Applicable Unused Commitment Rate, calculated on the basis of a 360-day year in accordance with this Section from the date hereof and to and including the Facility Termination Date, and payable quarterly in arrears on the first day of each January, April, July and October hereafter and on the Facility Termination Date. For each quarter (or portion thereof), the Unused Commitment Fee shall be equal to (A) the average daily Aggregate Commitment during such quarter (or portion thereof) minus (B) the Average Daily Outstandings for such quarter (or portion ----- thereof), with the resulting number multiplied by (C) the Applicable Unused Commitment Rate, and the final product divided by (D) four (4). Each Lender (including Swing Line Lender) shall be entitled to a share of the Unused Commitment Fee in the proportion that (x) such Lender's average daily Unused Commitment for such quarter (or portion thereof) bears to (y) the average daily aggregate Unused Commitments of all Lenders for such quarter (or portion thereof). If the Unused Commitment Fee is being computed for less than a full quarter, the number used in clause (D) above shall be computed on a daily basis for the number of days for which the fee is being computed. The Unused Commitment Fee shall continue to be payable during the Term Out Period. All accrued Unused Commitment Fees shall be payable on the effective date of any termination of the obligations of Lenders to make Loans hereunder.
(b) Extension Fee. If the Facility Maturity Date is extended pursuant to the provisions of Section 2.21, then Borrower shall pay an extension fee for each such extension as provided in Section 2.21(d).
(c) Reductions in Aggregate Commitment. Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among Lenders (in proportion to the ratio that their respective Commitment bear to the Aggregate Commitment) in integral multiples of $5,000,000 at any time or from time to time, upon at least three (3) Business Days' written notice to Administrative Agent, which notice shall specify the amount of any such reduction; provided, however, that the amount of the Aggregate Commitment may not be reduced below the sum of (i) the aggregate principal amount of the outstanding Advances plus (ii) the Facility LC Obligations.
(d) Increases in Aggregate Commitment.
(i) Subject to the provisions of this Section 2.5(d)(i) and Section 2.5(d)(v), Borrower may, at any time and from time to time, request ("Facility Increase Request"), by notice to Administrative Agent, Administrative Agent's approval of an increase of the Aggregate Commitment within the limitations hereinafter set forth, which Facility Increase Request shall set forth the amount of such requested increase. Within twenty (20) days of such Facility Increase Request, Administrative Agent shall advise Borrower of its approval or disapproval thereof; failure to so advise Borrower shall constitute disapproval. Upon approval of Administrative Agent, the Aggregate Commitment may be so increased either by having financial institutions (other than Lenders then holding a Commitment hereunder) approved by Borrower and Administrative Agent ("New Lenders") become Lenders hereunder and/or by having any one or more of Lenders then
holding a Commitment hereunder (at their respective election in their sole discretion) that have been approved by Borrower and Administrative Agent increase the amount of their Commitments (any such Lender that elects to increase its Commitment and any New Lender being hereinafter referred to as a "Additional Lender"), provided that (A) unless otherwise agreed by Borrower and Administrative Agent, the Commitment of any New Lender shall not be less than $10,000,000 (and, if in excess thereof, in integral multiples of $5,000,000), (B) unless otherwise agreed by Borrower and Administrative Agent, the increase in the Commitment of any Lender shall be not less than $10,000,000 (and, if in excess thereof, in integral multiples of $5,000,000); (C) the Aggregate Commitment shall not exceed $1,250,000,000; (D) Borrower and each Additional Lender shall have executed and delivered a commitment and acceptance (the "Commitment and Acceptance") substantially in the form of Exhibit C hereto, and Administrative Agent shall have accepted and executed the same; (E) Borrower shall have executed and delivered to Administrative Agent a Note or Notes payable to the order of each Additional Lender, each such Note to be in the amount of such Additional Lender's Commitment or increased Commitment (as applicable); (F) Borrower shall have delivered to Administrative Agent an opinion of counsel and certificate of Borrower's general counsel (substantially similar to the forms of opinion attached hereto as Exhibit E, modified to apply to the increase in the Aggregate Commitment and each Note and Commitment and Acceptance executed and delivered in connection therewith); (G) Guarantors shall have consented in writing to the new Commitments or increases in Commitments (as applicable) and shall have agreed that their Guaranties continue in full force and effect; and (H) Borrower and each Additional Lender shall otherwise have executed and delivered such other instruments and documents as Administrative Agent shall have reasonably requested in connection with such new Commitment or increase in the Commitment (as applicable). The form and substance of the documents required under clauses (D) through (H) above shall be fully acceptable to Administrative Agent. Administrative Agent shall promptly provide written notice to Lenders following any such increase in the Aggregate Commitment hereunder and shall promptly furnish to Lenders copies of the documents required under clauses (D), (F), (G) and (H) above.
(ii) On the effective date of any increase in the Aggregate Commitment pursuant to the provisions hereof ("Increase Date"), which Increase Date shall be mutually agreed upon by Borrower, each Additional Lender and Administrative Agent, each Additional Lender shall make a payment to Administrative Agent in an amount sufficient, upon the application of such payments by all Additional Lenders to the reduction of the outstanding Floating Rate Advances held by Lenders, to cause the principal amount outstanding under the Floating Rate Loans made by all Lenders (including any Additional Lender) to be in the proportion of their respective Commitments (as of such Increase Date). Borrower hereby irrevocably authorizes each Additional Lender to fund to Administrative Agent the payment required to be made pursuant to the immediately preceding sentence for application to the reduction of the outstanding Floating Rate Loans held by each Lender, and each such payment shall constitute a Floating Rate Loan hereunder. Such Additional Lender shall not participate in any LIBOR Advances that are outstanding on the Increase Date, but, if Borrower shall at any time on or after such Increase Date convert or continue any LIBOR Advance outstanding on such Increase Date, Borrower shall be deemed to repay such LIBOR
Advance on the date of the conversion or continuation thereof and then to reborrow as a LIBOR Advance a like amount on such date so that each Additional Lender shall make a LIBOR Loan on such date in its pro rata share of such LIBOR Advance. Each Additional Lender shall also make a Loan in the amount of its pro rata share of all Advances made on or after such Increase Date and shall otherwise have all of the rights and obligations of a Lender hereunder on and after such Increase Date. Notwithstanding the foregoing, upon the occurrence of an Event of Default prior to the date on which an Additional Lender is holding Loans equal to its pro rata share of all Advances hereunder, such Additional Lender shall, upon notice from Administrative Agent, on or after the date on which the Obligations are accelerated or become due following such Event of Default, pay to Administrative Agent (for the account of the other Lenders, to which Administrative Agent shall pay their pro rata shares upon receipt) a sum equal to such Additional Lender's pro rata share of each Advance then outstanding with respect to which such Additional Lender does not then hold a Loan equal to its pro rata share thereof.
(iii) On the Increase Date and the making of the Loans by an Additional Lender in accordance with the provisions of the first sentence of Section 2.5(d)(ii), such Additional Lender shall also be deemed to have irrevocably and unconditionally purchased and received, without recourse or warranty, from Lenders party to this Agreement immediately prior to the Increase Date, an undivided interest and participation in any Facility Letter of Credit then outstanding, ratably, such that all Lenders (including each Additional Lender) hold participation interests in each such Facility Letter of Credit in the proportion of their respective Commitments (as so increased).
(iv) Nothing contained herein shall constitute, or otherwise be deemed to be, a commitment or agreement on the part of any Lender to increase its Commitment hereunder at any time or a commitment or agreement on the part of Borrower or Administrative Agent to give or grant any Lender the right to increase its Commitment hereunder at any time.
(v) Notwithstanding anything to the contrary contained herein,
Borrower may not request an increase in the Aggregate Commitment during
the Term Out Period, and, if Borrower has requested an increase in the
Aggregate Commitment prior to the Term Out Period but the Term Out Period
commences prior to the effective date of such increase, such increase
shall not take effect. Notwithstanding anything to the contrary contained
herein, no increase of the Aggregate Commitment may be effected under this
Section 2.5(d) if (x) an Unmatured Event of Default or Event of Default
shall be in existence on the effective date of such increase or would
occur after giving effect thereto or (y) any representation or warranty
made or deemed made by Borrower in any Loan Document or any Guarantor in
any Guaranty is not (or would not be) true or correct in any material
respect on the effective date of such increase (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 be true and
correct on and as of such earlier date).
2.6 Minimum Amount of Each Advance. Except with respect to Swing Line Advances, each Advance shall be in the minimum amount of $2,000,000 (and in multiples of $1,000,000 if in excess thereof).
2.7 Optional Principal Payments. Borrower may at any time or from time to
time pay, without penalty or premium, all Floating Rate Advances outstanding
with respect to Borrower, or, in a minimum aggregate amount of $1,000,000 or any
integral multiple of $500,000 in excess thereof (except with respect to Swing
Line Advances), any portion of the outstanding Floating Rate Advances upon one
(1) Business Day's prior notice to Administrative Agent. Borrower may, (i) upon
one (1) Business Days' prior notice to Administrative Agent, pay, without
penalty or premium, any LIBOR Advance in full on the last day of the Interest
Period for such LIBOR Advance, and (ii) upon three (3) Business Days' prior
notice to Administrative Agent, prepay any LIBOR Advance in full prior to the
last day of the Interest Period for such LIBOR Advance, provided that Borrower
shall also pay at the time of such prepayment all amounts payable with respect
thereto pursuant to Section 3.4 hereof.
2.8 Method of Selecting Types and Interest Periods for New Advances. Borrower shall select the Type of Advance and, in the case of each LIBOR Advance, the Interest Period applicable to each Advance from time to time. Borrower shall give Administrative Agent irrevocable notice (a "Borrowing Notice") in the form of Exhibit D not later than (a) noon, Chicago time, one (1) Business Day before the Borrowing Date of each Floating Rate Advance (except a Swing Line Advance), (b) noon, Chicago time, three (3) Business Days before the Borrowing Date of each LIBOR Advance, and (c) 2:00 p.m., Chicago time, on the Borrowing Date of each Swing Line Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such Advance,
(ii) whether the Advance is a Swing Line Advance,
(iii) the aggregate amount of such Advance,
(iv) except in the case of a Swing Line Advance, the Type of Advance selected; provided, however, that the aggregate number of LIBOR Advances outstanding at any one time shall not exceed five (5), and
(v) in the case of each LIBOR Advance, the Interest Period applicable thereto.
Not later than noon, Chicago time, on each Borrowing Date, each Lender shall make available its Loan or Loans, in funds immediately available in Chicago to Administrative Agent at its address specified pursuant to Article XVI. Administrative Agent will make the funds so received from Lenders available to the applicable Borrower at Administrative Agent's aforesaid address. Disbursements of Advances (other than Swing Line Advances) may be made not more frequently than one time per Business Day. Disbursements of all Swing Line Advances to Borrower may be made not more frequently than one time per Business Day, or on a more frequent basis as Swing Line Lender may agree. Interest on all Advances shall be calculated on the basis of a 360-day year, based on the actual days elapsed.
2.9 Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into LIBOR Advances. Each LIBOR Advance shall continue as a LIBOR Advance until the end of the then applicable Interest Period therefor, at which time such LIBOR Advance shall be automatically converted into a Floating Rate Advance unless Borrower shall have given Administrative Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such LIBOR Advance either continues as a LIBOR Advance for the same or another Interest Period or be repaid. Subject to the terms of Section 2.6, Borrower may elect from time to time to convert all or any part of an Advance of any Type into any other Type or Types of Advances; provided, however, that any conversion of any LIBOR Advance may be made on, and only on, the last day of the Interest Period applicable thereto, and further provided that the aggregate number of LIBOR Advances outstanding at any one time shall not exceed five (5).
Borrower shall give Administrative Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of an Advance or
continuation of a LIBOR Advance not later than noon, Chicago time, at least one
(1) Business Day, in the case of a conversion into a Floating Rate Advance, or
three (3) Business Days, in the case of a conversion into or continuation of a
LIBOR Advance, prior to the date of the requested conversion or continuation,
specifying:
(i) the requested date which shall be a Business Day, of such conversion or continuation;
(ii) the aggregate amount 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 LIBOR Advance, the Interest Period applicable thereto.
2.10 Changes in Interest Rate, etc. Each Floating 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 converted from a LIBOR Advance into a Floating Rate Advance pursuant to Section 2.9 to but excluding the date it becomes due or is converted into a LIBOR Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Floating Rate. Each LIBOR Advance shall bear interest 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 as applicable to such LIBOR Advance. No Interest Period may end after the Facility Termination Date.
2.11 Determination of Applicable LIBOR Rate Margin and Applicable Unused Commitment Rate.
(a) Pricing Grid. The Applicable LIBOR Rate Margin and the Applicable Unused Commitment Rate shall be determined by reference to (i) the Facility Rating or,
if no Facility Rating exists, by reference to the Senior Public Debt Rating, and (ii) the Leverage Ratio in accordance with the following table:
LEVEL I LEVEL II LEVEL III LEVEL IV ------------------------- ------------ ---------------- ------------- ------------------------- Facility Rating or Senior Public Debt Rating BBB+/Baa1 or BBB/Baa2 BBB-/Baa3 BB+/Ba1 or below or no higher Facility Rating or Senior Public Debt Rating Leverage Ratio Less than or Greater than 30% Greater than Greater than 50% and equal to 30% and less than or 40% and less less than or equal to 55% equal to 40% than or equal to 50% Applicable LIBOR Rate 0.875% 1.00% 1.25% 1.50% Margin Applicable Unused 0.175% 0.20% 0.25% 0.30% Commitment Rate |
In the event of a difference of one level between (x) the Leverage Ratio and (y) the Facility Rating or Senior Public Debt Rating (as applicable), the lower pricing shall apply; if the difference is more than one level, the level that is one level lower than the higher pricing shall apply.
(b) Adjustment. The Applicable Unused Commitment Rate shall be adjusted, as applicable from time to time, effective on (i) the first Business Day after any change in the Facility Rating or the Senior Public Debt Rating, as applicable or (ii) the fifth (5th) Business Day following the delivery by Borrower, pursuant to Section 7.1(i) or (ii), of annual or quarterly financial statements evidencing a change in the Leverage Ratio. The Applicable LIBOR Rate Margin in respect of any LIBOR Advance shall be adjusted, as applicable from time to time, effective on the first day of the Interest Period for any LIBOR Advance after (i) any change in the Facility Rating or the Senior Public Debt Rating, as applicable, or (ii) the fifth (5th) Business Day following the delivery by Borrower, pursuant to Section 7.1(i) or (ii), of annual or quarterly financial statements evidencing a change in the Leverage Ratio.
2.12 Rates Applicable After Event of Default. Notwithstanding anything to the contrary contained in Section 2.8, 2.9 or 2.10, during the continuance of an Event of Default the Required Lenders may, at their option, by notice to Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 11.2 requiring unanimous consent of Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a LIBOR Advance. Notwithstanding anything to the contrary contained in Section 2.8, 2.9 or 2.10, during the continuance of an Unmatured Event of Default the Required Lenders may, at their option, by notice to Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 11.2
requiring unanimous consent of Lenders to changes in interest rates), declare
that no Advance may be made as or converted into a LIBOR Advance. During the
continuance of an Event of Default, the Required Lenders may, at their option,
by notice to Borrower (which notice may be revoked at the option of the Required
Lenders notwithstanding any provision of Section 11.2 requiring unanimous
consent of Lenders to changes in interest rates), declare that (i) each LIBOR
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 Floating Rate Advance shall bear interest at a rate per annum equal to
the Floating Rate otherwise applicable to the Floating Rate Advance plus 2% per
annum.
2.13 Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to Administrative Agent at Administrative Agent's address specified pursuant to Article XVI, or at any other Lending Installation of Administrative Agent specified in writing by Administrative Agent to Borrower, by 1:00 p.m. (local time at the place of receipt) on the date when due (or with respect to Swing Line Advances, in accordance with Section 2.19), and, except for Swing Line Advances shall be applied ratably by Administrative Agent among Lenders, in proportion to the ratio that each Lender's Commitment bears to the Aggregate Commitment. Each payment delivered to Administrative Agent for the account of any Lender shall be delivered promptly by Administrative Agent to such Lender in the same type of funds that Administrative Agent received at its address specified pursuant to Article XVI or at any Lending Installation specified in a notice received by Administrative Agent from such Lender. If Administrative Agent receives, for the account of a Lender, a payment from Borrower and fails to remit such payment to such Lender on the Business Day such payment is received (if received by 1:00 p.m., Chicago time, by Administrative Agent) or on the next Business Day (if received after 1:00 p.m., Chicago time, by Administrative Agent), Administrative Agent shall pay to such Lender interest on such payment at a rate per annum equal to the Federal Funds Effective Rate for each day for which such payment is so delayed.
2.14 Notes; Telephonic Notices. Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its Note; provided, however, that the failure to so record shall not affect Borrower's obligations under such Note. Borrower hereby authorizes Administrative 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 who Administrative Agent in good faith believes to be acting on behalf of Borrower. Borrower agrees to deliver promptly to Administrative Agent a written confirmation, if such confirmation is requested by Administrative Agent, of each telephonic notice signed by an Authorized Officer of Borrower. If the written confirmation differs in any material respect from the action taken by Administrative Agent, the records of Administrative Agent shall govern absent manifest error.
2.15 Interest Payment Dates; Interest Basis. Interest accrued on each Advance shall be payable on the first day of each calendar month, commencing with the first such date to occur after the date hereof, and on any date on which the Advance is prepaid, whether due to acceleration or otherwise. 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 prior to noon (local time at the place of receipt). 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 such extension of time shall be included in computing interest in connection with such payment.
2.16 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, Administrative 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. Administrative Agent will notify each Lender of the interest rate applicable to each LIBOR Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Floating Rate, the Applicable LIBOR Rate Margin or the Applicable Unused Commitment Rate.
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 Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to Administrative Agent and Borrower, designate a 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 Administrative Agent. Unless Borrower or a Lender, as the case may be, notifies Administrative Agent prior to the date on which such payment is due to Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of Borrower, a payment of principal, interest, fees or other amounts due under the Loan Documents to Administrative Agent for the account of Lenders, that it does not intend to make such payment, Administrative Agent may assume that such payment has been made. Administrative 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 Borrower or such Lender, as the case may be, has not in fact made such payment to Administrative Agent, the recipient of such payment shall, on demand by Administrative Agent, repay to Administrative 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 Administrative Agent until the date Administrative Agent recovers such amount at a rate per annum equal to (a) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (b) in the case of payment by Borrower, the interest rate applicable to the relevant Advance.
2.19 Swing Line. Notwithstanding the minimum amount of an Advance that may be requested and the minimum amount of an Advance repaid under this Agreement, Lenders desire to permit Advances to Borrower in amounts that may be less than the minimum Advance amounts required under Section 2.6, and Lenders desire to permit Borrower to repay such Advances in amounts that may be less than the minimum repayment amounts required under Section 2.7. Such Advances made pursuant to this Section 2.19 shall be deemed to be Advances for purposes of this Agreement and are referred to herein as "Swing Line Advances." Swing Line Advances shall be requested, advanced, and repaid in accordance with the provisions and limitations of this Agreement relating to all Advances, subject to the following:
(a) Aggregate Limit. The aggregate amount of all outstanding Swing
Line Advances shall not exceed at any one time $30,000,000. The Swing Line
Advances and the purchase by Lenders of interests therein pursuant to
Section 2.19(d) below shall also be subject to the limitations contained
in Section 2.1.
(b) Interest. Swing Line Advances bear interest at the greater of
(i) the Alternate Base Rate, minus 0.50% per annum and (ii) a rate equal
to the LIBOR Rate for a one-month Interest Period if such rate had been
selected by Borrower on the date Borrower requested such Swing Line
Advance (the use of such LIBOR Rate in determining interest shall not
affect the Swing Line Maturity Date of any Swing Line Advance or cause any
Swing Line Advance to constitute a LIBOR Advance).
(c) Funding Swing Line Advances. Swing Line Advances shall be funded by Swing Line Lender pursuant to the procedures set forth in Section 2.8 of this Agreement. The principal amount of each Swing Line Advance, together with all accrued interest, shall be repaid by Borrower to Swing Line Lender in same day funds by 4:00 p.m. (or such later time as may be acceptable to Swing Line Lender), Chicago time, on the Swing Line Advance Maturity Date.
(d) Repayment of Swing Line Advances. If Borrower fails to pay any
Swing Line Advances on the applicable Swing Line Advance Maturity Date,
then such Advances shall no longer be Swing Line Advances, but shall
continue to be Floating Rate Advances for purposes of this Agreement. Each
Lender shall be deemed to have irrevocably and unconditionally purchased
and received from Swing Line Lender an undivided interest and
participation (ratably in proportion to the ratio that such Lender's
Commitment bears to the Aggregate Commitment) in such Advances. In such
event, as of 11:59 p.m., Chicago time, on the Swing Line Advance Maturity
Date, Administrative Agent shall notify each Lender of the total principal
amount of all matured Swing Line Advances and each Lender's ratable share
thereof. Upon receipt of such notice, each Lender shall promptly and
unconditionally pay to Administrative Agent for the account of Swing Line
Lender the amount of such Lender's share (ratably in proportion to the
ratio that such Lender's Commitment bears to the Aggregate Commitment) of
such payment in same day funds, and Administrative Agent shall promptly
pay such amount, and any other amounts received by Administrative Agent
for Swing Line Lender's account pursuant to this Section 2.19(d), to Swing
Line Lender. If Administrative Agent so notifies such Lender prior to
10:00 a.m., Chicago time, on any Business Day, such Lender shall make
available to Administrative Agent for the account of Swing Line Lender,
such Lender's share of the amount of such payment on such Business Day in
same day funds. If Administrative Agent notifies such Lender after 10:00
a.m., Chicago time, on any Business Day, such Lender shall make available
to Administrative Agent for the account of Swing Line Lender such Lender's
share of the amount of such payment on the next succeeding Business Day in
same day funds. If and to the extent such Lender shall not have so made
its share of the amount of such payment available to Administrative Agent
for the account of Swing Line Lender, such Lender agrees to pay to
Administrative Agent for the account of Swing Line Lender forthwith on
demand such amount, together with interest thereon, for each day from the
date such payment was first due until the date such amount is paid to
Administrative Agent for the account of Swing
Line Lender, at the Federal Funds Effective Rate. The failure of any Lender to make available to Administrative Agent for the account of Swing Line Lender such Lender's share of any such payment shall not relieve any other Lender of its obligation hereunder to make available to Administrative Agent for the account of Swing Line Lender its share of any payment on the date such payment is to be made.
(e) Advances. The payments made by Lenders to Swing Line Lender in reimbursement of Swing Line Advances shall constitute, and Borrower hereby expressly acknowledges and agrees that such payments shall constitute, Advances hereunder to Borrower and such payments shall for all purposes be treated as Advances to Borrower (notwithstanding that the amounts thereof may not comply with the provisions of Section 2.6 and 2.7). Such Advances shall be Floating Rate Advances, subject to Borrower's rights under Article II hereof.
2.20 Withholding Tax Exemption. At least five (5) Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender (if any) 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 deliver to Borrower and Administrative Agent two (2) duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal taxes and an Internal Revenue Service Form W-8 or W-9, certifying that such Lender is entitled to a complete exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to Borrower and Administrative Agent (x) renewals or additional copies of such form (or a 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, additional forms or amendments thereto or extensions or renewals thereof as may be reasonably requested by Borrower or Administrative Agent. All forms or amendments or renewals provided for in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal 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 with respect to it and such Lender advises Borrower and Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal tax.
If a Lender does not provide duly executed forms to Borrower and Administrative Agent within the time periods set forth in the preceding paragraph, Borrower or Administrative Agent shall (to the extent Borrower has not already done so) withhold taxes from payments to such Lender at the applicable statutory rates and Borrower shall not be required to pay any additional amounts as a result of such withholding. Upon the reasonable request of Borrower or Administrative Agent, each Lender that has not provided the forms or other documents, as provided above, on the basis of being a "United States person," shall submit to Borrower and Administrative Agent a certificate or other evidence to the effect that it is such a "United States person."
2.21 Extension of Facility Maturity Date.
(a) Extension Requests. Borrower may request a one-year extension of
the Facility Maturity Date by submitting a request for an extension to
Administrative Agent no more than 48 months nor less than 46 months prior
to the then scheduled Facility Maturity Date. At the time of or prior to
the delivery of such request, Borrower shall propose to Administrative
Agent the amount of the fees that Borrower agrees to pay with respect to
such one-year extension if approved by Lenders (such request for an
extension, together with the fee proposal, being herein referred to as the
"Extension Request"). Promptly upon (but not later than five (5) Business
Days after) receipt of the Extension Request, Administrative Agent shall
notify each Lender of the contents thereof and shall request each Lender
to approve the Extension Request. Each Lender approving the Extension
Request shall deliver its written approval no later than sixty (60) days
after the date of the Extension Request. If the approval of all Lenders is
received by Administrative Agent within sixty (60) days after the date of
the Extension Request (or as otherwise provided in Section 2.21(b)),
Administrative Agent shall promptly so notify Borrower and each Lender,
and the Facility Maturity Date shall be extended by one (1) year, and in
such event Borrower may thereafter request further extension(s) of the
then scheduled Facility Maturity Date in accordance with this Section
2.21. If any Lender does not deliver to Administrative Agent such Lender's
written approval to any Extension Request within sixty (60) days after the
date of such Extension Request, the Facility Maturity Date shall not be
extended, except as otherwise provided in Section 2.21(b) or 2.21(c).
(b) Rejecting Lenders/Full Assignment. If (i) any Lenders whose pro
rata shares of the Aggregate Commitment do not exceed 25% of the Aggregate
Commitment ("Rejecting Lenders") shall not approve an Extension Request,
(ii) all rights and obligations of such Rejecting Lenders under this
Agreement and under the other Loan Documents (including, without
limitation, their Commitment and all Loans owing to them) shall have been
assigned, within ninety (90) days following such Extension Request, in
accordance with Section 2.23, to one or more Replacement Lenders who shall
have approved in writing such Extension Request at the time of such
assignment, and (iii) no other Lender shall have given written notice to
Administrative Agent of such Lender's withdrawal of its approval of the
Extension Request, Administrative Agent shall promptly so notify Borrower
and each Lender, and the Facility Maturity Date shall be extended by one
(1) year, and in such event Borrower may thereafter request further
extension(s) as provided in Section 2.21(a).
(c) Rejecting Lenders/No Full Assignment. If (i) one or more Rejecting Lenders shall not approve an Extension Request, (ii) the provisions of clause (ii) of Section 2.21(b) do not apply and (iii) no other Lender shall have given written notice to Administrative Agent of such Lender's withdrawal of its approval of the Extension Request, Administrative Agent shall promptly notify Borrower and each Lender and any Replacement Lender, and the Facility Maturity Date shall be extended by one (1) year (subject to the limitations set forth in this Section 2.21(c)), and in such event Borrower may thereafter request further extension(s) as provided in Section 2.21(a); provided, however, that (A) the Aggregate Commitment shall be automatically reduced, effective as
of the Facility Maturity Date as determined prior to such extension (the
"Previous Maturity Date") and shall equal the aggregate Commitments of
Lenders who are not Rejecting Lenders and Lenders who are Replacement
Lenders; (B) all rights and obligations of such Rejecting Lenders under
this Agreement and under the other Loan Documents (including, without
limitation, their Commitment and all Loans owing to them) shall either be
(1) assigned to Replacement Lenders pursuant to Section 2.21(b), or (2)
terminated, effective as of the Previous Maturity Date (or such earlier
date as Borrower and Administrative Agent may designate, in which case the
reduction of the Aggregate Commitment provided for in clause (A) above
shall occur on such earlier date); (C) if and to the extent such Rejecting
Lender's Commitment is assigned to one or more Replacement Lenders, such
assignment shall be effected in accordance with the provisions of Section
2.23; and (D) if and to the extent such Rejecting Lender's Commitment is
terminated, Borrower shall pay to Administrative Agent on the date of such
termination, solely for the account of such Rejecting Lender, all amounts
due and owing such Rejecting Lender hereunder or under any other Loan
Document, including without limitation the aggregate outstanding principal
amount of the Loans owed to such Rejecting Lender with respect to the
terminated Commitment, together with accrued interest thereon through the
date of such termination, all amounts payable under Sections 3.1 and 3.2
with respect to such Rejecting Lender and all fees payable to such
Rejecting Lender hereunder with respect to the terminated Commitment (and
payment of such amount may not be waived except with the consent of each
Rejecting Lender, as more specifically provided in Section 11.2(i)); and
upon such Rejecting Lender's termination, such Rejecting Lender shall
cease to be a party hereto but shall continue to be entitled to the
benefits of Article III and Section 12.7, as well as to any fees accrued
hereunder and not yet paid, and shall continue to be obligated under
Section 13.8 with respect to obligations and liabilities accruing prior to
such termination of such Rejecting Lender's Commitment.
(d) Approval of Extension. Within ten (10) days after Administrative
Agent's notice to Borrower that all (or some, as applicable) of Lenders
have approved an Extension Request (whether pursuant to Section 2.21(a),
(b) or (c)), Borrower shall pay to Administrative Agent for the account of
each Lender approving the extension and each Replacement Lender an
extension fee in the amount provided in the Extension Request.
(e) No Default. Notwithstanding anything to the contrary contained herein, no extension of the Facility Maturity Date may be effected under this Section 2.21 if (x) an Unmatured Event of Default or Event of Default shall be in existence on the effective date of such extension or would occur after giving effect thereto or (y) any representation or warranty made or deemed made by Borrower or any Guarantor in any Loan Document is not (or would not be) true or correct in any material respect on the effective date of such increase (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 be true and correct on and as of such earlier date).
2.22 Term Out Period.
(a) Commencement of Term Out Period. If pursuant to the provisions
of Section 9.1 or 9.2(e) the Term Out Period shall commence (the date of
commencement thereof (as provided in Section 9.1 or 9.2(e), as applicable)
is herein referred to as the "Term Out Date"), and the provisions of this
Section 2.22 shall apply.
(b) Term Out Period. From and after three (3) calendar months after the Term Out Date, the Aggregate Commitment (and each Lender's Commitment) in effect as of the Term Out Date shall be reduced on the first day after the end of each three-month period by a percentage of such Aggregate Commitment amount (or such Lender's Commitment amount) as follows:
Percentage Percentage of Commitment of Commitment Period Reduction Remaining ------------------------ ------------- ------------- 3 calendar months after Term Out Date 16.666% 83.334% 6 calendar months after Term Out Date 16.667% 66.667% 9 calendar months after Term Out Date 16.667% 50.000% 12 calendar months after Term Out Date 16.666% 33.334% 15 calendar months after Term Out Date 16.667% 16.667% 18 calendar months after Term Out Date 16.667% 0% |
The commencement of the Term Out Period shall not extend the Facility Termination Date.
2.23 Replacement of Certain Lenders. In the event a Lender (the "Affected Lender"):
(i) shall have requested compensation from Borrower under Sections 3.1 or 3.2 to cover additional costs incurred by such Lender that are not being incurred generally by the other Lenders, or
(ii) shall have delivered a notice pursuant to Section 3.3 that such Affected Lender is unable to extend LIBOR Loans for reasons not generally applicable to the other Lenders, or
(iii) is a Rejecting Lender pursuant to Section 2.21,
then, in any such case, and at any time after such event occurs, Borrower
or Administrative Agent may make written demands on such Affected Lender
(with a copy to Administrative Agent in the case of a demand by Borrower
and a copy to Borrower in the case of a demand by Administrative Agent)
for the Affected Lender to assign, and such Affected Lender shall assign,
pursuant to one or more duly executed assignment agreements in
substantially the form provided for in Section 15.3.1, within five (5)
Business Days after the date of such demand, to one or more financial
institutions that comply with the provisions of Section 15.3, and that are
selected by Borrower or Administrative Agent, that are reasonably
acceptable to Administrative Agent and Borrower, that Borrower and/or
Administrative Agent, as the case may be, shall have engaged for such
purpose (each, a "Replacement Lender"), all of such Affected Lender's
rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, its Commitment and all Loans owing to it)
in accordance with Section 15.3. If any Affected Lender fails to execute
and deliver such assignment agreements within thirty (30) days after
demand, then such Affected Lender shall have no further right to receive
any amounts payable under Sections 3.1 and 3.2 with respect to such
Affected Lender.
Administrative Agent agrees, upon the occurrence of such events with respect to an Affected Lender and upon written request of Borrower, to use its reasonable efforts to obtain the commitments from one or more financial institutions to act as a Replacement Lender. Administrative Agent is authorized, but shall not be obligated to, execute one or more of such assignment agreements as attorney-in-fact for any Affected Lender failing to execute and deliver the same within five (5) Business Days after the date of such demand. Further, with respect to such assignment, the Affected Lender shall have concurrently received, in cash, all amounts due and owing to the Affected Lender hereunder or under any other Loan Document, including without limitation the aggregate outstanding principal amount of the Loans owed to such Lender, together with accrued interest thereon through the date of such assignment, amounts payable under Sections 3.1 and 3.2 with respect to such Affected Lender and all fees payable to such Affected Lender hereunder; provided that, upon such Affected Lender's replacement, such Affected Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Article III and Section 12.7, as well as to any fees accrued hereunder and not yet paid, and shall continue to be obligated under Section 13.8 with respect to obligations and liabilities accruing prior to the replacement of such Affected Lender.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1 Yield Protection. If, on or after the date of this Agreement, the adoption or phase-in 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 or LC Issuer 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 or LC Issuer to any tax, duty, charge or withholding on or from payments due from Borrower (excluding any taxes imposed on, or based on, or determined by reference to the net income of any Lender or applicable LC Issuer or Lending Installation, including, without limitation, franchise taxes, alternative minimum taxes and any branch profits tax (collectively, "Excluded Taxes")), any taxes imposed on, or based on, or determined by reference to or changes the basis of taxation of payments to any Lender or LC Issuer in respect of its Loans, Facility Letters of Credit or participations therein or other amounts due it hereunder (except for Excluded Taxes) 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 or LC Issuer (other than reserves and assessments taken into account in determining the interest rate applicable to LIBOR Rates), or
(iii) imposes any other condition or requirement the result of which is to increase the cost to any Lender or any applicable Lending Installation or LC Issuer of making, funding or maintaining loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans, or requires any Lender or any applicable Lending Installation or LC Issuer to make any payment calculated by reference to the amount of loans held or interest or fees received by it, by an amount deemed material by such Lender,
then, within fifteen (15) days after demand by such Lender, Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender or LC Issuer determines is attributable to making, funding and maintaining its Loans and its Commitment or issuing or participating in Facility Letters of Credit; provided, however, that Borrower shall not be required to increase any such amounts payable to any Lender in respect of clause (i) above (1) if such Lender or LC Issuer fails to comply with the requirements of Section 2.20 hereof or (2) to the extent that such Lender or LC Issuer determines, in its sole reasonable discretion, that it can, after notice from Borrower, through reasonable efforts, eliminate or reduce the amount of tax liabilities payable (without additional costs or expenses unless Borrower agrees to bear such costs or expenses) or other disadvantages or risks (economic or otherwise) to such Lender or LC Issuer or Administrative Agent. If any Lender or LC Issuer receives a refund in respect of any amount described in clause (i), (ii) and (iii) above for which such Lender or LC Issuer has received payment from Borrower hereunder, such Lender or LC Issuer shall promptly notify Borrower of such refund and such Lender or LC Issuer shall repay the amount of such refund to Borrower, provided that Borrower, upon the request of such Lender or LC Issuer, agrees to return such refund to such Lender or LC Issuer in the event such Lender or LC Issuer is required to repay such refund. The determination as to whether any Lender or LC Issuer has received a refund shall be made by such Lender or LC Issuer and such determination shall be conclusive absent manifest error.
3.2 Changes in Capital Adequacy Regulations. If a Lender or LC Issuer
determines the amount of capital required or expected to be maintained by such
Lender or LC Issuer, any Lending Installation of such Lender or LC Issuer or any
corporation controlling such Lender or LC Issuer is increased as a result of a
Change, then, within fifteen (15) days after demand by such Lender or LC Issuer,
Borrower shall pay such Lender or LC Issuer the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Lender or LC Issuer determines is attributable to this Agreement, its
Loans or its obligation to make Loans hereunder, or its issuance or maintenance
of or participation in, or commitment to issue, to maintain or to participate
in, the Facility Letters of Credit hereunder (after taking into account such
Lender's or LC Issuer'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 or phase-in 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, LC Issuer, Lending Installation or any corporation
controlling any Lender or LC Issuer. "Risk-Based Capital Guidelines" means (A)
the risk-based capital guidelines in effect in the United States on the date of
this Agreement, including transition rules, and (B) 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 and notifies Administrative Agent that maintenance of any of such Lender's LIBOR Loans at a suitable Lending Installation would violate any applicable law, rule, regulation or directive, whether or not having the force of law, Administrative Agent shall suspend the availability of the affected Type of Advance and require any LIBOR Advances of the affected Type to be repaid; or if the Required Lenders determine and notify Administrative Agent that (i) deposits of a type or maturity appropriate to match fund LIBOR Advances are not available, Administrative Agent shall suspend the availability of the affected Type of Advance with respect to any LIBOR Advances made after the date of any such determination, or (ii) an interest rate applicable to a Type of Advance does not accurately reflect the cost of making a LIBOR Advance of such Type, then, if for any reason whatsoever the provisions of Section 3.1 are inapplicable, Administrative Agent shall suspend the availability of the affected Type of Advance with respect to any LIBOR Advance made after the date of any such determination.
3.4 Funding Indemnification. If any payment of a LIBOR 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 LIBOR Advance is not made on the date specified by Borrower for any reason other than default by Lenders, Borrower will indemnify each Lender for any loss or cost or expense incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the LIBOR Advance.
3.5 Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its LIBOR Advances to reduce any liability of Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the
unavailability of a Type of Advance under Section 3.3, so long as such designation is not disadvantageous to such Lender. Each Lender or LC Issuer shall deliver a written statement of such Lender or LC Issuer as to the amount due, if any, under Sections 3.1, 3.2 or 3.4. Such written statement shall set forth in reasonable detail the calculations upon which such Lender or LC Issuer determined such amount and shall be final, conclusive and binding on Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a LIBOR Advance shall be calculated as though each Lender funded its LIBOR Advance through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the LIBOR Advance applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable within three (3) Business Days after receipt by Borrower of the written statement. The obligations of Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and termination of this Agreement.
ARTICLE IV
THE LETTER OF CREDIT FACILITY
4.1 Facility Letters of Credit. Each LC Issuer agrees, on the terms and conditions set forth in this Agreement, to issue from time to time for the account of Borrower or a Guarantor designated by Borrower, through such offices or branches as it and Borrower may jointly agree, one or more Facility Letters of Credit in accordance with this Article IV, during the period commencing on the date hereof and ending on the Business Day prior to the Facility Termination Date. Each Facility Letter of Credit shall be either (i) a standby letter of credit to support obligations of Borrower or a Guarantor designated by Borrower, contingent or otherwise, arising in the ordinary course of business, or (ii) a documentary letter of credit in respect of the purchase of goods or services by Borrower or such Guarantor in the ordinary course of business.
4.2 Limitations. No LC Issuer shall issue, amend or extend, at any time, any Facility Letter of Credit:
(i) if the aggregate maximum amount then available for drawing under Letters of Credit issued by such LC Issuer, after giving effect to the Facility Letter of Credit or amendment or extension thereof requested hereunder, shall exceed any limit imposed by law or regulation upon such LC Issuer;
(ii) if, after giving effect to the Facility Letter of Credit or amendment or extension thereof requested hereunder, the aggregate principal amount of the Facility LC Obligations would exceed $350,000,000;
(iii) that, in the case of the issuance of a Facility Letter of Credit, is in, or in the case of an amendment of a Facility Letter of Credit, increases the face amount thereof by, an amount in excess of the then Available Credit of all Lenders in the aggregate;
(iv) if, after giving effect to the Facility Letter of Credit or amendment or extension thereof requested hereunder, at any time at which Borrower does not have an
Investment Grade Rating the aggregate principal amount of all Consolidated Senior Debt Borrowings would exceed the Borrowing Base determined as of the most recent Inventory Valuation Date;
(v) if such LC Issuer receives written notice from Administrative Agent at or before noon, Chicago time, on the proposed Issuance Date of such Facility Letter of Credit that one or more of the conditions precedent contained in Sections 5.1 or 5.2, as applicable, would not on such Issuance Date be satisfied, unless such conditions are thereafter satisfied and written notice of such satisfaction is given to such LC Issuer by Administrative Agent;
(vi) that has an expiration date (taking into account any automatic renewal provisions thereof) that is later than one (1) year after the Issuance Date, or such later time as the LC Issuer may agree; provided, however, in no event shall the expiration date be later than the Business Day next preceding the scheduled Facility Termination Date; or
(vii) that is in a currency other than Dollars.
4.3 Conditions. In addition to being subject to the satisfaction of the conditions contained in Sections 5.1 and 5.2, as applicable, the issuance of any Facility Letter of Credit is subject to the satisfaction in full of the following conditions:
(i) Borrower shall have delivered to the LC Issuer at such times and in such manner as the LC Issuer may reasonably prescribe a Reimbursement Agreement and such other documents and materials as may be reasonably required pursuant to the terms thereof, and the proposed Facility Letter of Credit shall be reasonably satisfactory to such LC Issuer in form and content; and
(ii) as of the Issuance Date no order, judgment or decree of any court, arbitrator or governmental authority shall enjoin or restrain such LC Issuer from issuing the Facility Letter of Credit and no law, rule or regulation applicable to such LC Issuer and no directive from and governmental authority with jurisdiction over the LC Issuer shall prohibit such LC Issuer from issuing Letters of Credit generally or from issuing that Facility Letter of Credit.
4.4 Procedure for Issuance of Facility Letters of Credit.
(a) Request for Facility Letter of Credit. Borrower shall give the LC Issuer and Administrative Agent not less than five (5) Business Days' prior written notice of any requested issuance of a Facility Letter of Credit under this Agreement. Such notice shall specify (i) the stated amount of the Facility Letter of Credit requested, (ii) the requested Issuance Date, which shall be a Business Day, (iii) the date on which such requested Facility Letter of Credit is to expire, which date shall be in compliance with the requirements of Section 4.2(vi), (iv) the purpose for which such Facility Letter of Credit is to be issued (which shall be a purpose permitted pursuant to Sections 4.1 and 7.2), and (v) the Person for whose benefit the requested Facility Letter of Credit is to be issued. At the time such request is made, Borrower shall also provide Administrative Agent and the
LC Issuer with a copy of the form of the Facility Letter of Credit it is requesting be issued.
(b) LC Issuer. Within two (2) Business Days after receipt of a
request for issuance of a Facility Letter of Credit in accordance with
Section 4.4(a), the LC Issuer shall approve or disapprove, in its
reasonable discretion, the form of such requested Facility Letter of
Credit, but the issuance of such approved Facility Letter of Credit shall
continue to be subject to the provisions of this Article IV. The LC Issuer
shall use reasonable efforts to notify Borrower of any changes in the LC
Issuer's policies or procedures that could reasonably be expected to
affect adversely the LC Issuer's approval of the form of any requested
Facility Letters of Credit.
(c) Confirmation of Issuance. Upon receipt of a request for issuance
of a Facility Letter of Credit in accordance with Section 4.4(a),
Administrative Agent shall determine, as of the close of business on the
day it receives such request, whether the issuance of such Facility Letter
of Credit would be permitted under the provisions of Sections 4.2(ii),
(iii) and (iv) and, prior to the close of business on the second Business
Day after Administrative Agent received such request, Administrative Agent
shall notify the LC Issuer and Borrower (in writing or by telephonic
notice confirmed promptly thereafter in writing) whether issuance of the
requested Facility Letter of Credit would be permitted under the
provisions of Sections 4.2(ii), (iii) and (iv). If Administrative Agent
notifies the LC Issuer and the applicable Borrower that such issuance
would be so permitted, then, subject to the terms and conditions of this
Article IV and provided that the applicable conditions set forth in
Sections 5.1 and 5.2 have been satisfied, the LC Issuer shall, on the
requested Issuance Date, issue the requested Facility Letter of Credit in
accordance with the LC Issuer's usual and customary business practices.
The LC Issuer shall give Administrative Agent written notice, or
telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Facility Letter of Credit.
(d) Extension and Amendment. An LC Issuer shall not extend or amend any Facility Letter of Credit unless the requirements of this Section 4.4 are met as though a new Facility Letter of Credit were being requested and issued; provided, however, that if the Facility Letter of Credit, as originally issued, sets forth such extension or amendment, then the LC Issuer shall so extend or amend the Facility Letter of Credit upon the request of Borrower given in the manner set forth in Section 4.4(a) and upon satisfaction of the terms and conditions of Section 4.4(c).
(e) Other Letters of Credit. Any Lender may, but shall not be obligated to, issue to Borrower or any Guarantor Letters of Credit (that are not Facility Letters of Credit) for its own account, and at its own risk. None of the provisions of this Article IV shall apply to any Letter of Credit that is not a Facility Letter of Credit.
(f) Bank One, Arizona LCs. Bank One, Arizona issued prior to the date of the Prior Credit Agreement, and there are currently outstanding pursuant to the Prior Credit Agreement, those certain Letters of Credit identified in Schedule 4.4 hereto as having been issued by Bank One, Arizona (as the same may be extended or amended (but not increased) by Bank One, Arizona in accordance with this Agreement, the "Bank One,
Arizona LCs"). The Bank One, Arizona LCs shall remain outstanding after the date of this Agreement and, from and after the date of this Agreement, shall constitute Facility Letters of Credit for all purposes under this Agreement and shall be subject to all terms and conditions hereof. On the date hereof, simultaneously with the payment made to the Prior Lenders under Section 5.1(ix), the participation of the Prior Lenders in the Bank One, Arizona LCs shall terminate and Bank One, Arizona shall be deemed to have sold and transferred, and each Lender shall be deemed to have irrevocably and unconditionally purchased and received from Bank One, Arizona, in each case without further action on the part of any Person, an undivided interest and participation (ratably in proportion to the ratio that such Lender's Commitment bears to the Aggregate Commitment) in each such Bank One, Arizona LCs. Each Lender severally agrees to fund any disbursements by Bank One, Arizona pursuant to the Bank One, Arizona LCs by funding in accordance with Section 4.6. Bank One, Arizona shall have all of the rights, duties and obligations of the LC Issuer but solely with respect to the Bank One, Arizona LCs. Bank One, Arizona shall not have the right, duty or obligation to issue any Facility Letters of Credit other than the Bank One, Arizona LCs heretofore issued and shall not increase the face amount of any Bank One, Arizona LCs. Upon request by Borrower, Bank One, Arizona may extend or otherwise amend (but without increasing the face amount thereof) any Bank One, Arizona LCs, subject to and in accordance with the provisions of this Agreement. Bank One, Arizona joins in this Agreement solely for the purposes set forth in this Section 4.4(f) and does not hold any Commitment or any other interest as a Lender hereunder except the rights, duties and obligations as LC Issuer with respect to the Bank One, Arizona LCs.
(g) Other Existing LCs. Pursuant to the Prior Credit Agreement, certain of the Prior LC Issuers have issued prior to the date hereof, and there are currently outstanding, those certain Letters of Credit identified in Schedule 4.4 hereto as having been issued by the Prior LC Issuers identified therein (as the same may be extended, amended or increased by any such Prior LC Issuer in accordance with this Agreement, the "Other Existing LCs"). The Other Existing LCs shall remain outstanding after the date of this Agreement and, from and after the date of this Agreement, shall constitute Facility Letters of Credit for all purposes under this Agreement and shall be subject to all terms and conditions hereof. On the date hereof, simultaneously with the payment made to the Prior Lenders under Section 5.1(ix), the participation of the Prior Lenders in the Other Existing LCs shall terminate and the Prior LC Issuers that have issued such Other Existing LCs shall be deemed to have sold and transferred, and each Lender shall be deemed to have irrevocably and unconditionally purchased and received from such Prior LC Issuers, in each case without further action on the part of any Person, an undivided interest and participation (ratably in proportion to the ratio that such Lender's Commitment bears to the Aggregate Commitment) in each such Other Existing LCs. Each Lender severally agrees to fund any disbursements by the Prior LC Issuers that have issued such Other Existing LCs pursuant to the Other Existing LCs by funding in accordance with Section 4.6.
4.5 Duties of LC Issuer. Any action taken or omitted to be taken by an LC Issuer under or in connection with any Facility Letter of Credit, if taken or omitted in the absence of willful misconduct or gross negligence, shall not put such LC Issuer under any resulting liability to any
Lender or, assuming that such LC Issuer has complied with the procedures specified in Section 4.4, relieve any Lender of its obligations hereunder to such LC Issuer. In determining whether to pay under any Facility Letter of Credit, the LC Issuer shall have no obligation relative to Lenders other than to confirm that any documents required to be delivered under such Facility Letter of Credit appear to have been delivered in compliance and that they appear to comply on their face with the requirements of such Facility Letter of Credit.
4.6 Participation.
(a) Proportionate Share of Lenders. Immediately upon issuance by an LC Issuer of any Facility Letter of Credit in accordance with Section 4.4, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from such LC Issuer, without recourse or warranty, an undivided interest and participation (ratably in proportion to the ratio that such Lender's Commitment bears to the Aggregate Commitment) in such Facility Letter of Credit.
(b) Payment by LC Issuer. In the event that an LC Issuer makes any
payment under any Facility Letter of Credit and Borrower shall not have
repaid such amount to such LC Issuer on or before the date of such payment
by such LC Issuer, such LC Issuer shall promptly so notify Administrative
Agent, which shall promptly so notify each Lender. Upon receipt of such
notice, each Lender severally agrees that it shall promptly and
unconditionally pay to Administrative Agent for the account of such LC
Issuer the amount of such Lender's share (ratably in proportion to the
ratio that such Lender's Commitment bears to the Aggregate Commitment) of
such payment in same day funds, and Administrative Agent shall promptly
pay such amount, and any other amounts received by Administrative Agent
for such LC Issuer's account pursuant to this Section 4.6(b), to such LC
Issuer. If Administrative Agent so notifies such Lender prior to 10:00
a.m., Chicago time, on any Business Day, such Lender shall make available
to Administrative Agent for the account of such LC Issuer such Lender's
share of the amount of such payment on such Business Day in same day
funds. If and to the extent such Lender shall not have so made its share
of the amount of such payment available to Administrative Agent for the
account of such LC Issuer, such Lender agrees to pay to Administrative
Agent for the account of such LC Issuer forthwith on demand such amount,
together with interest thereon, for each day from the date such payment
was first due until the date such amount is paid to Administrative Agent
for the account of such LC Issuer, at the Federal Funds Effective Rate.
The failure of any Lender to make available to Administrative Agent for
the account of such LC Issuer such Lender's share of any such payment
shall not relieve any other Lender of its obligation hereunder to make
available to Administrative Agent for the account of such LC Issuer its
share of any payment on the date such payment is to be made.
(c) Advances. The payments made by Lenders to an LC Issuer in reimbursement of amounts paid by it under a Facility Letter of Credit shall constitute, and Borrower hereby expressly acknowledges and agrees that such payments shall constitute, Advances hereunder to Borrower and such payments shall for all purposes be treated as Advances to Borrower (notwithstanding that the amounts thereof may not comply with
the provisions of Section 2.6). Such Advances shall be Floating Rate Advances, subject to Borrower's rights under Article II hereof.
(d) Copies of Documents. Upon the request of Administrative Agent or any Lender, an LC Issuer shall furnish to the requesting Administrative Agent or Lender copies of any Facility Letter of Credit or Reimbursement Agreement to which such LC Issuer is party and such other documentation as may reasonably be requested by Administrative Agent or a Lender.
(e) Obligations of Lenders. The obligations of Lenders to make payments to Administrative Agent for the account of an LC Issuer with respect to a Facility Letter of Credit shall be irrevocable, not subject to any qualification or exception whatsoever and shall be made in accordance with, but not subject to, the terms and conditions of this Agreement under all circumstances notwithstanding:
(i) any lack of validity or enforceability of this Agreement, any Facility Letter of Credit (except where due to the gross negligence or willful misconduct of the LC Issuer), or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which Borrower may have at any time against a beneficiary named in a Facility Letter of Credit or any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), such LC Issuer, Administrative Agent, any Lender, or any other Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between Borrower or any Subsidiary and the beneficiary named in any Facility Letter of Credit) other than the defense of payment in accordance with this Agreement or a defense based on the gross negligence or willful misconduct of the LC Issuer;
(iii) any draft, certificate or any other document presented under the Facility Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect of any statement therein being untrue or inaccurate in any respect so long as the payment by the LC Issuer under such Facility Letter of Credit against presentation of such draft, certificate or other document shall not have constituted gross negligence or willful misconduct;
(iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents;
(v) any failure by Administrative Agent or the LC Issuer to make any reports required pursuant to Section 4.8; or
(vi) the occurrence of any Event of Default or Unmatured Event of Default.
4.7 Compensation for Facility Letters of Credit.
(a) Payment of Facility Letter of Credit Fee. Borrower agrees to pay to Administrative Agent, in the case of each outstanding Facility Letter of Credit (including without limitation the Existing Letters of Credit), the Facility Letter of Credit Fee therefor, payable in quarterly installments in arrears, not later than five (5) Business Days following Administrative Agent's delivery to Borrower of each quarterly statement of Facility Letter of Credit Fees provided for in paragraph (c) below, commencing with the calendar quarter next following the Issuance Date or, in the case of the Existing Letters of Credit, next following the date hereof. The initial installment of the Facility Letter of Credit Fees for the Existing Letters of Credit shall be a pro rata portion of the annual Facility Letter of Credit Fee for the period commencing on the date hereof and ending on the day preceding such payment date. The initial installment of the Facility Letter of Credit Fee for any Facility Letter of Credit hereafter issued shall be a pro rata portion of the annual Facility Letter of Credit Fee for the period commencing on the Issuance Date and ending on the day preceding such payment date. Facility Letter of Credit Fees shall be calculated, on a pro rata basis for the period to which such payment applies, for actual days that will elapse during such period, on the basis of a 360-day year. Administrative Agent shall promptly remit such Facility Letter of Credit Fees, when paid, as follows: (i) to the LC Issuer as an issuance fee in an amount equal to the product of (A) 0.125% per annum and (B) the face amount of the Facility Letters of Credit with respect to which such Facility Letters of Credit Fees have been paid, and (ii) the balance of such Facility Letter of Credit Fees to Lenders (including the LC Issuer) (ratably in the proportion that each Lender's Commitment bears to the Aggregate Commitment).
(b) Amounts Owed to LC Issuer. An LC Issuer shall have the right to receive solely for its own account, and in addition to the issuance fee provided for in Section 4.7(a)(i), such amounts as Borrower may agree, in writing, to pay for such LC Issuer's out-of-pocket costs of issuing and servicing Facility Letters of Credit.
(c) Quarterly Statement. Administrative Agent shall, with reasonable promptness following receipt from all LC Issuers of the reports provided for in Section 4.8 for the months of March, June, September and December, respectively, deliver to Borrower a quarterly statement of the Facility Letter of Credit Fees then due and payable.
4.8 LC Issuer Reporting Requirements. Each LC Issuer shall, no later than the third (3rd) Business Day following the last day of each month, provide to Administrative Agent a schedule of the Facility Letters of Credit issued by it, in form and substance reasonably satisfactory to Administrative Agent, showing the Issuance Date, account party, original face amount, amount (if any) paid thereunder, expiration date and the reference number of each Facility Letter of Credit outstanding at any time during such month (and whether such Facility
Letter of Credit is a performance Letter of Credit or financial Letter of Credit) and the aggregate amount (if any) payable by Borrower to such LC Issuer during the month pursuant to Section 3.2. Copies of such reports shall be provided promptly to each Lender and Borrower by Administrative Agent.
4.9 Indemnification; Nature of LC Issuer's Duties.
(a) Indemnity. In addition to amounts payable as elsewhere provided in this Article IV, Borrower hereby agrees to protect, indemnify, pay and hold harmless Administrative Agent and each Lender and LC Issuer from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) arising from the claims of third parties against Administrative Agent, LC Issuer or Lender as a consequence, direct or indirect, of (i) the issuance of any Facility Letter of Credit for Borrower other than, in the case of an LC Issuer, as a result of its willful misconduct or gross negligence, or (ii) the failure of an LC Issuer issuing a Facility Letter of Credit for Borrower to honor a drawing under such Facility Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority.
(b) Assumption of Risk. As among Borrower, Lenders, Administrative Agent and LC Issuer, Borrower assumes all risks of the acts and omissions of, or misuse of Facility Letters of Credit by, the respective beneficiaries of such Facility Letters of Credit. In furtherance and not in limitation of the foregoing, neither the LC Issuer nor Administrative Agent nor any Lender shall be responsible:
(i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of the Facility Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Facility 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) for failure of the beneficiary of a Facility Letter of Credit to comply fully with conditions required in order to draw upon such Facility Letter of Credit;
(iv) for 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) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Facility Letter of Credit or of the proceeds thereof;
(vii) for the misapplication by the beneficiary of a Facility Letter of Credit of the proceeds of any drawing under such Facility Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of Administrative Agent, the LC Issuer and Lenders including, without limitation, any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority. None of the above shall affect, impair, or prevent the vesting of any of the LC Issuer's rights or powers under this Section 4.9.
(c) Good Faith. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by an LC Issuer under or in connection with the Facility Letters of Credit or any related certificates, if taken or omitted in good faith under commercially reasonable standards, shall not put such LC Issuer, Administrative Agent or any Lender under any resulting liability to Borrower or relieve Borrower of any of its obligations hereunder to any such Person.
(d) Certain Acts of LC Issuer. Notwithstanding anything to the contrary contained in this Section 4.9, Borrower shall have no obligation to indemnify an LC Issuer under this Section 4.9 in respect of any liability incurred by such LC Issuer arising primarily out of the willful misconduct or gross negligence of such LC Issuer, as determined by a court of competent jurisdiction, or out of the wrongful dishonor by such LC Issuer of a proper demand for payment made under the Facility Letters of Credit issued by such LC Issuer, unless such dishonor was made at the request of Borrower.
4.10 Facility LC Collateral Account. Borrower agrees that it will, upon the request of Administrative Agent and until the final expiration date of any Facility Letter of Credit and thereafter as long as any amount is payable to any LC Issuer or Lender in respect of any Facility Letter of Credit, maintain a special collateral account pursuant to arrangements satisfactory to Administrative Agent (the "Facility LC Collateral Account") at Administrative Agent's office at the address specified pursuant to Article XVI, in the name of Borrower but under the sole dominion and control of Administrative Agent, for the ratable benefit of Lenders and in which Borrower shall have no interest other than as set forth in Section 11.1. Borrower hereby pledges, assigns and grants to Administrative Agent, on behalf of and for the ratable benefit of Lenders, a security interest in all of Borrower's right, title and interest in and to all funds which may from time to time be on deposit in the Facility LC Collateral Account to secure the prompt and complete payment and performance of the Facility LC Obligations and any other amounts in respect of any Facility Letter of Credit or Reimbursement Agreement as shall from time to time have become due and payable by Borrower to any Lender or LC Issuer under the Loan Documents. Administrative Agent will invest any funds on deposit from time to time in the Facility LC Collateral Account in certificates of deposit of the Lender acting as Administrative
Agent and having a maturity not exceeding 30 days. Nothing in this Section 4.10 shall (i) obligate Borrower to deposit any funds in the Facility LC Collateral Account other than as required in Section 11.1 or (ii) obligate Administrative Agent to require Borrower to make deposits in the Facility LC Collateral Account or limit the right of Administrative Agent to release any funds held in the Facility LC Collateral Account, in each case other than as required by Section 11.1.
4.11 Obligations of LC Issuer and Other Lenders. Except to the extent that a Lender shall have agreed to be designated as an LC Issuer, no Lender shall have any obligation to accept or approve any request for, or to issue, amend or extend, any Letter of Credit, and the obligations of the LC Issuer to issue, amend or extend any Facility Letter of Credit are expressly limited by and subject to the provisions of this Article IV.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Initial Advance. Lenders shall not be required to make the initial Advance hereunder, and the LC Issuer shall not be required to issue the initial Facility Letter of Credit hereunder, unless Borrower has paid to Administrative Agent (a) the fees for the account of Lenders set forth in Arranger's letter to Lenders dated December 22, 2004 and (b) the fees for the account of Administrative Agent and Arranger set forth in the letter agreement dated December 22, 2004 (and accepted by Borrower on December 22, 2004) herewith among Administrative Agent, Arranger and Borrower, and Borrower has furnished to Administrative Agent:
(i) Subject to the provisions of the last paragraph of this Section 5.1, copies of the articles or certificate of incorporation of Borrower, together with all amendments, and a certificate of good standing, all certified by the appropriate governmental officer in the jurisdiction of incorporation, and any other information required by Section 326 of the USA PATRIOT ACT or necessary for Administrative Agent or any Lender to verify the identity of Borrower as required by Section 326 of the USA PATRIOT ACT.
(ii) Subject to the provisions of the last paragraph of this Section 5.1, copies of the articles or certificate of incorporation of each Guarantor that is a corporation, together with all amendments, certified by an authorized officer of such Guarantor and a certificate of good standing from the appropriate governmental officer in the jurisdiction of incorporation.
(iii) Subject to the provisions of the last paragraph of this
Section 5.1, copies, certified by the Secretary or Assistant Secretary of
Borrower and each Guarantor that is a corporation, of each such
corporation's by-laws and of its Board of Directors' resolutions (and
resolutions of other bodies, if any are deemed necessary by counsel for any Lender), or, in the case of each Guarantor that is not a corporation, other appropriate consents and approvals, authorizing the execution of the Loan Documents.
(iv) Subject to the provisions of the last paragraph of this Section 5.1, for each Guarantor that is a limited liability company or limited partnership (A) a copy of the certificate or articles of formation or certificate of limited partnership (as applicable), certified by the appropriate officer of such Guarantor's manager, managing member or general partner, (B) a certificate of good standing from the appropriate governmental officer in the jurisdiction of formation and (C) a copy, certified by the appropriate officer of such Guarantor or of such Guarantor's manager, managing member or general partner, of such Guarantor's operating agreement or limited partnership, as applicable.
(v) Subject to the provisions of the last paragraph of this Section 5.1, incumbency certificates, executed by the Secretary or Assistant Secretary of Borrower and each Guarantor (or, in the case of a Guarantor that is not a corporation, the appropriate officer of such Guarantor or of its manager, managing member or general partner), which shall identify by name and title and bear the signature of the officers of the such corporation (or other applicable entity) authorized to sign the applicable Loan Documents and (if applicable) to make borrowings hereunder and to request, apply for and execute Reimbursement Agreements with respect to Facility Letters of Credit hereunder, upon which certificates Administrative Agent, Lenders and the LC Issuer shall be entitled to rely until informed of any change in writing by Borrower or the applicable Guarantor.
(vi) A written opinion of General Counsel of Borrower, addressed to Administrative Agent and Lenders in substantially the form of Exhibit E hereto.
(vii) Notes payable to the order of each of Lenders.
(viii) The Guaranty duly executed by the Guarantors.
(ix) Such written money transfer instructions, in form acceptable to Administrative Agent, addressed to Administrative Agent and signed by an Authorized Officer, as Administrative Agent may have reasonably requested.
(x) Evidence satisfactory to Administrative Agent of payment in full (which payment may be made from the proceeds of the initial Advance hereunder) of all principal sums outstanding under the
Prior Credit Agreement, all accrued and unpaid interest and fees, and amounts (if any) payable under Section 3.4 of the Prior Credit Agreement.
(xi) Such other documents as any Lender or LC Issuer or their respective counsel may have reasonably requested.
In the case of the documents (other than good standing certificates and resolutions) provided for in subsections (i), (ii), (iii), (iv) and (v), Borrower may furnish, in lieu of the documentation specified in such subsections, a certificate or certificates of a secretary or assistant secretary or other applicable officer to the effect that the documents furnished pursuant to the Prior Credit Agreement remain in full force and effect and have not been amended or (if they have been amended) including copies of such amendments.
5.2 Each Advance. Lenders shall not be required to make any Advance (other than (a) the conversion of an Advance of one Type to an Advance of another Type that does not increase the aggregate amount of outstanding Advances and (b) Advances pursuant to Section 2.19(d)), unless on the applicable Borrowing Date, and an LC Issuer shall not be required to issue, amend or extend a Facility Letter of Credit unless on the applicable Issuance Date:
(i) There exists no Event of Default or Unmatured Event of Default.
(ii) The representations and warranties contained in Article VI are true and correct in all material respects as of such Borrowing Date or Issuance 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 be true and correct in all material respects on and as of such earlier date and except for changes permitted by this Agreement. Solely for purposes of this Section 5.2, the representations and warranties in Sections 6.5 and 6.7 relate solely to the date of this Agreement.
(iii) After the making of such Advance or issuance of such Facility Letter of Credit, (A) the principal amount of all Advances plus the aggregate amount of the Facility LC Obligations outstanding shall not exceed the Aggregate Commitment, and (B) at any time at which Borrower does not have an Investment Grade Rating, the aggregate principal amount of all Consolidated Senior Debt Borrowings shall not exceed the Borrowing Base (determined as of the most recent Inventory Valuation Date).
(iv) Borrower shall have delivered to Administrative Agent, within the time period specified in Section 2.8, a duly completed Borrowing Notice in substantially the form of Exhibit D hereto.
(v) All legal matters incident to (A) the making of such Advance shall be reasonably satisfactory to Administrative Agent and its counsel and (B) the issuance of such Facility Letter of Credit shall be reasonably satisfactory to Administrative Agent, such LC Issuer and their respective counsel.
Each Borrowing Notice with respect to each such Advance and each request for a Facility Letter of Credit shall constitute a representation and warranty by Borrower that the conditions contained in Sections 5.2(i) and (ii) have been satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lenders and Administrative Agent that:
6.1 Existence and Standing. Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted (except to the extent that a failure to maintain such existence, good standing or authority would not reasonably be expected to have and does not have a Material Adverse Effect). Each Guarantor is a corporation, limited liability company or limited partnership (as applicable) duly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted (except to the extent that a failure to maintain such existence, good standing or authority would not reasonably be expected to have and does not have a Material Adverse Effect).
6.2 Authorization and Validity. Borrower has the corporate power and authority to execute and deliver the Loan Documents and to perform its obligations hereunder and thereunder. The execution and delivery by Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized and the Loan Documents constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms, subject to bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and general principles of equity. Each Guarantor has the corporate, limited liability company or limited partnership (as applicable) power and authority to execute and deliver the Guaranty delivered by it and to perform its obligations thereunder. The execution and delivery by each Guarantor of such Guaranty and the performance of its obligations thereunder have been duly authorized, and each Guaranty constitutes the legal, valid and binding obligations of such Guarantor enforceable against such Guarantor in accordance with its terms, subject to bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and general principles of equity.
6.3 No Conflict; Government Consent. Neither the execution and delivery by Borrower or Guarantors of the Loan Documents, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof or thereof will violate in any material respect any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Borrower or any Guarantor or Borrower's or a Guarantor's certificate of incorporation, bylaws, certificate or articles of formation, operating agreement, certificate of limited partnership, or limited partnership agreement or the provisions of any indenture (including without limitation the Indenture), instrument or agreement to which Borrower or any Guarantor is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default
thereunder, or result in the creation or imposition of any Lien in, of or on the Property of Borrower or any Guarantor pursuant to the terms of any such indenture, instrument or agreement. Except as set forth on Schedule 6.3 hereto, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents.
6.4 Financial Statements. The December 31, 2003 consolidated and consolidating financial statements of Borrower (and its Subsidiaries) delivered to Lenders were prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Such statements fairly present, in all material respects, the financial condition and operations of Borrower and its Subsidiaries on a consolidated or consolidating basis (as applicable) at such date and the results of their operations for the period then ended on a consolidated or consolidating basis (as applicable). The September 30, 2004 consolidated and consolidating financial statements of Borrower (and its Subsidiaries) delivered to Lenders were prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Such statements fairly present, in all material respects, the financial condition and operations of Borrower and its Subsidiaries on a consolidated or consolidating basis (as applicable) at such date and the results of their operations for the period then ended on a consolidated or consolidating basis (as applicable), subject to final audit adjustments.
6.5 Material Adverse Change. Since the date of the financial statements of Borrower described in Section 6.4, there has been no change in the business, Property, condition (financial or otherwise) or results of operations of Borrower and Guarantors (taken as a whole) that has had or would reasonably be expected to have a Material Adverse Effect. The foregoing representation and warranty is made solely as of the date of this Agreement.
6.6 Taxes. Borrower and each Guarantor have filed all United States federal income tax returns and all other material 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 Borrower or a Guarantor, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. No tax Liens (except Permitted Liens) have been filed and no claims are being asserted with respect to any such taxes that have had or would reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of Borrower and each Guarantor in respect of any taxes or other governmental charges are adequate in accordance with Agreement Accounting Principles.
6.7 Litigation and Contingent Obligations. Except as set forth in Borrower's form 10-K report for the period ending December 31, 2003 or Borrower's form 10-Q report for the period ending September 30, 2004 or (with respect to any litigation, arbitration, governmental investigation, proceeding or inquiry commenced after the date hereof) in any SEC Filing, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any Authorized Officer, threatened against or affecting Borrower or any Guarantor that has had or would reasonably be expected to have a Material Adverse Effect. Other than any liability incident to such litigation, arbitration or proceedings, neither Borrower nor any Guarantor have any material contingent obligations not provided for or disclosed in the financial
statements (whether quarterly or annual) of Borrower and Guarantors that have been most recently delivered by Borrower and Guarantors to Administrative Agent that has had or would reasonably be expected to have a Material Adverse Effect.
6.8 Subsidiaries. Schedule 6.8 hereto contains an accurate list of all of the Subsidiaries of Borrower, setting forth their respective jurisdictions of incorporation or formation and the percentage of their respective capital stock, membership or partnership interests owned by Borrower or its Subsidiaries. All of the issued and outstanding shares of capital stock of those Subsidiaries that are corporations have been duly authorized and validly issued and are fully paid and non-assessable. All of the Non-Guarantor Subsidiaries are listed on Schedule 1 hereto.
6.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $5,000,000. The withdrawal liabilities to Multiemployer Plans of the Guarantor, Borrower and any other member of the Controlled Group do not, and are not reasonably expected to, exceed $5,000,000 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 Borrower, nor any Guarantor nor any other member of the Controlled Group has withdrawn from any Multiemployer Plan or initiated steps to do so, and no steps have been taken to terminate any Plan.
6.10 Accuracy of Information. All factual information heretofore or contemporaneously furnished in writing by or on behalf of Borrower or any Guarantor to Administrative Agent or any LC Issuer for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished in writing by or on behalf of Borrower or any Guarantor to Administrative Agent or any LC Issuer will be, true and accurate (taken as a whole), in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time.
6.11 Regulation U. Neither Borrower, nor any Guarantor nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock (as defined in Regulation U).
6.12 Material Agreements. Neither Borrower nor any Guarantor 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, or (ii) any agreement or instrument evidencing or governing Indebtedness, which default has had or would reasonably be expected to have a Material Adverse Effect.
6.13 Labor Disputes and Acts of God. Neither the business nor the Property of Borrower or of any Guarantor is affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance), which has had or would reasonably be expected to have a Material Adverse Effect.
6.14 Ownership. Borrower and each Guarantor have title to, or valid leasehold interests in, all of their respective properties and assets, real and personal, including the properties and
assets and leasehold interests reflected in the financial statements referred to in Section 6.4 (except to the extent that (i) such properties or assets have been disposed of in the ordinary course of business or (ii) the failure to have such title has not had and would not reasonably be expected to have a Material Adverse Effect).
6.15 Operation of Business. Borrower and each Guarantor possess all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct their respective businesses substantially as now conducted, and as presently proposed to be conducted, with such exceptions as have not had and would not reasonably be expected to have a Material Adverse Effect.
6.16 Laws; Environment. Except as set forth in Borrower's form 10-K report
for the period ending December 31, 2003 or Borrower's form 10-Q report for the
period ending September 30, 2004 or (with respect to matters arising after the
date hereof) in any SEC Filing, (a) Borrower and each Guarantor have duly
complied, and their businesses, operations and Property are in compliance, in
all material respects, with the provisions of all federal, state, and local
statutes, laws, codes, and ordinances and all rules and regulations promulgated
thereunder (including without limitation those relating to the environment,
health and safety); (b) Borrower and each Guarantor have been issued all
required federal, state, and local permits, licenses, certificates, and
approvals relating to (1) air emissions; (2) discharges to surface water or
groundwater; (3) solid or liquid waste disposal; (4) the use, generation,
storage, transportation, or disposal of toxic or hazardous substances or
hazardous wastes (intended hereby and hereafter to include any and all such
materials listed in any federal, state, or local law, code, or ordinance and all
rules and regulations promulgated thereunder as hazardous); or (5) other
environmental, health or safety matters; (c) except in accordance with a valid
governmental permit, license, certificate or approval, to the best knowledge of
Borrower, there has been no material emission, spill, release, or discharge into
or upon (1) the air; (2) soils, or any improvements located thereon; (3) surface
water or groundwater; or (4) the sewer, septic system or waste treatment,
storage or disposal system servicing any Property of Borrower or a Guarantor, of
any toxic or hazardous substances or hazardous wastes at or from such Property;
(d) neither Borrower nor any Guarantor has received notice of any written
complaint, order, directive, claim, citation, or notice from any governmental
authority or any person or entity with respect to violations of law or damage by
reason of Borrower's or any Guarantor's (1) air emissions; (2) spills, releases,
or discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or disposal
systems servicing any Property; (3) solid or liquid waste disposal; (4) use,
generation, storage, transportation, or disposal of toxic or hazardous
substances or hazardous waste; or (5) other environmental, health or safety
matters affecting Borrower or any Guarantor or its business, operation or
Property; and (e) neither Borrower nor any Guarantor has any material
Indebtedness, obligation, or liability, absolute or contingent, matured or not
matured, with respect to the storage, treatment, cleanup, or disposal of any
solid wastes, hazardous wastes, or other toxic or hazardous substances
(including without limitation any such indebtedness, obligation, or liability
with respect to any current regulation, law or statute regarding such storage,
treatment, cleanup, or disposal). A matter will not constitute a breach of this
Section 6.16 unless it is reasonably likely to result in a Material Adverse
Effect.
6.17 Investment Company Act. Neither Borrower nor any Guarantor is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.
6.18 Public Utility Holding Company Act. Neither Borrower nor any Guarantor 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.
6.19 Subordinated Indebtedness. There is no Subordinated Indebtedness outstanding as of the date of this Agreement.
6.20 Indenture Provisions. Each Guarantor is a Restricted Subsidiary, as that term is defined in the Indenture. Each Guarantor is a Wholly-Owned Subsidiary of Borrower.
6.21 SDN List Designation. Neither Borrower nor any of its Subsidiaries is an entity named on the Specially Designated National and Blocked Persons (SDN) list issued by the Office of Foreign Asset Control of the Department of the Treasury of the United States of America.
ARTICLE VII
AFFIRMATIVE COVENANTS
During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing:
7.1 Financial Reporting. Borrower will maintain, and each Guarantor will maintain, a system of accounting established and administered in accordance with GAAP, and furnish to Lenders:
(i) Within 100 days after the close of each fiscal year, (A) an unqualified (or qualified as reasonably acceptable to Administrative Agent) audited consolidated financial statements of Borrower certified by one of the "Big Four" accounting firms or other nationally recognized independent certified public accountants, reasonably acceptable to Lenders, prepared in accordance with GAAP on a consolidated basis, including balance sheets as of the end of such fiscal year and statements of income and retained earnings and a statement of cash flows, in each case setting forth in comparative form the figures for the preceding fiscal year, and (B) unaudited financial statements, prepared in accordance with GAAP (excluding footnotes) on a consolidating basis for Borrower (and its Subsidiaries), including balance sheets as of the end of such fiscal year and statements of income and retained earnings and a statement of cash flows, in each case setting forth in comparative form the figures for the preceding fiscal year.
(ii) Within sixty (60) days after the close of the first three (3) quarterly periods of each fiscal year, for Borrower, on a consolidated basis and on a consolidating basis, unaudited financial statements, including balance sheets as of the end of such period, statements of income and retained earnings, and a statement of cash flows for the portion of the fiscal year ending with such fiscal period, all certified by an Authorized Officer. All such balance sheets shall set forth in comparative form figures for the preceding year end. All such income statements shall reflect current period and year-to-date figures.
(iii) Annually, together with the financial statements described in clause (i) above, a copy of the business plan of Borrower and each Guarantor (on a consolidated basis) for the upcoming two (2) fiscal years, including, as to Borrower, a consolidated balance sheet, statement of income and projection of cash flows.
(iv) Within sixty (60) days of the end of each of the first three quarterly periods of each fiscal year, a quarterly variance analysis comparing actual quarterly results versus projected quarterly results for the fiscal quarter most recently ended, including an analysis of revenues, Housing Unit Closings and operating profits (by operating division) for such period, and such other items as are reasonably requested by Administrative Agent, together with a written explanation of material variances.
(v) Within 100 days after the end of each fiscal year, a variance analysis comparing actual annual results versus the business plan for the fiscal year most recently ended, including an analysis of revenues, Housing Unit Closings and operating profits (by operating division) for such period, and such other items as are reasonably requested by Administrative Agent, together with a written explanation of material variances.
(vi) By the twenty-fifth day of each calendar month (and without regard to whether Borrower has an Investment Grade Rating), a Borrowing Base Certificate of an Authorized Officer of Borrower, with respect to the Inventory Valuation Date occurring on the last day of the immediately preceding calendar month.
(vii) Within sixty (60) days after the end of each quarterly period of each fiscal year, a report identifying as to Borrower and its Subsidiaries the inventory of real estate operations, including land and Housing Units as of such date, designated in the same categories as are identified in Borrower's corporate status report currently delivered to Administrative Agent; such summary shall include a delineation of sold or unsold items in each category.
(viii) Within sixty (60) days after the end of each of the first three quarterly periods, and within one hundred (100) days after the end, of each fiscal year, a certificate of an Authorized Officer of Borrower as to Borrower's compliance with the Financial Covenant Tests in the form of Exhibit F hereto.
(ix) 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 (which requirement may be satisfied by the delivery of the most recent actuarial valuation of each such Single Employer Plan).
(x) As soon as possible and in any event within ten (10) days after Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by an Authorized Officer of Borrower, describing said Reportable Event and the action which Borrower proposes to take with respect thereto.
(xi) As soon as possible, and in any event within thirty (30) days after Borrower knows or has reason to know that any circumstances exist that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan subject to ERISA with respect to Borrower or any member of the Controlled Group and promptly but in any event within two (2) Business Days of receipt by Borrower, any Guarantor or any member of the Controlled Group of notice that the PBGC intends to terminate a Plan or appoint a trustee to administer the same, and promptly but in any event within five (5) Business Days of the receipt of notice concerning the imposition of withdrawal liability in excess of $500,000 with respect to Borrower, any Guarantor or any member of the Controlled Group, a certificate of an Authorized Officer setting forth all relevant details of such event and the action which Borrower proposes to take with respect thereto.
(xii) Promptly after the sending or filing thereof, copies of all proxy statements, financial statements, SEC Filings (exclusive of exhibits and form 8-K filings unless otherwise requested by Administrative Agent), and reports which Borrower sends to its stockholders, and copies of all regular (except form S-8), periodic, and special reports, and all effective registration statements (exclusive of exhibits unless otherwise requested by Administrative Agent) which Borrower is required to file with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange.
(xiii) Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting Borrower or a Guarantor (a) which, if determined adversely to Borrower or Guarantor, could reasonably be expected to have a Material Adverse Effect or (b) in which liability in excess of $2,500,000 (in the aggregate with respect to any action, suit or proceeding) is claimed and alleged against Borrower or such Guarantor.
(xiv) As soon as possible and in any event within ten (10) days after receipt by Borrower or any Guarantor, a copy of (a) any written notice or claim to the effect that Borrower or any Guarantor is or may be liable to any Person as a result of the release 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 Borrower or any Guarantor which, in the case of either (a) or (b), could reasonably be expected to have a Material Adverse Effect or could result in liability to Borrower or any Guarantor in excess of $2,500,000 (in the aggregate with respect to any notice or claim).
(xv) Promptly after the occurrence of any change in the business, Property, condition (financial or otherwise) or results of operations of Borrower and Guarantors (taken as a whole) that has had or would reasonably be expected to have a Material Adverse Effect, notice thereof.
(xvi) Such other information (including non-financial information) as Administrative Agent may from time to time reasonably request.
7.2 Use of Proceeds. Subject to the limitations contained in this Agreement, Borrower will use the proceeds of Advances for its or any one or more Guarantor's own acquisition, development and/or holding of real property and the construction of improvements in connection with the home building or other Related Businesses of Borrower or such Guarantor (including payment of reimbursement obligations with respect to Facility Letters of Credit), general corporate purposes, and to repay outstanding Advances (and, in the case of the initial Advance, to repay amounts outstanding under the Prior Credit Agreement). The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U).
7.3 Notice of Event of Default. Borrower will give prompt notice in writing to Administrative Agent of the occurrence of (i) any Event of Default or Unmatured Event of Default and (ii) any other development, financial or otherwise, that has had or would be reasonably expected to have a Material Adverse Effect.
7.4 Conduct of Business. Except as otherwise permitted under this Agreement, Borrower and each Guarantor will carry on and conduct business in the same general manner and in substantially the same fields of enterprise as presently conducted and to do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation, limited liability company or limited partnership (as applicable) in their respective jurisdictions of incorporation or formation and maintain all requisite authority to conduct business in each jurisdiction in which business is conducted; provided, however, that nothing contained herein shall prohibit the dissolution of any Guarantor as long as Borrower or another Guarantor succeeds to the assets, liabilities and business of the dissolved Guarantor. Without limitation of the foregoing, Borrower shall at all times engage principally in the Related Businesses.
7.5 Taxes. Borrower and each Guarantor will pay prior to delinquency all taxes, assessments and governmental charges and levies upon them or their income, profits or Property, except (i) those that solely encumber property abandoned or in the process of being abandoned and with respect to which there is no recourse to Borrower or any Subsidiary; (ii) those that are being contested in good faith by appropriate proceedings and with respect to which adequate
reserves have been established in accordance with GAAP, and (iii) to the extent that the failure to do so would not reasonably be expected to have and does not have a Material Adverse Effect.
7.6 Insurance. Borrower and each Guarantor will 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 Borrower will furnish to Administrative Agent upon request full information as to the insurance carried.
7.7 Compliance with Laws. Borrower and each Guarantor will comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except to the extent that the failure to do so would not reasonably be expected to have and does not have a Material Adverse Effect.
7.8 Maintenance of Properties. Borrower and each Guarantor will do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, except to the extent that the failure to do so would not reasonably be expected to have and does not have a Material Adverse Effect.
7.9 Inspection. Borrower and each Guarantor will permit Administrative Agent and Lenders, by their respective representatives and agents, to inspect any of the Property, corporate (or partnership) books and financial records of Borrower and such Guarantor to examine and make copies of the books of accounts and other financial records of Borrower and such Guarantor, and to discuss the affairs, finances and accounts of Borrower and such Guarantor with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as Administrative Agent may designate.
7.10 Environment. Borrower and each Guarantor will (i) comply, in all material respects, with the provisions of all federal, state, and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations issued thereunder; (ii) promptly contain and remove or otherwise remediate any hazardous discharge from or affecting the Property of Borrower or any Guarantor, to the extent required by and in compliance with all applicable laws; (iii) promptly pay any fine or penalty assessed in connection therewith or contest the same in good faith; (iv) permit Administrative Agent to inspect such Property, to conduct tests thereon, and to inspect all books, correspondence, and records pertaining thereto at reasonable hours and places; and (v) at the request of the Required Lenders, and at Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to the Required Lenders, and such other and further assurances reasonably satisfactory to the Required Lenders that any new condition or occurrence hereafter identified in any SEC Filing has been corrected; provided that a failure to comply with the provisions of clauses (i) through (v) of this Section 7.10 shall not constitute an Event of Default or an Unmatured Event of Default unless such noncompliance has resulted in or is reasonably likely to result in a Material Adverse Effect.
7.11 New Guarantors. If, as of the end of any calendar quarter, any Subsidiary of Borrower (whether now existing or hereafter created or acquired but excluding Lion Warranty Corporation, Lion Insurance Company, HomeAmerican Mortgage Corporation, American Home Title & Escrow Company and American Home Insurance Agency, Inc. and any other Subsidiary that is not in the homebuilding business and is in a regulated business (such as insurance) ) that is
not a Guarantor shall be a Significant Subsidiary, then, unless the Required
Lenders shall otherwise consent in writing, Borrower shall, within forty-five
(45) days of the end of such quarter, (i) cause such Significant Subsidiary to
execute and deliver to Administrative Agent a Supplemental Guaranty in the form
attached to and provided for in the Guaranty, pursuant to which such Guarantor
shall become a party thereunder and (ii) deliver or cause to be delivered, by
and with respect to such Significant Subsidiary, certificates, opinions and
other documents substantially similar to those referred to in Sections 5.1(i),
(ii), (iii), (iv), (v) and (vi) and such other documents as any Lender or LC
Issuer or their respective counsel may reasonably request; all of the foregoing
shall be in form and substance satisfactory to Administrative Agent.
7.12 Change in Schedules. Promptly following the occurrence of but in any event not later than forty-five (45) days following any quarter in which there shall occur any event or circumstance as a result of which either of Schedules 1 or 6.8 ceases to be accurate in all material respects, Borrower shall furnish to Administrative Agent the applicable revised Schedule and shall certify that such revised Schedule is true, correct and complete in all material respects, and such revised Schedule shall be substituted for the applicable Schedule hereunder.
ARTICLE VIII
NEGATIVE COVENANTS
During the term of the Agreement, unless the Required Lenders shall otherwise consent in writing:
8.1 Dividends; Repurchase of Stock. Borrower will not, directly or indirectly, declare, make or pay, or incur any liability to make or pay, or cause or permit to be declared, made or paid, any Dividend, or purchase, or incur any obligation to purchase, any capital stock of Borrower either (a) during the Term-Out Period or (b) if, prior to or after giving effect to the declaration and payment of any Dividend or purchase of such stock, there shall exist any Event of Default under this Agreement or any violation of any Financial Covenant Test (without regard to whether the Term Out Period has commenced).
8.2 Indebtedness. Neither Borrower nor any Guarantor will create, incur or suffer to exist any Indebtedness, except, without duplication and without duplication as to Borrower and Guarantors:
(i) The Loans.
(ii) Indebtedness existing on the date hereof (and not otherwise permitted under this Section 8.2) and described in Schedule 8.2 hereto and Refinancing Indebtedness with respect thereto.
(iii) Indebtedness of Borrower's mortgage lending and financial asset management Subsidiaries.
(iv) Rate Hedging Obligations.
(v) Intercompany Indebtedness between Borrower, any Guarantor and/or any Subsidiary (subject to the limitations contained in Section 8.5(vii)).
(vi) Trade accounts payable and accrued expenses arising or occurring in the ordinary course of business.
(vii) Indebtedness constituting Capitalized Lease Obligations.
(viii) Indebtedness with respect to Letters of Credit (including Facility Letters of Credit).
(ix) Indebtedness secured by purchase-money Liens permitted under
Section 8.6(iii).
(x) Subordinated Indebtedness.
(xi) Non-Recourse Indebtedness incurred in the ordinary course of business.
(xii) Performance bonds, completion bonds, guarantees of performance, and guarantees of Indebtedness of a special district entered into in the ordinary course of business.
(xiii) Indebtedness of a Person existing as of the time of the Acquisition of such Person by Borrower or any Guarantor, provided that, after giving effect to such Acquisition, Borrower is in compliance with the terms of this Agreement (including without limitation the Financial Covenant Tests).
(xiv) Indebtedness evidenced by the Senior Notes and Refinancing Indebtedness with respect thereto.
(xv) Public Indebtedness, so long as such Indebtedness is either Subordinated Indebtedness or pari passu with the Obligations (or Guarantors' obligations under the Guaranties, if applicable).
(xvi) Indebtedness of Borrower or a Guarantor secured by a Lien on real property owned by Borrower or such Guarantor, where (A) the real property is not related to Housing Units or Land Under Development, and (B) the aggregate outstanding amount of such Indebtedness, plus all amounts committed but undisbursed in connection with such Indebtedness, does not exceed seventy-five percent (75%) of the fair market value of the real property encumbered by such Lien.
(xvii) Indebtedness, except Public Indebtedness, not otherwise permitted by this Section 8.2 in an aggregate amount outstanding at any time not to exceed $60,000,000.
(xviii) From and after, but not prior to, the first to occur of (A) the Term Out Date and (B) the day that is two years prior to the Facility Maturity Date (as the same may be extended pursuant to this Agreement), Indebtedness secured by a Lien permitted under Section 8.6(xxi).
(xix) Indebtedness of Borrower which arises pursuant to a guarantee
of payment or collection executed by Borrower, guaranteeing the
Indebtedness of one or more Guarantors which is permitted under clauses
(i) through (xviii) of this Section 8.2.
8.3 Merger. Neither Borrower nor any Guarantor will merge or consolidate with or into any other Person, unless:
(i) (A) any Guarantor is merging with any other Guarantor; (B) any Guarantor is merging with Borrower, and Borrower is the continuing corporation; (C) a Guarantor is merging with a Person that is not a Subsidiary of Borrower and such transaction is in compliance with the provisions of Section 8.4(b); or (D) a Non-Guarantor Subsidiary is merging with Borrower or any Guarantor, and Borrower or a Guarantor, as applicable, is the continuing corporation; and
(ii) no Event of Default shall exist or shall occur after giving effect to such transaction; and
(iii) after giving effect to such transaction, Borrower shall be in compliance with the Financial Covenant Tests; and
(iv) (a) the other Person to the transaction is in a Related Business or (b) if not in a Related Business, such transaction is in compliance with the provisions of Section 8.5(vii), and Borrower or a Guarantor, if involved in the merger, is the continuing corporation; and
(v) the transaction is not otherwise prohibited under this Agreement.
8.4 Sale of Assets.
(a) Neither Borrower nor any Guarantor will lease, sell or otherwise
dispose of its Property, in a single transaction or a series of
transactions, to any other Person (other than Borrower or another
Guarantor) except for (i) sales or leases in the ordinary course of
business, (ii) leases, sales or other dispositions of its Property that,
together with all other Property of Borrower and Guarantors previously
leased, sold or disposed of (other than in the ordinary course of
business) as permitted by this Section during the month in which any such
lease, sale or other disposition occurs, do not constitute a Material
Portion of the Property of Borrower and Guarantors (taken as a whole) and
(iii) transfers of assets by a Guarantor to another Guarantor (including
any Subsidiary that becomes a Guarantor by executing and delivering a
Guaranty to Administrative Agent at the time at which such assets are
transferred to such Subsidiary).
(b) Borrower shall not sell or transfer or cause to be sold or transferred (other than to Borrower or another Guarantor), in a single transaction or a series of transactions (i) all or substantially all of the assets of any Guarantor or (ii) such securities or other ownership interests in a Guarantor as would result in such Guarantor ceasing to be a Subsidiary of Borrower (whether by merger, consolidation, sale, assignment or otherwise) unless (A) any such transaction is (and, if it were the sale of all of the assets of such Guarantor, would be) in compliance with the provisions of Section 8.4(a) and (B) following such transaction and the release of such Guarantor provided for below, Borrower would be in compliance with its obligations under this Agreement. Upon not less than 30 days' prior written request from Borrower, accompanied by a certificate of Borrower certifying as to the foregoing, Administrative Agent shall deliver, at the time of the consummation of such transaction, a release of such Guarantor from its obligations under the Guaranty, and such entity shall cease to be a Guarantor hereunder.
(c) For purposes of this Section 8.4, "Material Portion" means, with respect to the Property of Borrower and Guarantors (taken as a whole), Property which represents more than 25% of the book value of all assets of Borrower and Guarantors (taken as a whole). If a Material Portion of the Property of Borrower and Guarantors (taken as a whole) is leased, sold or disposed of in violation of this Section 8.4, Borrower shall pay to Administrative Agent for the benefit of Lenders at the time of such lease, sale or disposal, all amounts owed by Borrower pursuant to Section 2.2, taking into account the effect of such lease, sale or disposal.
8.5 Investments and Acquisitions. Neither Borrower nor any Guarantor will 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) Investments in Cash Equivalents.
(ii) Loans or advances made to officers, directors or employees of Borrower or any Guarantor or any Subsidiary.
(iii) Carryback loans made in the ordinary course of business in conjunction with the sale of Property of Borrower or such Guarantor.
(iv) Investments in interests in issuances of collateralized mortgage obligations, mortgages, mortgage loan servicing or other mortgage related assets.
(v) Investments in contract rights granted by, entitlements granted by, interests in securities issued by, or tangible assets of, political subdivisions or enterprises thereof related to the home building or real estate operations of
Borrower or any Guarantor or any Subsidiary, including without limitation Investments in special districts as described in Section 8.2(xii).
(vi) Investments in existing Subsidiaries (subject, in the case of Non-Guarantor Subsidiaries, to the provisions of Section 8.5(vii)) and other Investments in existence on the date hereof.
(vii) Investments in (A) Non-Guarantor Subsidiaries or (B) other Persons whose primary business is not a Related Business, in an amount (in the aggregate for both clause (A) and clause (B)) outstanding at any one time not to exceed 25% of Adjusted Consolidated Tangible Net Worth, provided that retained earnings of such Non-Guarantor Subsidiaries and Persons described in clause (B) shall not be deemed part of such Investment.
(viii) The Acquisition of or Investment in a business or entity engaged primarily in a Related Business, provided that (a) immediately upon the consummation of any such Acquisition or Investment Borrower and each Guarantor is in compliance with the terms, covenants and conditions of this Agreement (including without limitation the Financial Covenant Tests and the provisions of Section 8.5(vii)), and (b) Borrower shall deliver to Administrative Agent a certificate, signed by an Authorized Officer, certifying to the best knowledge of Borrower, that, on the date of, and taking into account, the consummation of such Acquisition, and based on the reasonable assumptions set forth in such Certificate, no Event of Default has occurred and is continuing, and Borrower is in compliance with the Financial Covenant Tests.
(ix) The creation of new Subsidiaries engaged primarily in a Related Business (or the purpose of which is principally to preserve the use of a name in which such business is conducted), subject to the limitations contained in Section 8.5(vii).
(x) Stock, obligations or securities received in satisfaction of debts owing to Borrower or any Guarantor in the ordinary course of business.
(xi) Pledges or deposits in cash by Borrower or a Guarantor to support surety bonds, performance bonds or guarantees of completion in the ordinary course of business.
(xii) Loans representing intercompany Indebtedness between Borrower, any Guarantor and/or any Subsidiary, subject to the limitations contained in Section 8.5(vii).
(xiii) Investments pursuant to Borrower's or a Guarantor's employment compensation plans or agreements.
(xiv) Payments on account of the purchase, redemption or other acquisition or retirement for value, or any payment in respect of any amendment (in anticipation of or in connection with any such retirement, acquisition or
defeasance) in whole or in part, of any shares of capital stock or other securities of Borrower, but only to the extent the same is permitted under the Indenture.
(xv) Investments, in addition to those enumerated in this Section 8.5, in an aggregate amount outstanding at any time not to exceed $5,000,000.
8.6 Liens. Neither Borrower nor any Guarantor will create, incur, or suffer to exist any Lien in, of or on the Property of Borrower or any Guarantor, except:
(i) Permitted Liens.
(ii) Liens for taxes, assessments or governmental charges or levies which solely encumber property abandoned or in the process of being abandoned and with respect to which there is no recourse to Borrower or any Guarantor or any Subsidiary.
(iii) Purchase-money Liens on any Property hereafter acquired or the assumption of any Lien on Property existing at the time of such acquisition (and not created in contemplation of such acquisition), or a Lien incurred in connection with any conditional sale or other title retention or a Capitalized Lease; provided that
(a) Any Property subject to any of the foregoing is acquired by Borrower or any Guarantor in the ordinary course of its respective business and the Lien on any such Property attaches to such asset concurrently or within ninety (90) days after the acquisition thereof;
(b) The obligation secured by any Lien so created, assumed, or existing shall not exceed ninety percent (90%) of the cost the Property covered thereby by Borrower or any Guarantor acquiring the same; and
(c) Each Lien shall attach only to the Property so acquired.
(iv) Liens existing on the date hereof (and not otherwise permitted under this Section 8.6) and described in Schedule 8.6 hereto and Liens securing Refinancing Indebtedness with respect thereto, but only to the extent such Liens encumber the same collateral in whole or in part as the previous Liens securing the Indebtedness being refunded, refinanced or extended.
(v) Liens incurred in the ordinary course of business not otherwise permitted by this covenant, provided that the aggregate amount of Indebtedness secured by such Liens outstanding at any time shall not exceed $60,000,000.
(vi) Judgments and similar Liens arising in connection with court proceedings; provided the execution or enforcement thereof is stayed and the
claim is being contested in good faith, with adequate reserves therefor being maintained by Borrower or such Guarantor in accordance with GAAP.
(vii) Liens securing Non-Recourse Indebtedness of Borrower or any Guarantor, where the amount of such Indebtedness is greater than fifty percent (50%) of the fair market value of the Property encumbered by the Liens.
(viii) Liens existing with respect to Indebtedness of a Person acquired in an Acquisition permitted by this Agreement.
(ix) 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.
(x) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, progress payments, government contracts, utility services and other obligations of like nature in each case incurred in the ordinary course of business.
(xi) Leases or subleases granted to others not materially interfering with the ordinary course of business of Borrower or any Guarantor.
(xii) Any interest in or title of a lessor to property subject to any Capitalized Lease Obligations.
(xiii) Liens in favor of the trustee named therein arising under the Indenture and liens for trustee's fees and similar costs under any Refinancing Indebtedness of the Senior Notes.
(xiv) Any option, contract or other agreement to sell or purchase an asset or participate in the income or revenue derived therefrom.
(xv) Any legal right of, or right granted in good faith to, a lender or lenders to which Borrower or a Guarantor may be indebted to offset against, or appropriate and apply to the payment of, such Indebtedness any and all balances, credits, deposits, accounts, or monies of Borrower or a Guarantor with or held by such lender or lenders.
(xvi) Any pledge or deposit of cash or property by Borrower or any Guarantor in conjunction with obtaining surety and performance bonds and letters of credit required to engage in constructing on-site and off-site improvements or as otherwise required by political subdivisions or other governmental authorities in the ordinary course of business.
(xvii) Liens incurred in the ordinary course of business as security for Borrower's or any Guarantor's obligations with respect to indemnification in favor of title insurance providers.
(xviii) Letters of Credit, bonds or other assets pledged to secure insurance in the ordinary course of business.
(xix) Liens on assets securing warehouse lines of credit and other credit facilities to finance the operations of Borrower's mortgage lending Subsidiaries and/or financial asset management Subsidiaries and Liens related to issuances of CMOs and mortgage-related securities, so long as such assets are owned by such mortgage lending Subsidiaries and financial asset Subsidiaries.
(xx) Liens described in Section 8.2(xvi) securing the Indebtedness
described therein, so long as (i) each such Lien attaches only to the real
property described in Section 8.2(xvi) and (ii) the obligation secured by
such Lien is limited to repayment of the Indebtedness permitted under
Section 8.2(xvi).
(xxi) From and after, but not prior to, the first to occur of (A) the Term Out Date and (B) the day that is two years prior to the Facility Maturity Date (as the same may be extended pursuant to this Agreement), Liens incurred in the ordinary course of business not otherwise permitted by this covenant, provided that (1) the Liens encumber real property owned by the obligor of the applicable Indebtedness, provided that Borrower or any Guarantor may be the obligor of such Indebtedness and Borrower or any Guarantor may guarantee such Indebtedness, and (2) the obligations secured by any Lien shall not exceed eighty percent (80%) of the fair market value of the real property encumbered thereby (if the obligations do not relate to the construction of improvements on, or development of, the real property) or eighty percent (80%) of the value of the real property encumbered thereby as if all improvements to be located thereon have been completed (if the obligations relate to the construction of improvements on the real property), as applicable.
Notwithstanding anything herein to the contrary, neither Borrower nor any Guarantor will, create, incur, or suffer to exist any Lien in, of or on the capital stock of any Guarantor.
8.7 Affiliates. Neither Borrower nor any Guarantor will 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
a Subsidiary) except (i) in the ordinary course of business and pursuant to the
reasonable requirements of Borrower's or such Guarantor's business and upon fair
and reasonable terms no less favorable to Borrower or such Guarantor than
Borrower or such Guarantor would obtain in a comparable arms-length transaction,
(ii) Investments permitted under Section 8.5, (iii) pursuant to employment
compensation plans and agreements, and (iv) with officers, directors and
employees of Borrower or any Subsidiary so long as the same are duly authorized
pursuant to the articles of incorporation or bylaws (or procedures conducted in
accordance therewith) of Guarantor or Borrower.
8.8 Modifications to Certain Indebtedness. Neither Borrower nor any Guarantor will make any amendment or modification to the subordination provisions of any indenture, note or other agreement evidencing or governing (i) as to Borrower, any Subordinated Indebtedness, and
(ii) as to any Guarantor, Indebtedness that has been subordinated to Guarantor's obligations under the Guaranty.
8.9 Amendments of Indenture or Senior Notes. Neither Borrower nor any Guarantor will amend or modify the Indenture or the Senior Notes, except for amendments or modifications that do not (i) impose upon Borrower or any Guarantor obligations not contained therein as of the date of this Agreement (except as otherwise hereinafter provided), or (ii) otherwise adversely affect Borrower or any Guarantor. Nothing contained in this Section 8.9 shall (a) prohibit issuance by Borrower of additional Senior Notes pursuant to the Indenture, provided the same does not violate any other provision of this Agreement or (b) prohibit any Guarantor from guarantying the obligations of Borrower under the Senior Notes and Indenture.
8.10 Negative Pledge. Neither Borrower nor any Guarantor will directly or
indirectly enter into any agreement (other than (A) this Agreement, (B) the
Indenture and any indenture or similar agreement executed in connection with any
Refinancing Indebtedness of the Senior Notes and (C) any indenture or similar
agreement executed in connection with any Public Indebtedness permitted under
Section 8.2(xv)) with any Person that prohibits or restricts or limits the
ability of Borrower or Guarantors to create, incur, pledge or suffer to exist
any Lien in favor of Lenders granted pursuant to the terms of this Agreement
upon any real property assets of Borrower or any Guarantor; provided, however,
that those agreements creating Liens permitted under Sections 8.6(iii), (iv),
(vii), (viii), (xix), (xx) and (xxi) may prohibit, restrict or limit other Liens
on those assets encumbered by the Liens created by such agreements.
ARTICLE IX
FINANCIAL COVENANTS
During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing:
9.1 Consolidated Tangible Net Worth Test. Consolidated Tangible Net Worth shall not be less than (i) $776,018,000 plus (ii) fifty percent (50%) of consolidated net income of Borrower and the Guarantors earned after December 31, 2003 (excluding any quarter in which there is a loss but applying consolidated net income of Borrower and the Guarantors thereafter first to such loss before determining fifty percent (50%) of such amount for purposes of this calculation) plus (iii) fifty percent (50%) of the net proceeds or other consideration received by Borrower for capital stock issued by Borrower after December 31, 2003 (the foregoing covenant, as adjusted as provided in the next succeeding sentence, is herein referred to as the "Consolidated Tangible Net Worth Test"). Notwithstanding the foregoing, in the event that Borrower shall at any time engage in an Acquisition equaling or exceeding $100,000,000, the minimum Consolidated Tangible Net Worth for the Consolidated Tangible Net Worth Test shall be adjusted to the sum of (i) 80% of the Consolidated Tangible Net Worth immediately following the closing of such Acquisition, (ii) an amount equal to 50% of the consolidated net income of Borrower and Guarantors earned after the closing of such Acquisition (excluding any quarter in which there is a loss but applying net income thereafter first to such loss before determining 50% of such amount for purposes of this calculation) and (iii) 50% of the net
proceeds or other consideration received by Borrower for any capital stock
issued after the closing of such Acquisition. Borrower's compliance with the
Consolidated Tangible Net Worth Test shall be measured on a quarterly basis,
based on the financial statements delivered to Administrative Agent pursuant to
Section 7.1. Borrower's failure to satisfy the Consolidated Tangible Net Worth
Test shall not constitute an Event of Default or an Unmatured Event of Default;
provided, however, that if Borrower fails to satisfy the Consolidated Tangible
Net Worth Test at the end of any fiscal quarter, then the Term Out Period shall
commence on the first day following such fiscal quarter as provided in Section
2.22.
9.2 Leverage Test; Interest Coverage Test.
(a) Leverage Test. The Leverage Ratio shall not exceed the then applicable Permitted Leverage Ratio (the "Leverage Test").
(b) Interest Coverage Test. If at any time Borrower shall fail to maintain, for two (2) consecutive fiscal quarters, a ratio, determined as of the last day of each fiscal quarter for the four-quarter period ending on such day, of (i) EBITDA for such period to (ii) Consolidated Interest Incurred for such period, of at least 2.00 to 1.0 (the "Interest Coverage Test"), then the Permitted Leverage Ratio for the same fiscal quarter with respect to which Borrower shall have so failed the Interest Coverage Test (i.e., the second of such two (2) consecutive fiscal quarters, which quarter is herein referred to as the "Coverage Test Failure Quarter"), shall be decreased as follows: (i) if the Permitted Leverage Ratio for the fiscal quarter preceding the Coverage Test Failure Quarter was 55%, the Permitted Leverage Ratio shall be decreased by 5% to 50%; and (ii) if the Permitted Leverage Ratio for the fiscal quarter preceding the Coverage Test Failure Quarter was less than 55%, the Permitted Leverage Ratio shall be decreased by 2.5%.
(c) Adjustment of Permitted Leverage Ratio. If at any time at which
the Permitted Leverage Ratio is less than 55%, Borrower shall satisfy the
Interest Coverage Test (which for purposes of this Section 9.2(c) shall be
deemed satisfied only if, on the same day on which Borrower satisfies the
Interest Coverage Test, Borrower is also in compliance with the Leverage
Test), then the Permitted Leverage Ratio, effective as of the fiscal
quarter immediately following the fiscal quarter with respect to which
Borrower shall have so satisfied the Interest Coverage Test, shall be
increased as follows: (i) upon satisfaction of the Interest Coverage Test
on a date on which the Permitted Leverage Ratio is 50%, the Permitted
Leverage Ratio for the next fiscal quarter shall be increased to 55%; and
(ii) upon satisfaction of the Interest Coverage Test on a date on which
the Permitted Leverage Ratio is less than 50%, the Permitted Leverage
Ratio for the next fiscal quarter shall be increased by 2.5%. In no event
shall the Permitted Leverage Ratio exceed 55%.
(d) Effectiveness of Change in Permitted Leverage Ratio. Any
decrease of the Permitted Leverage Ratio provided for in this Section 9.2
shall be effective as of the Coverage Test Failure Quarter as provided in
Section 9.2(b), and the Permitted Leverage Ratio (as so decreased) shall
remain in effect thereafter unless and until adjusted as provided in
Section 9.2(b) or (c). Any increase in the Permitted Leverage Ratio shall
be effective as of the fiscal quarter next succeeding the fiscal quarter
in which Borrower
satisfies the Interest Coverage Test as provided in Section 9.2(c), and the Permitted Leverage Ratio (as so increased) shall remain in effect thereafter unless and until adjusted as provided in Section 9.2(b) or (c)
(e) Measure of Compliance. Borrower's satisfaction of the Interest
Coverage Test shall be measured on a quarterly basis, based on the
financial statements delivered to Administrative Agent pursuant to Section
7.1. A failure to satisfy the Leverage Test or the Interest Coverage Test
shall not constitute an Event of Default or an Unmatured Event of Default;
provided, however, if Borrower fails to satisfy the Leverage Test for two
(2) consecutive fiscal quarters (the first of which may be the Coverage
Test Failure Quarter), then the Term Out Period shall commence on the day
following such fiscal quarter as provided in Section 2.22.
9.3 Consolidated Tangible Net Worth Floor. Consolidated Tangible Net Worth shall not be less than (i) $485,011,000, plus (ii) an amount equal to 50% of the quarterly consolidated net income of Borrower and Guarantors earned after December 31, 2003 (excluding any quarter in which there is a loss but applying consolidated net income thereafter first to such loss before determining 50% of such amount for purposes of this calculation), plus (iii) 50% of the net proceeds or other consideration received by Borrower for any capital stock issued after December 31, 2003. Notwithstanding the foregoing, in the event that Borrower shall at any time engage in an Acquisition equaling or exceeding $100,000,000, the minimum Consolidated Tangible Net Worth requirement for this covenant shall be adjusted to the sum of (i) 50% of Consolidated Tangible Net Worth immediately following the closing of such Acquisition, (ii) an amount equal to 50% of the consolidated net income of Borrower and Guarantors earned after the closing of such Acquisition (excluding any quarter in which there is a loss but applying net income thereafter first to such loss before determining 50% of such amount for purposes of this calculation) and (iii) 50% of the net proceeds or other consideration received by Borrower for any capital stock issued after the closing of such Acquisition. Borrower's compliance with the foregoing covenant shall be measured on a quarterly basis, based on the financial statements delivered to Administrative Agent pursuant to Section 7.1.
ARTICLE X
EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute an Event of Default:
10.1 Representations and Warranties. Any representation or warranty made or deemed made by or on behalf of Borrower or any Guarantor to Lenders, the LC Issuer or Administrative Agent under or in connection with this Agreement, any other Loan Document or any certificate or information delivered in connection with this Agreement or any other Loan Document shall not be true and correct in any material respect on the date as of which made, and, with respect to any matter which is reasonably capable of being cured, Borrower or such Guarantor, as applicable, shall have failed to cure the occurrence causing the representation or warranty to be
materially untrue or incorrect within thirty (30) days after notice thereof by Administrative Agent to Borrower.
10.2 Non-payment. Nonpayment of principal of any Note when due (including without limitation non-payment under clause (D) of Section 2.21(c)), or nonpayment of interest upon any Note or of any fees or other obligations under any of the Loan Documents within five (5) days after billing therefor by Administrative Agent or Lenders.
10.3 Other Defaults. The breach by Borrower (other than a breach which constitutes an Event of Default under any other Section of this Article X) of any of the terms or provisions of this Agreement which is not remedied within thirty (30) days after notice thereof to Borrower.
10.4 Other Indebtedness.
(a) Failure of Borrower or any Guarantor to pay when due (after any applicable grace period and after notice from the holder thereof) any Indebtedness (other than Non-Recourse Indebtedness) equal to or exceeding $10,000,000 (in the aggregate); or
(b) The default (after any applicable grace period and after notice from the holder thereof) by Borrower or any Guarantor in the performance of any term, provision or condition contained in any agreement under which any Indebtedness (other than Non-Recourse Indebtedness) equal to or exceeding $10,000,000 (in the aggregate) was created or is governed; or
(c) Any other event shall occur or condition exist (after any applicable grace period and after notice from the holder thereof), the effect of which is to cause, or to permit the holder or holders of any Indebtedness (other than Non-Recourse Indebtedness) of Borrower or any Guarantor equal to or exceeding $10,000,000 to cause such Indebtedness to become due prior to its stated maturity; or
(d) Any Indebtedness (other than Non-Recourse Indebtedness) of Borrower or any Guarantor equal to or exceeding $10,000,000 (in the aggregate) shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof (after any applicable grace period and after notice from the holder thereof); or
(e) Borrower or any Guarantor shall not pay, or shall admit in writing its inability to pay, its debts generally as they become due.
10.5 Bankruptcy. Borrower or any Guarantor 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 the Property of Borrower and Guarantors;
(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, within the applicable time period for the filing thereof, an answer or other pleading denying the material allegations of any such proceeding filed against it; or
(v) fail to contest in good faith any appointment or proceeding described in Section 10.6.
10.6 Receiver. A receiver, trustee, examiner, liquidator or similar
official shall be appointed for Borrower or any Guarantor or any Substantial
Portion of the Property of Borrower and Guarantors without the application,
approval or consent of Borrower or any Guarantor, or a proceeding described in
Section 10.5(iv) shall be instituted against Borrower or any Guarantor and such
appointment continues undischarged or such proceeding continues undismissed or
unstayed for a period of sixty (60) consecutive days.
10.7 Judgment. Borrower or any Guarantor shall fail within thirty (30) days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $10,000,000 which has not been stayed on appeal or is not otherwise being appropriately contested in good faith and for which contested judgments adequate reserves are being maintained by Borrower or such Guarantor in accordance with GAAP.
10.8 Unfunded Liabilities. The Unfunded Liabilities of all Single Employer Plans shall exceed in the aggregate $5,000,000 or any Reportable Event shall occur in connection with any Plan, which Reportable Event has had or would reasonably be expected to have a Material Adverse Effect.
10.9 Withdrawal Liability. Borrower, any Guarantor or any member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by Borrower or any Guarantor or any other member of the Controlled Group as withdrawal liability (determined as of the date of such notification), exceeds $5,000,000 or requires payments exceeding $2,000,000 per annum; provided, however, that such event shall not constitute an Event of Default as long as Borrower, such Guarantor or the Controlled Group member, as applicable, is contesting in good faith the imposition of withdrawal liability.
10.10 Increased Contributions. Borrower, any Guarantor, or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization, if as a result of such reorganization the aggregate
annual contributions of Borrower, Guarantors and the other members of the Controlled Group (taken as a whole) to all Multiemployer Plans which are then in reorganization have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years of each such Multiemployer Plan immediately preceding the plan year in which the reorganization occurs by an amount exceeding $5,000,000.
10.11 Change in Control. Any Change in Control shall occur.
10.12 Dissolution. The dissolution or liquidation of Borrower or any Guarantor shall occur, except as permitted under Section 8.3.
10.13 Guaranty. The Guaranty shall fail to remain in full force or effect with respect to any Guarantor or any action shall be taken by any Guarantor to discontinue or to assert the invalidity or unenforceability of the Guaranty, or any Guarantor shall fail to comply with any of the terms or provisions of the Guaranty, or any Guarantor denies that it has any further liability under the Guaranty or gives notice to such effect.
10.14 Consolidated Tangible Net Worth Covenant. The breach by Borrower of the covenant contained in Section 9.3.
10.15 No Defaults. The occurrence of any of the following events shall specifically not be an Event of Default or an Unmatured Event of Default under this Agreement:
(a) The breach of any Financial Covenant Test (except that the breach by Borrower of the covenant in Section 9.3 shall constitute an Event of Default, notwithstanding that it also constitutes a breach of a Financial Covenant Test).
(b) If any Guarantor shall apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or for a Significant Amount of its Property, or if a receiver, custodian, trustee, examiner, liquidator or similar official shall be appointed for any Guarantor without its application, approval or consent for it or for a Significant Amount of its Property; provided, however, that upon the occurrence and during the continuation of the foregoing, all Property of such Guarantor shall be automatically excluded from the Borrowing Base; and provided further, that upon any such appointment for any Property of any Guarantor that is not a Significant Amount of its Property (which appointment shall not be an Event of Default or Unmatured Event of Default under this Agreement), such Property shall be automatically excluded from the Borrowing Base. "Significant Amount" means, with respect to the Property of such Guarantor and its Subsidiaries, taken as a whole, Property which represents more than 10% of the book value of the assets of such Guarantor as would be shown on the financial statements of such Guarantor as of the beginning of the fiscal quarter in which such determination is made, all as determined in accordance with Agreement Accounting Principles.
ARTICLE XI
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
11.1 Acceleration; Remedies.
(a) If any Event of Default described in Section 10.5 or 10.6 occurs with respect to Borrower, the obligations of Lenders to make Loans and of any LC Issuer to issue Facility Letters of Credit hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of Administrative Agent or any Lender or LC Issuer, Borrower will be and become thereby unconditionally obligated, without any further notice, act or demand, to pay to Administrative Agent an amount in immediately available funds, which funds shall be held in the Facility LC Collateral Account, equal to the difference of (x) the amount of Facility LC Obligations at such time, less (y) the amount on deposit in the Facility LC Collateral Account at such time which is free and clear of all rights and claims of third parties and has not been applied as provided in paragraph (c) below (such difference, the "Collateral Shortfall Amount"). If any other Event of Default occurs, the Required Lenders may (or Administrative Agent with the written consent of the Required Lenders shall) (i) terminate or suspend the obligations of Lenders to make Loans and of each LC Issuer to issue Facility Letters of Credit hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which Borrower hereby expressly waives and (ii) upon notice to Borrower and in addition to the continuing right to demand payment of all amounts payable under this Agreement, make demand on Borrower to pay, and Borrower shall, forthwith upon such demand and without any further notice or act, pay to Administrative Agent the Collateral Shortfall Amount, which funds shall be deposited in the Facility LC Collateral Account.
(b) If at any time while any Event of Default is continuing, Administrative Agent determines that the Collateral Shortfall Amount at such time is greater than zero, Administrative Agent may, and at the direction of the Required Lenders shall, make demand on Borrower to pay, and Borrower shall, forthwith upon such demand and without any further notice or act, pay to Administrative Agent the Collateral Shortfall Amount, which funds shall be deposited in the Facility LC Collateral Account.
(c) Administrative Agent may, at any time or from time to time after funds are deposited in the Facility LC Collateral Account, apply such funds to the payment of the Facility LC Obligations and any other amounts in respect of any Facility Letter of Credit or Reimbursement Agreement as shall from time to time have become due and payable by Borrower to any Lender or LC Issuer under the Loan Documents.
(d) At any time while any Event of Default is continuing, neither Borrower nor any Person claiming on behalf of or through Borrower shall have any right to withdraw any of the funds held in the Facility LC Collateral Account. After all of the Obligations have been indefeasibly paid in full and the Aggregate Commitment has been terminated, any funds remaining in the Facility LC Collateral Account shall be returned
by Administrative Agent to Borrower or paid to whomever may be legally entitled thereto at such time.
(e) If, within five (5) days after acceleration of the maturity of the Obligations or termination of the obligations of Lenders to make Loans hereunder as a result of any Event of Default (other than any Event of Default as described in Section 10.5 or 10.6 with respect to Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, Administrative Agent shall, by notice to Borrower, rescind and annul such acceleration and/or termination.
(f) Upon the occurrence of any Event of Default and upon the directive of the Required Lenders, Administrative Agent or (but only upon directive of the Required Lenders) any Lender shall proceed to protect, exercise and enforce the rights and remedies of Administrative Agent and Lenders under the Loan Documents against Borrower, any Guarantor and any other party and such other rights and remedies as are provided by law or equity.
(g) The order and manner in which Lenders' rights and remedies are to be exercised shall be determined by the Required Lenders in their sole discretion, and all payments received by Administrative Agent and Lenders, or any of them, shall be applied first to the costs and expenses (including attorneys' fees and disbursements) of Administrative Agent and of Lenders, and thereafter paid pro rata to each Lender in the same proportions that each Lender's Commitment bears to the Aggregate Commitment, without priority or preference among Lenders. Regardless of how each Lender may treat payments for the purpose of its own accounting, for the purpose of computing Borrower's obligations hereunder and under the Notes, payments shall be applied first, to the costs and expenses of Administrative Agent and Lenders, as set forth above, second, to the payment of accrued and unpaid interest due under any Loan Documents to and including the date of such application (ratably, and without duplication, according to the accrued and unpaid interest due under each of the Loan Documents), and third, to the payment of all other amounts (including principal and fees) then owing to Administrative Agent or Lenders under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of Lenders hereunder or thereunder or at law or in equity.
11.2 Amendments. Subject to the provisions of this Article XI, the Required Lenders (or Administrative Agent with the consent in writing of the Required Lenders) and Borrower (in the case of the Loan Documents other than the Guaranty) or Guarantors (in the case of the Guaranty) may enter into agreements supplemental hereto or thereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of Lenders or Borrower (in the case of the Loan Documents other than the Guaranty) or Guarantors (in the case of the Guaranty) or waiving any Event of Default hereunder; provided, however, that (a) no such supplemental agreement shall, without the consent of the Required Lenders, amend the definition of the term "Borrowing Base" or the definition of any defined term contained in
the definition of the term "Borrowing Base" and (b) no such supplemental agreement shall, without the consent of each Lender affected thereby:
(i) Extend the maturity of any Loan or Note or forgive all or any portion of the principal amount thereof, or reduce the rate of, or extend the time of payment of, interest or fees thereon;
(ii) Release any Guarantor from any of its obligations under the Guaranty (except as provided in Section 8.4(b));
(iii) Change the percentage specified in the definition of Required Lenders;
(iv) Increase the amount of the Commitment of any Lender hereunder (except as may be agreed by such Lender pursuant to Section 2.5(d)), or permit Borrower to assign its rights under this Agreement;
(v) Amend the percentage set forth in Section 2.21(b); or
(vi) Amend this Section 11.2, Section 12.7 or Section 14.1.
No amendment of any provision of this Agreement relating to Administrative Agent shall be effective without the written consent of Administrative Agent. Administrative Agent may waive payment or reduce the amount of the fees referred to in Section 13.13 or the fee required under Section 15.3.3 without obtaining the consent of any other party to this Agreement. No amendment of any provision of this Agreement relating to Facility Letters of Credit shall be effective without the written consent of each LC Issuer affected thereby. No amendment of any provision of this Agreement relating to Swing Line Advances shall be effective without the written consent of the Swing Line Lender.
11.3 Preservation of Rights. No delay or omission of any Lender or LC Issuer or Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Event of Default or an acquiescence therein, and the making of a Loan or the issuance, amendment or extension of a Facility Letter of Credit notwithstanding the existence of an Event of Default or the inability of Borrower to satisfy the conditions precedent to such Loan or Facility Letter of Credit 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 Lenders (and, if applicable, Administrative Agent) required pursuant to Section 11.2, 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 Administrative Agent, the LC Issuer and Lenders until the Obligations have been paid in full.
ARTICLE XII
GENERAL PROVISIONS
12.1 Survival of Representations. All representations and warranties of Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans and the issuance, amendment or extension of any Facility Letter of Credit herein contemplated.
12.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender or LC Issuer shall be obligated to extend credit to Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation effective after the date of this Agreement.
12.3 Taxes. Any recording, intangible, filing or stamp fees or taxes or other similar assessments or charges made by any governmental or revenue authority in respect of the Loan Documents shall be paid by Borrower, together with interest and penalties, if any.
12.4 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.
12.5 Entire Agreement. The Loan Documents and the letter agreement(s) referred to in this Agreement embody the entire agreement and understanding among Borrower, Guarantors, Administrative Agent and Lenders and supersede all prior agreements and understandings among Borrower, Guarantors, Administrative Agent, and Lenders relating to the subject matter thereof.
12.6 Nature of Obligations; Benefits of this Agreement.
(a) The respective obligations of 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 Administrative 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.
(b) 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.
12.7 Expenses; Indemnification. Borrower shall reimburse Administrative Agent for any reasonable outside attorneys' fees and costs paid or incurred by Administrative Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. Borrower also agrees to reimburse Administrative Agent, Lenders and each LC Issuer for any reasonable costs and out-of-pocket expenses (including reasonable outside attorneys' fees and time charges of attorneys for Administrative Agent, Lenders and such LC Issuer) paid or incurred by Administrative Agent, any Lender or such LC Issuer in connection with the collection and enforcement of the Loan Documents. Borrower further agrees to indemnify Administrative Agent and each Lender and LC Issuer, and their respective 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 Administrative Agent or any Lender or LC Issuer 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 thereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder (except to the extent the same 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 the indemnified Person or the failure of the indemnified Person to comply with regulatory requirements applicable to it). The obligations of Borrower under this Section shall survive the termination of this Agreement.
12.8 Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to Administrative Agent with sufficient counterparts so that Administrative Agent may furnish one to each of Lenders.
12.9 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 applied on a basis consistent with the consolidated audited financial statements of Borrower as of December 31, 1994 ("Agreement Accounting Principles"). If any change in GAAP from the principles used in preparing such statements would have a material effect upon the results of any calculation required by or compliance with any provision of this Agreement, then such calculation shall be made or calculated and compliance with such provision shall be determined using accounting principles used in preparing the consolidated audited financial statements of Borrower as of December 31, 1994. For purposes of determining compliance by the Borrower with the covenants in this Agreement, the application of Financial Accounting Standards Board Interpretation Number 46 shall be disregarded with respect to a financial consolidation of any Person which is not a Subsidiary of the Borrower.
12.10 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable.
12.11 Nonliability of Lenders and LC Issuer. The relationship between Borrower and Lenders and Administrative Agent shall be solely that of borrower and lender. Neither Administrative Agent nor any Lender or LC Issuer shall have any fiduciary responsibilities to Borrower. Neither Administrative Agent nor any Lender or LC Issuer undertakes any responsibility to Borrower to review or inform Borrower of any matter in connection with any phase of Borrower's business or operations.
12.12 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 ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
12.13 Arbitration. Subject to the provisions of this Section 12.13, Borrower, Lenders and Administrative Agent agree to submit to binding arbitration any and all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents if permitted by law or a contract between them and such persons) relating to this Agreement and the Loan Documents and the negotiation, execution, collateralization, administration, repayment, modification, extension or collection thereof or arising thereunder. Such arbitration shall proceed in Chicago, Illinois, shall be governed by Illinois law and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA"), as modified in this Section 12.13. Judgment upon the award rendered by each arbitrator(s) may be entered in any court having jurisdiction.
(a) Nothing in the preceding paragraph, nor the exercise of any
right to arbitrate thereunder, shall limit the right of any party hereto
(1) subject to provisions of applicable law, to exercise self-help
remedies such as setoff or repossession or other self-help remedies
provided in this Agreement or any other Loan Document; or (2) to obtain
provisional or ancillary remedies such as replevin, injunctive relief,
attachment, or appointment of a receiver from a court having jurisdiction,
before, during or after the pendency of any arbitration proceeding, or (3)
to defend or obtain injunctive or other equitable relief from a court of
competent jurisdiction against the foregoing or assert mandatory
counterclaims, if any, prior to and during the pendency of a determination
in arbitration of issues of performance, default, damages and other such
claims and disputes.
(b) Arbitration hereunder shall be before a three-person panel of neutral arbitrators, consisting of one person from each of the following categories: (1) an attorney who has practiced in the area of commercial real estate law for at least ten (10) years; (2) a person with at least ten (10) years' experience in real estate lending; and (3) a person with at least ten (10) years' experience in the homebuilding industry. The AAA shall submit a list of persons meeting the criteria outlined above for each category of arbitrator, and the parties shall select one person from each category in the manner established by the AAA.
(c) In any dispute between the parties that is arbitratable hereunder, where the aggregate of all claims and the aggregate of all counterclaims is an amount less than Fifty Thousand And No/100ths Dollars ($50,000), the arbitration shall be before a single neutral arbitrator to be selected in accordance with the Commercial Rules of the American Arbitration Association and shall proceed under the Expedited Procedures of said Rules.
(d) In any arbitration hereunder, the arbitrators shall decide (by documents only or with a hearing, at the arbitrators' discretion) any pre-hearing motions which are substantially similar to pre-hearing motions to dismiss for failure to state a claim or motions for summary adjudication.
(e) In any arbitration hereunder, discovery shall be permitted in accordance with the Illinois Code of Civil Procedure. Scheduling of such
discovery may be determined by the arbitrators, and any discovery disputes shall be finally determined by the arbitrators.
(f) The Illinois rules of evidence shall control the admission of evidence at the hearing in any arbitration conducted hereunder; provided, however, no error by the arbitrators in application of the rules of evidence shall be grounds, as such, for vacating the arbitrators' award.
(g) Notwithstanding any AAA rule to the contrary, the arbitration award shall be in writing and shall specify the factual and legal basis for the award, including findings of fact and conclusions of law.
(h) Each party shall each bear its own costs and expenses and an equal share of the arbitrators' costs and administrative fees of arbitration.
12.14 CONSENT TO JURISDICTION. BORROWER AND EACH LENDER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND BORROWER AND EACH LENDER
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING IN THIS SECTION 12.14 SHALL LIMIT THE RIGHT OF
ADMINISTRATIVE AGENT OR ANY LENDER OR LC ISSUER TO BRING PROCEEDINGS AGAINST
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. SUBJECT TO THE PROVISIONS OF
SECTION 12.13, UNLESS PROHIBITED BY LAW, ANY JUDICIAL PROCEEDING BY BORROWER
AGAINST ADMINISTRATIVE AGENT OR ANY LENDER OR LC ISSUER OR ANY AFFILIATE OF
ADMINISTRATIVE AGENT OR ANY LENDER OR LC ISSUER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN DOCUMENT SHALL BE BROUGHT IN A COURT IN CHICAGO, ILLINOIS.
12.15 WAIVER OF JURY TRIAL. SUBJECT TO THE PROVISIONS OF SECTION 12.13, BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER AND LC ISSUER 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.
12.16 Confidentiality. Each Lender and Administrative Agent agree to use commercially reasonable efforts to keep confidential any financial reports and other information from time to time supplied to them by Borrower hereunder to the extent that such information is not and does not become publicly available through or with the consent or acquiescence of
Borrower, except for disclosure (i) to Administrative Agent and the other Lenders or to a Transferee, (ii) to legal counsel, accountants, and other professional advisors to a Lender, Administrative Agent or a Transferee, (iii) to regulatory officials, (iv) to any Person as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which that Lender is a party, and (vi) permitted by Section 15.4. Any Lender or Administrative Agent disclosing such information shall use commercially reasonable efforts to advise the Person to whom such information is disclosed of the foregoing confidentiality agreement and to direct such Person to comply therewith.
12.17 USA PATRIOT ACT. Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act") hereby notifies Borrower that, pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Lender to identify Borrower in accordance with the Act.
ARTICLE XIII
ADMINISTRATIVE AGENT
13.1 Appointment; Nature of Relationship. JPMorgan Chase Bank, N.A. is hereby appointed by each Lender as its contractual representative (herein referred to as "Administrative Agent") hereunder and under each other Loan Document, and each Lender irrevocably authorizes Administrative 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. Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article XIII. Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that Administrative Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that Administrative Agent is merely acting as the contractual representative of Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as Lenders' contractual representative, Administrative Agent (i) does not hereby assume any fiduciary duties to any Lender, (ii) is a "representative" of Lenders within the meaning of the term "secured party" as defined in the Illinois Uniform Commercial Code 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 Lender hereby agrees not to assert any claim against Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives.
13.2 Powers. Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. Administrative Agent shall have no implied duties to Lenders, or any obligation to Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by Administrative Agent.
13.3 General Immunity. Neither Administrative Agent nor any of its directors, officers, agents or employees shall be liable to Borrower, 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 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.
13.4 No Responsibility for Loans, Recitals, etc. Neither Administrative
Agent nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into, or verify (a) any
statement, warranty or representation made in connection with any Loan Document
or any borrowing hereunder; (b) 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; (c) the satisfaction of any condition specified in Article V,
except receipt of items required to be delivered solely to Administrative Agent;
(d) except as otherwise provided in this Article XIII, the existence or possible
existence of any Event of Default or Unmatured Event of Default; (e) the
validity, enforceability, effectiveness, sufficiency or genuineness of any Loan
Document or any other instrument or writing furnished in connection therewith;
(f) the value, sufficiency, creation, perfection or priority of any Lien in any
collateral security; or (g) the financial condition of Borrower or any Guarantor
of any of the Obligations or of any of Borrower's or any such Guarantor's
respective Subsidiaries. Notwithstanding anything to the contrary herein,
Administrative Agent shall make available promptly after the date of this
Agreement to any Lender copies of all Loan Documents in its possession which are
requested by any such Lender. Administrative Agent shall also furnish to all
Lenders promptly copies of any notices of an Unmatured Event of Default or Event
of Default issued by Administrative Agent to Borrower and copies of financial
statements and compliance certificates required by this Agreement that are
received by Administrative Agent from Borrower (and not furnished directly by
Borrower to Administrative Agent). Promptly after any officer of Administrative
Agent that is responsible for administration of the Agreement has actual
knowledge of the occurrence of an Unmatured Event of Default or an Event of
Default hereunder, the Administrative Agent shall so notify Lenders.
13.5 Action on Instructions of Lenders. Administrative 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 (except as otherwise provided in Section 11.2), and such instructions and any action taken or failure to act pursuant thereto shall be binding on all Lenders. Lenders hereby acknowledge that Administrative 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. Administrative 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 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.
13.6 Employment of Agents and Counsel. Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to 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. Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between Administrative Agent and Lenders and all matters pertaining to Administrative Agent's duties hereunder and under any other Loan Document.
13.7 Reliance on Documents; Counsel. Administrative Agent shall be
entitled to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, facsimile, electronic mail message, 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 Administrative Agent, which counsel may be employees of
Administrative Agent. For purposes of determining compliance with the conditions
specified in Sections 5.1 and 5.2, each Lender that has signed this Agreement
shall be deemed to have been given an opportunity to review, and either to have
(a) consented to, approved or accepted or to be satisfied with, or (b) to have
waived its right to disapprove, each document or other matter required
thereunder to be consented to or approved by or acceptable or satisfactory to a
Lender unless Administrative Agent shall have received notice from such Lender
prior to the applicable date specifying its objection thereto.
13.8 Agent's Reimbursement and Indemnification. Lenders agree to reimburse and indemnify Administrative Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to the then outstanding amount of the Loans held by the Lenders) their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by Borrower or any Guarantor for which Administrative Agent is entitled to reimbursement by Borrower or any Guarantor under the Loan Documents, (ii) for any other expenses incurred by Administrative Agent on behalf of Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by Administrative Agent in connection with any dispute between Administrative Agent and any Lender or between two or more Lenders) that is not reimbursed by Borrower 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 Administrative 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 Administrative Agent in connection with any dispute between Administrative Agent and any Lender or between two or more Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that 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 Administrative Agent. The obligations of Lenders under this Section 13.8 shall survive payment of the Obligations and termination of this Agreement.
13.9 Notice of Default. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Unmatured Event of Default hereunder (other than a failure by Borrower to make a payment to Administrative Agent hereunder) unless Administrative Agent has received written notice from a Lender or Borrower referring to this
Agreement describing such Event of Default or Unmatured Event of Default and stating that such notice is a "notice of default". In the event that Administrative Agent receives such a notice, Administrative Agent shall give prompt notice thereof to Lenders.
13.10 Rights as a Lender and LC Issuer. In the event Administrative Agent is a Lender, Administrative 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 Administrative Agent, and the term "Lender" or "Lenders" shall, at any time when Administrative Agent is a Lender, unless the context otherwise indicates, include Administrative Agent in its individual capacity. In the event Administrative Agent is an LC Issuer, Administrative Agent shall have the rights and powers of an LC Issuer hereunder and may exercise the same as though it were not Administrative Agent, and the term "LC Issuer" shall, at any time when Administrative Agent is an LC Issuer, unless the context otherwise indicates, include and mean Administrative Agent in its capacity as an LC Issuer. Administrative 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 Borrower or any of its Subsidiaries in which Borrower or such Subsidiary is not restricted hereby from engaging with any other Person.
13.11 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon Administrative Agent, Arranger or any other Lender and based on the financial statements prepared by Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon Administrative Agent, 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. Except for any notice, report, document or other information expressly required to be furnished to Lenders by Administrative Agent or Arranger hereunder, neither Administrative Agent nor Arranger shall have any duty or responsibility (either initially or on a continuing basis) to provide any Lender with any notice, report, document, credit information or other information concerning the affairs, financial condition or business of Borrower or any of its Affiliates that may come into the possession of Administrative Agent or Arranger (whether or not in their respective capacity as Administrative Agent or Arranger) or any of their Affiliates.
13.12 Successor Administrative Agent. Administrative Agent may resign at any time by giving written notice thereof to Lenders and Borrower, such resignation to be effective upon the appointment of a successor Administrative Agent or, if no successor Administrative Agent has been appointed, sixty (60) days after the retiring Administrative Agent gives notice of its intention to resign. Administrative Agent may be removed at any time with or without cause by written notice received by Administrative Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. The consent of Borrower shall be required prior to any removal of Administrative Agent becoming effective; provided, however, that if an Event of Default has occurred and is continuing, the consent of Borrower shall not be required. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of Borrower and Lenders, a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders within 45 days after
the resigning Administrative Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of Borrower and Lenders, a successor Administrative Agent. Notwithstanding the previous sentence, Administrative Agent may at any time without the consent of Borrower or any Lender, appoint any of its Affiliates which is a commercial bank as a successor Administrative Agent hereunder. If Administrative Agent has resigned or been removed and no successor Administrative Agent has been appointed, Lenders may perform all the duties of Administrative Agent hereunder and Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with Lenders. No successor Administrative Agent shall be deemed to be appointed hereunder until such successor Administrative Agent has accepted the appointment. Any such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Administrative Agent. Upon the effectiveness of the resignation or removal of Administrative Agent, the resigning or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Administrative Agent, the provisions of this Article XIII shall continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent hereunder and under the other Loan Documents. In the event that there is a successor to Administrative Agent by merger, or Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this Section 13.12, then the term "Prime Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Administrative Agent.
13.13 Agent and Arranger Fees. Borrower agrees to pay to Administrative Agent and Arranger, for their respective accounts, the fees agreed to by Borrower, Administrative Agent and Arranger pursuant to that certain letter agreement dated December 22, 2004, or as otherwise agreed from time to time.
13.14 Delegation to Affiliates. Borrower and Lenders agree that Administrative 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 Administrative Agent is entitled under Articles XII and XIII.
13.15 Co-Agents, Co-Documentation Agents, Co-Managing Agents, Syndication
Agent, etc. No Lender identified in this Agreement as a Co-Agent,
Co-Documentation Agent, Co-Managing Agent or Syndication Agent shall have any
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Lenders as such. Without limiting the
foregoing, none of such Lenders shall have or be deemed to have a fiduciary
relationship with any Lender. Each Lender hereby makes the same acknowledgments
with respect to such Lenders as it makes with respect to Administrative Agent in
Section 13.11.
ARTICLE XIV
RATABLE PAYMENTS
14.1 Ratable Payments. If any Lender (whether by setoff or otherwise) has payment made to it upon its Loans (other than payments received pursuant to Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with common law right of setoff or amounts which might be subject to common law right of 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 prevented, restricted or otherwise impeded by legal process, or otherwise, appropriate further adjustments shall be made.
ARTICLE XV
BENEFIT OF AGREEMENT, ASSIGNMENTS; PARTICIPATIONS
15.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of Borrower and Lenders
and their respective successors and assigns permitted hereby, except that (i)
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents without the prior written consent of each Lender, (ii) any
assignment by any Lender must be made in compliance with Section 15.3, and (iii)
any transfer by participation must be made in compliance with Section 15.2. Any
attempted assignment or transfer by any party not made in compliance with this
Section 15.1 shall be null and void, unless such attempted assignment or
transfer is treated as a participation in accordance with Section 15.3.2. The
parties to this Agreement acknowledge that clause (ii) of this Section 15.1
relates only to absolute assignments and this Section 15.1 does not prohibit
assignments creating security interests, including, without limitation, (x) 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 or (y) in the case of a
Lender which is a Fund, any pledge or assignment of all or any portion of its
rights under this Agreement and any Note to its trustee in support of its
obligations to its trustee; 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 thereto have complied with
the provisions of Section 15.3. Administrative 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 15.3; provided,
however, that Administrative 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 or transferee of the rights to any Loan or any Note agrees
by acceptance of such 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.
15.2 Participations.
15.2.1 Permitted Participants; Effect. Any Lender may at any time sell to one or more banks or other entities that are not, and that are not Affiliates of a Person, in the home building business ("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 Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and Borrower and Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents.
15.2.2 Voting Rights. Each Lender shall retain the sole right to approve, and/or grant its consent to, without the consent of any Participant, any amendment, modification or waiver of or other matter relating to any provision of the Loan Documents.
15.2.3 Waiver of Setoff. Each Participant shall be deemed to have waived any and all rights of setoff, including any common law right of setoff, in respect of its participating interest in amounts owing under the Loan Documents.
15.2.4 Benefit of Certain Provisions. Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.1, 3.2, 3.4 and 12.11 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 15.3, provided that (i) a Participant shall not be entitled to receive any greater payment under Section 3.1 or 3.2 than the Lender who sold the participating interest to such Participant would have received had it retained such interest for its own account, unless the sale of such interest to such Participant is made with the prior written consent of Borrower, (ii) any Participant asserting any claim to the benefits described herein shall assert the same through the Lender from which it acquired such participation interest, and (iii) any Participant not incorporated under the laws of the United States of America or any State thereof agrees to comply with the provisions of Section 2.20 to the same extent as if it were a Lender.
15.3 Assignments.
15.3.1 Permitted Assignments. Any Lender may at any time assign to one or more banks or other entities that are not, and are not Affiliates of a Person, in the home building business ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment ("Assignment and Assumption") shall be substantially in the form of Exhibit G or in such other form as may be agreed to by the parties thereto. Each such assignment shall either be in an amount equal to the entire applicable Commitment and Loans of the assigning
Lender or (unless each of Borrower and Administrative Agent otherwise consents) be in an aggregate amount not less than $2,000,000. The amount of the assignment shall be based on the Commitment or outstanding Loans (if the Commitment has been terminated) subject to the assignment, determined as of the date of such assignment or as of the "Trade Date," if the "Trade Date" is specified in the assignment.
15.3.2 Consents. The consent of Borrower shall be required prior to an assignment becoming effective unless the Purchaser is a Lender, provided that the consent of Borrower shall not be required if an Event of Default has occurred and is continuing. The consent of Administrative Agent shall be required prior to an assignment becoming effective unless the Purchaser is a Lender. Any consent required under this Section 15.3.2 shall not be unreasonably withheld or delayed.
15.3.3 Effect; Effective Date. Upon (i) delivery to Administrative Agent of an assignment, together with any consents required by Sections 15.3.1 and 15.3.2, and (ii) payment by the assignee of a $5,000 fee to Administrative Agent for processing such assignment (unless such fee is waived by Administrative Agent), such assignment shall become effective on the effective date specified in such assignment. The 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 constitutes "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 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 thereto, and the transferor Lender shall be released with respect to the Commitment and Loans assigned to such Purchaser without any further consent or action by Borrower, Lenders or Administrative Agent. In the case of an assignment covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a Lender hereunder but shall continue to be entitled to the benefits of, and subject to, those provisions of this Agreement and the other Loan Documents which survive payment of the Obligations and termination of the applicable agreement. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 15.3 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 15.2. Upon the consummation of any assignment to a Purchaser pursuant to this Section 15.3.3, the transferor Lender, Administrative Agent and Borrower shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment.
15.3.4 Register. Administrative Agent, acting solely for this purpose as an agent of Borrower, shall maintain at one of its offices in Chicago, Illinois a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall
be conclusive, absent manifest error, and Borrower, Administrative Agent and Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrower at any reasonable time and from time to time upon reasonable prior notice.
15.4 Dissemination of Information. Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all non-public information in such Lender's possession concerning the creditworthiness of Borrower, Guarantors and their Subsidiaries; provided that each Transferee and prospective Transferee agrees to be bound by Section 12.16 of this Agreement.
15.5 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 2.20.
ARTICLE XVI
NOTICES
16.1 Giving Notice. Except as otherwise permitted by Section 2.14 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted.
16.2 Change of Address. Borrower, Administrative Agent and any Lender and LC Issuer may each change the address for service of notice upon it by a notice in writing to the other parties hereto.
ARTICLE XVII
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 Borrower, Administrative Agent, and all Lenders and each party has notified Administrative Agent by telex or telephone, that it has taken such action.
IN WITNESS WHEREOF, Borrower, Lenders, and Administrative Agent have executed this Agreement as of the date first above written.
BORROWER:
M.D.C. HOLDINGS, INC.,
a Delaware corporation
By: /s/ John J. Heaney ---------------------------------- Name: John J. Heaney, Senior Vice President |
3600 South Yosemite Suite 900 Denver, Colorado 80237 Attention: John J. Heaney
LENDERS:
JPMORGAN CHASE BANK, N.A. (successor by
merger to Bank One, NA), Individually, as
Administrative Agent and as LC Issuer
By: /s/ Kent A. Kaiser ---------------------------------- Name: Kent A. Kaiser Title: Vice President |
707 Travis, Floor 6 Houston, TX 77002 Attention: Kent A. Kaiser
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /s/ Timothy S. Blake ------------------------------- Name: Timothy S. Blake Title: Vice President |
Address:
191 Peachtree Street, NE, 21st Floor
Atlanta, GA 30303
Attn: Brian A. Phillips
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
GUARANTY BANK
By: /s/ Jim J. Johnson ------------------------------- Name: Jim J. Johnson Title: Senior Vice President |
Address:
8333 Douglas Avenue, 2nd Floor
Dallas, TX 75225
Attn: Kim White
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
SUNTRUST BANK
By: /s/ W. John Wendler ------------------------------- Name: W. John Wendler Title: Director |
Address:
8330 Boone Boulevard
8th Floor
Vienna, VA 22182
Attn: W. John Wendler
and to:
10710 Midlothian Turnpike
Richmond, VA 22235
Attn: Decara Jeter
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Christopher E. Erickson ------------------------------- Name: Christopher E. Erickson Title: Vice President |
Address:
918 17th Street, 5th Floor
Denver, CO 80202
Attn: Christopher E. Erickson
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ David Apps ------------------------------- Name: David Apps Title: Senior Vice President |
Address:
101 Park Avenue, 12th Floor
New York, NY 10178
Attn: David Apps
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
CITICORP NORTH AMERICA, INC.
By: /s/ David Bouton ------------------------------- Name: David Bouton Title: Vice President |
Address:
390 Greenwich Street, 1st Floor
New York, NY 10013
Attn: David Bouton
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
KEYBANK NATIONAL ASSOCIATION
By: /s/ Jeff V. Aycock ------------------------------- Name: Jeff V. Aycock, CFA Title: Vice President |
Address:
KeyBank Real Estate Capital
1200 Abernathy Road NE
Suite 1500
Atlanta, GA 30328
Attn: Jeff V. Aycock, Vice President
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
WASHINGTON MUTUAL BANK, FA
By: /s/ Javier Berrera ------------------------------- Name: Javier Berrera Title: Vice President |
Address:
5950 LaPlace Court
Suite 205
Carlsbad, CA 92008
Attn: Tom Griffin
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
BANK OF AMERICA, N.A.
By: /s/ Kelley Prentiss ------------------------------- Name: Kelley Prentiss Title: Senior Vice President |
Address:
231 South LaSalle Street
Mail Code: IL1-231-10-35
Chicago, IL 60604
Attn: Kelley Prentiss
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
CALIFORNIA BANK & TRUST
By: /s/ Kirk K. Monroe ------------------------------- Name: Kirk K. Monroe Title: Senior Vice President |
Address:
2000 S. Colorado Blvd., Suite 2-1200
Denver, CO 80222
Attn: Kirk Monroe
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
COMERICA BANK
By: /s/ Jessica L. Kempf ------------------------------- Name: Jessica L. Kempf Title: Assistant Vice President |
Address:
500 Woodward Avenue
7th Floor
Detroit, MI 48226
Attn: Jessica L. Kempf
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
BNP PARIBAS
By: /s/ Janice S. H. Ho ------------------------------ Name: Janice S. H. Ho Title: Director By: /s/ Frederique Merhaut ------------------------------ Name: Frederique Merhaut Title: Director |
Address:
725 South Figueroa Street
Suite 2090
Los Angeles, CA 90017
Attn: Clive Bettles
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
MIZUHO CORPORATE BANK, LTD.
By: /s/ Raymond Ventura ------------------------------- Name: Raymond Ventura Title: Senior Vice President |
Address:
1251 Avenue of the Americas
New York, NY 10020
Attn: Ricky Simmons
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
AMSOUTH BANK
By: /s/ Ronny Hudspeth ------------------------------- Name: Ronny Hudspeth Title: Senior Vice President |
Address:
1900 5th Avenue North, RCL, BAC-15
Birmingham, AL 35203
Attention: Wanda Pate
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
BANK OF THE WEST
By: /s/ Lynn Foster ------------------------------- Name: Lynn Foster Title: Senior Vice President By: /s/ Chuck Weerasooriya ------------------------------- Name: Chuck Weerasooriya, CFA Title: Vice President |
Address:
3000 Oak Road, Suite 400
Walnut Creek, CA 94597
Attn: Lynn Foster, Senior Vice President
& Manager - Loan Administration
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Douglas G. Paul ------------------------------- Name: Douglas G. Paul Title: Sr. Vice President |
Address:
Two Tower Center
18th Floor
East Brunswick, NJ 08816
Attn: Douglas Paul
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
RBC CENTURA BANK,
A NORTH CAROLINA BANKING CORPORATION
By: /s/ Carolynn Alexander ------------------------------- Name: Carolynn Alexander Title: Vice President |
Address:
RBC Builder Finance Syndications
11011 Richmond, Suite 850
Houston, TX 77042
Attn: Carolynn Alexander
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
CITY NATIONAL BANK, A NATIONAL BANKING
ASSOCIATION
By: /s/ Mary Bowman ------------------------------- Name: Mary Bowman Title: Sr. Vice President |
Address:
2001 North Main Street
Suite 200
Walnut Creek, CA 94596
Attn: Mary Bowman
SIGNATURE PAGE TO M.D.C. HOLDINGS, INC.
AMENDED AND RESTATED CREDIT AGREEMENT
COMPASS BANK
By: /s/ H. Shaw Thomas ------------------------------- Name: H. Shaw Thomas Title: Senior Vice President |
Address:
999 18th Street, Suite 2800
Denver, CO 80202
Attn: Larry Olsen
Bank One, Arizona, N.A. executes this Agreement solely for the purposes set forth in Section 4.4(f).
BANK ONE, ARIZONA, N.A.
By: /s/ Kent A. Kaiser ----------------------------- Name: Kent A. Kaiser Title: Vice President |
707 Travis, Floor 6 Houston, TX 77002 Attention: Kent A. Kaiser
EXHIBIT A
AMENDED AND RESTATED GUARANTY
TO: JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, NA), as Administrative Agent for Lenders that are parties to the Amended and Restated Credit Agreement dated as of January 28, 2005 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among M.D.C. HOLDINGS, INC., a Delaware corporation, Lenders, and Administrative Agent, and to Lenders. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Credit Agreement.
RECITALS
A. Pursuant to the Prior Credit Agreement, RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF MARYLAND, INC., a Maryland corporation, RICHMOND AMERICAN HOMES OF NEVADA, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a Virginia corporation, RICHMOND AMERICAN HOMES OF ARIZONA, INC., a Delaware corporation, RICHMOND AMERICAN HOMES OF COLORADO, INC., a Delaware corporation, RICHMOND AMERICAN HOMES OF WEST VIRGINIA, INC., a Colorado corporation, RAH OF FLORIDA, INC. (formerly known as Richmond American Homes of California (Inland Empire), Inc.), a Colorado corporation, RICHMOND AMERICAN HOMES OF UTAH, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF TEXAS, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF FLORIDA, LP, a Colorado limited partnership, RICHMOND AMERICAN HOMES OF DELAWARE, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF ILLINOIS, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF NEW JERSEY, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF PENNSYLVANIA, INC., a Colorado corporation, M.D.C. LAND CORPORATION, a Colorado corporation, RICHMOND AMERICAN CONSTRUCTION, INC., a Delaware corporation, RAH TEXAS HOLDINGS, LLC, a Colorado limited liability company and RAH OF TEXAS, LP, a Colorado limited partnership (hereinafter collectively called "Guarantors" and individually a "Guarantor"), whose address is set forth after their signatures below, have executed and delivered a certain Guaranty (the "Prior Guaranty") dated April 8, 2004.
B. It is a condition under the Credit Agreement that Guarantors shall execute and deliver this Amended and Restated Guaranty ("Guaranty") amending and restating the Prior Guaranty.
NOW, THEREFORE, the Prior Guaranty is hereby amended and restated in its entirety as follows:
FOR VALUABLE CONSIDERATION, Guarantors unconditionally, jointly and severally, guarantee and promise to pay to Administrative Agent, for the benefit of Lenders and their respective successors, endorsees, transferees and assigns, or order, within one (1) business
day after demand, in lawful money of the United States, (i) the Notes, principal and interest and all other sums payable thereunder, or at the election of Administrative Agent any one or more installments thereof, in the event that Borrower fails to punctually pay any one or more installments of the Note (principal and/or interest), or any other sum payable thereunder at the time and in the manner provided therein; and (ii) all other indebtedness of Borrower to Administrative Agent or to any Lender arising under or in connection with the Notes, the Credit Agreement or any Loan Documents (the indebtedness evidenced by the Notes together with all other indebtedness specified above is hereinafter collectively called the "Indebtedness").
1. The obligations of Guarantors hereunder are separate and independent of the obligations of Borrower and of any other guarantor, and a separate action or actions may be brought and prosecuted against any one or more of Guarantors whether action is brought against Borrower or any other guarantor or whether Borrower or any other guarantor is joined in any action or actions. The obligations of Guarantors hereunder shall survive and continue in full force and effect until payment in full of the Indebtedness is actually received by Administrative Agent for the benefit of Lenders and the period of time has expired during which any payment made by Borrower or any Guarantor to Administrative Agent for the benefit of Lenders may be determined to be a Preferential Payment (defined below), notwithstanding any release or termination of Borrower's or any other guarantor's liability by express or implied agreement with Administrative Agent or any Lender or by operation of law and notwithstanding that the Indebtedness or any part thereof is deemed to have been paid or discharged by operation of law or by some act or agreement of Administrative Agent or Lenders. For purposes of this Guaranty, the Indebtedness shall be deemed to be paid only to the extent that Administrative Agent, on behalf of Lenders, actually receives immediately available funds.
2. Guarantors agree that to the extent Borrower or any Guarantor makes any payment to Administrative Agent or Lenders in connection with the Indebtedness, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by Administrative Agent or Lenders or paid over to a trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (any such payment is hereinafter referred to as a "Preferential Payment"), then this Guaranty shall continue to be effective or shall be reinstated, as the case may be, and, to the extent of such payment or repayment by Administrative Agent or Lenders, the Indebtedness or part thereof intended to be satisfied by such Preferential Payment shall be revived and continued in full force and effect as if said Preferential Payment had not been made.
3. Guarantors are providing this Guaranty at the instance and request of Borrower to induce Administrative Agent and Lenders to extend or continue financial accommodations to Borrower. Guarantors hereby represent and warrant that Guarantors are and will continue to be fully informed about all aspects of the financial condition and business affairs of Borrower that Guarantors deem relevant to the obligations of Guarantors hereunder and hereby waive and fully discharge Administrative Agent and each Lender from any and all obligations to communicate to Guarantors any information whatsoever regarding Borrower or Borrower's financial condition or business affairs. Guarantors acknowledge that Borrower owns, directly or indirectly, all of the issued and outstanding shares of stock of each Guarantor, that Guarantors and Borrower are engaged in related businesses, and that Guarantors will derive substantial direct and indirect benefit from the extension of credit by Lenders evidenced by the Indebtedness.
4. Guarantors authorize Administrative Agent and Lenders, without notice or demand and without affecting Guarantors' liability hereunder, from time to time, to: (a) renew, modify, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Indebtedness or any part thereof, including increasing or decreasing the rate of interest thereon; (b) release, substitute or add any one or more endorsers, or other guarantors; (c) take and hold security for the payment of this Guaranty or the Indebtedness, and enforce, exchange, substitute, subordinate, waive or release any such security; (d) proceed against such security and direct the order or manner of sale of such security as Administrative Agent in its discretion may determine; and (e) apply any and all payments from Borrower, any Guarantor or any other guarantor, or recoveries from such security, in such order or manner as Administrative Agent in its discretion may determine.
5. Guarantors waive and agree not to assert: (a) any right to require Administrative Agent or Lenders to proceed against Borrower or any other guarantor, to proceed against or exhaust any security for the Indebtedness, to pursue any other remedy available to Administrative Agent and Lenders, or to pursue any remedy in any particular order or manner; (b) the benefit of any statute of limitations affecting Guarantors' liability hereunder or the enforcement hereof; (c) demand, diligence, presentment for payment, protest and demand, and notice of extension, dishonor, protest, demand, nonpayment and acceptance of this Guaranty; (d) notice of the existence, creation or incurring of new or additional indebtedness of Borrower to Administrative Agent or any Lender; and (e) any defense arising by reason of any disability or other defense of Borrower or by reason of the cessation from any cause whatsoever (other than payment in full of all amounts demanded to be paid by Guarantors under this Guaranty) of the liability of Borrower for the Indebtedness. Guarantors hereby expressly consent to any impairment of collateral, including, but not limited to, failure to perfect a security interest and release collateral and any such impairment or release shall not affect Guarantors' obligations hereunder. Until payment in full of the Indebtedness, Guarantors shall have no right of subrogation and hereby waive any right to enforce any remedy which Administrative Agent and Lenders now have, or may hereafter have, against Borrower, and waive any benefit of, and any right to participate in, any security now or hereafter held by Administrative Agent on behalf of Lenders.
6. (a) If from time to time Borrower shall have liabilities or obligations to any Guarantor, whether absolute or contingent, joint, several, or joint and several, such liabilities and obligations (the "Subordinated Indebtedness") and any and all assignments as security, grants in trust, liens, mortgages, security interests, other encumbrances, and other interests and rights securing such liabilities and obligations shall at all times be fully subordinate to payment and performance in full of the Obligations. Guarantors agree that such liabilities and obligations of Borrower to Guarantors shall not be secured by any assignment as security, grant in trust, lien, mortgage, security interest, other encumbrance or other interest or right in any property, interests in property, or rights to property of such Borrower. Guarantors and, by their acceptance of this Guaranty, Administrative Agent and each Lender agree that (i) so long as no Event of Default has occurred and is continuing, payments of principal and interest on the Subordinated Indebtedness may be made by Borrower and accepted by Guarantors as such payments become due; and (ii) after the occurrence and during the continuation of an Event of Default, Borrower shall not make and Guarantor shall not accept any payments with respect to the Subordinated Indebtedness. If, notwithstanding the foregoing, subsequent to an Event of Default, any
Guarantor receives any payment from Borrower, such payment shall be held in trust by such Guarantor for the benefit of Administrative Agent and Lenders, shall be segregated from the other funds of such Guarantor, and shall forthwith be paid by such Guarantor to Administrative Agent for the benefit of Lenders and applied to payment of the Obligations whether or not then due.
(b) In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of Borrower, or the proceeds thereof, to creditors of Borrower, by reason of the liquidation, dissolution, or other winding up of Borrower's business, or in the event of any receivership, insolvency or bankruptcy proceedings by or against Borrower, or assignment for the benefit of creditors, or of any proceedings by or against Borrower for any relief under any bankruptcy or insolvency laws, or relating to the relief of debtors, readjustment of indebtedness, reorganizations, arrangements, compositions or extensions, or of any other event whereby it becomes necessary or desirable to file or present claims against Borrower for the purpose of receiving payment thereof, or on account thereof, then and in any such event, any payment or distribution of any kind or character, either in cash or other property, which shall be made or shall be payable with respect to any Subordinated Indebtedness shall be paid over to Administrative Agent on behalf of Lenders for application to the payment of the Obligations, whether due or not due, and no payments shall be made upon or in respect of the Subordinated Indebtedness unless and until the Obligations shall have been paid and satisfied in full. In any such event, all claims of Administrative Agent and Lenders and all claims of Guarantors shall, at the option of Administrative Agent and Lenders, forthwith become due and payable without demand or notice.
(c) In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of Borrower, or the proceeds thereof, to creditors of Borrower, by reason of the liquidation, dissolution, or other winding up of Borrower's business, or in the event of any receivership, insolvency or bankruptcy proceedings by or against Borrower, or assignment for the benefit of creditors, or of any proceedings by or against Borrower for any relief under any bankruptcy or insolvency laws, or relating to the relief of debtors, readjustment of indebtedness, reorganizations, arrangements, compositions or extensions, or of any other event whereby it becomes necessary or desirable to file or present claims against Borrower for the purpose of receiving payment thereof, or on account thereof, each of the Guarantors irrevocably authorizes and empowers Administrative Agent, or any person Administrative Agent may designate, to act as attorney for such Guarantor with full power and authority in the name of such Guarantor, or otherwise, to make and present such claims or proofs of claims against Borrower on account of the Subordinated Indebtedness as Administrative Agent, or its appointee, may deem expedient and proper and, if necessary, to vote such claims in any proceedings and to receive and collect for the benefit of Lenders any and all dividends or other payments and disbursements made thereon in whatever form they may be paid or issued, and to give acquittance therefor and to apply same to the Obligations, and Guarantors hereby agree, from time to time and upon request, to make, execute and deliver to Administrative Agent such powers of attorney, assignments, endorsements, proofs of claim, pleadings, verifications, affidavits, consents, agreements or other instruments as may be requested by Administrative Agent in order to enable Administrative Agent and Lenders to enforce any and all claims upon, or with respect to, the Subordinated
Indebtedness, and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or with respect to the Subordinated Indebtedness.
(d) Except as otherwise permitted herein, should any payment or distribution or security or proceeds thereof be received by any Guarantor upon or with respect to the Subordinated Indebtedness prior to the satisfaction of the Obligations, such Guarantor will forthwith deliver the same to Administrative Agent on behalf of Lenders in precisely the form as received except for the endorsement or assignment of such Guarantor where necessary for application on the Obligations, whether due or not due, and until so delivered the same shall be held in trust by such Guarantor as property of Administrative Agent on behalf of Lenders. In the event of the failure of any Guarantor to make any such endorsement or assignment, Administrative Agent, or any of its officers or employees, on behalf of Administrative Agent, is hereby irrevocably authorized to make the same.
(e) Each Guarantor agrees to maintain in its records notations satisfactory to Administrative Agent of the rights and priorities of Administrative Agent and Lenders hereunder, and from time to time, upon request, to furnish Administrative Agent for the benefit of Lenders with sworn financial statements. Lenders and Administrative Agent may inspect the books of account and any records of Guarantors at any time during business hours. Each Guarantor agrees that any promissory note now or hereafter evidencing the Subordinated Indebtedness shall be nonnegotiable and shall be marked with a specific statement that the indebtedness thereby evidenced is subject to the provisions of this Guaranty.
7. (a) The provisions of this Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under this Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Guarantor's liability under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantors, Administrative Agent or any Lender, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Guarantor's "Maximum Liability"). This Paragraph 7(a) with respect to the Maximum Liability of the Guarantors is intended solely to preserve the rights of Administrative Agent hereunder to the maximum extent not subject to avoidance under applicable law, and neither the Guarantor nor any other person or entity shall have any right or claim under this Paragraph 7(a) with respect to the Maximum Liability, except to the extent necessary so that the obligations of the Guarantors hereunder shall not be rendered voidable under applicable law.
(b) Each of the Guarantors agrees that the Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of each Guarantor, and may exceed the aggregate Maximum Liability of all other Guarantors, without impairing this Guaranty or affecting the rights and remedies of Administrative Agent hereunder. Nothing in this Paragraph 7(b) shall be construed to increase any Guarantor's obligations hereunder beyond its Maximum Liability.
(c) In the event any Guarantor (a "Paying Guarantor") shall make any payment or payments under this Guaranty or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Guaranty, each other Guarantor (each a "Non-Paying Guarantor") shall contribute to such Paying Guarantor an amount equal to such Non-Paying Guarantor's "Pro Rata Share" of such payment or payments made, or losses suffered, by such Paying Guarantor. For the purposes hereof, each Non-Paying Guarantor's "Pro Rata Share" with respect to any such payment or loss by a Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Non-Paying Guarantor's Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Guarantor's Maximum Liability has not been determined, the aggregate amount of all monies received by such Non-Paying Guarantor from Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all Guarantors hereunder (including such Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Guarantors, the aggregate amount of all monies received by such Guarantors from Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this Paragraph 7(c) shall affect any Guarantor's several liability for the entire amount of the Guaranteed Obligations (up to such Guarantor's Maximum Liability). Each of the Guarantors covenants and agrees that its right to receive any contribution under this Guaranty from a Non-Paying Guarantor shall be subordinate and junior in right of payment to all the Guaranteed Obligations. The provisions of this Paragraph 7(c) are for the benefit of both Administrative Agent and Guarantors and may be enforced by any one, or more, or all of them in accordance with the terms hereof.
8. It is not necessary for Administrative Agent or any Lender to inquire into the powers of Borrower or the officers, directors, members, managers, partners, trustees or agents acting or purporting to act on its behalf, and any of the Indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.
9. Each Guarantor agrees to deliver to Administrative Agent and Lenders financial statements and other financial information relating to such Guarantor in form and level of detail, and containing certifications, as required pursuant to Section 7.1 of the Credit Agreement. Each Guarantor further agrees to comply all covenants, representations and warranties in the Credit Agreement relating to Guarantor.
10. Guarantors agree to pay all attorneys' fees and all other costs and expenses which may be incurred by Administrative Agent or any Lender in enforcing this Guaranty.
11. This Guaranty sets forth the entire agreement of Guarantors, Administrative Agent and Lenders with respect to the subject matter hereof and supersedes all prior oral and written agreements and representations by Administrative Agent or any Lender to Guarantors. No modification or waiver of any provision of this Guaranty or any right of Administrative Agent or any Lender hereunder and no release of any Guarantor from any obligation hereunder shall be effective unless in a writing executed by an authorized officer of Administrative Agent and each Lender. There are no conditions, oral or otherwise, on the effectiveness of this Guaranty.
12. This Guaranty shall inure to the benefit of Administrative Agent and each Lender and their respective successors and assigns and shall be binding upon each Guarantor and its successors and assigns. Administrative Agent and each Lender may assign this Guaranty in whole or in part without notice.
13. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
14. Subject to the provisions of this Paragraph 14, each Guarantor agrees, and Lenders and Administrative Agent by accepting this Guaranty agree, that they shall submit to binding arbitration any and all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents if permitted by law or a contract between them and such persons) relating to this Guaranty and the Loan Documents and the negotiation, execution, collateralization, administration, repayment, modification, extension or collection thereof or arising thereunder. Such arbitration shall proceed in Chicago, Illinois, shall be governed by Illinois law and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") as modified in this Paragraph 14. Judgment upon the award rendered by each arbitrator(s) may be entered in any court having jurisdiction.
(a) Nothing in the preceding paragraph, nor the exercise of any right to arbitrate thereunder, shall limit the right of any party hereto (1) subject to provisions of applicable law, to exercise self-help remedies such as setoff or repossession or other self-help remedies provided in the Credit Agreement or any other Loan Document; or (2) to obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment, or appointment of a receiver from a court having jurisdiction, before, during or after the pendency of any arbitration proceeding, or (3) to defend or obtain injunctive or other equitable relief against the foregoing or assert mandatory counterclaims, if any, prior to and during the pendency of a determination in arbitration of issues of performance, default, damages and other such claims and disputes.
(b) Arbitration hereunder shall be before a three-person panel of
neutral arbitrators, consisting of one person from each of the following
categories: (1) an attorney who has practiced in the area of commercial real
estate law for at least ten (10) years; (2) a person with at least ten (10)
years' experience in real estate lending; and (3) a person with at least ten
(10) years' experience in the homebuilding industry. The AAA shall submit a list
of persons meeting the criteria outlined above for each category of arbitrator,
and the parties shall select one person from each category in the manner
established by the AAA.
(c) In any dispute between the parties that is arbitratable hereunder, where the aggregate of all claims and the aggregate of all counterclaims is an amount less than Fifty Thousand and No/100ths Dollars ($50,000.00), the arbitration shall be before a single neutral arbitrator to be selected in accordance with the Commercial Rules of the American Arbitration Association and shall proceed under the Expedited Procedures of said Rules.
(d) In any arbitration hereunder, the arbitrators shall decide (by documents only or with a hearing, at the arbitrators' discretion) any pre-hearing motions which are substantially similar to pre-hearing motions to dismiss for failure to state a claim or motions for summary adjudication.
(e) In any arbitration hereunder, discovery shall be permitted in accordance with the Illinois Code of Civil Procedure. Scheduling of such discovery may be determined by the arbitrators, and any discovery disputes shall be finally determined by the arbitrators.
(f) The Illinois rules of evidence shall control the admission of evidence at the hearing in any arbitration conducted hereunder, provided, however, no error by the arbitrators in application of the Rules of Evidence shall be grounds, as such, for vacating the arbitrators' award.
(g) Notwithstanding any AAA rule to the contrary, the arbitration award shall be in writing and shall specify the factual and legal basis for the award, including findings of fact and conclusions of law.
(h) Each party shall each bear its own costs and expenses and an equal share of the arbitrators' costs and administrative fees of arbitration.
15. GUARANTORS, AND LENDERS BY ACCEPTING THIS GUARANTY, HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND ANY GUARANTOR, AND LENDERS BY ACCEPTING THIS GUARANTY, HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE 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 IN THIS PARAGRAPH 15 SHALL LIMIT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER OR LC ISSUER TO BRING PROCEEDINGS AGAINST ANY GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. SUBJECT TO THE PROVISIONS OF PARAGRAPH 14, UNLESS PROHIBITED BY LAW, ANY JUDICIAL PROCEEDING BY ANY GUARANTOR AGAINST ADMINISTRATIVE AGENT OR ANY LENDER OR LC ISSUER OR ANY AFFILIATE OF ADMINISTRATIVE AGENT OR ANY LENDER OR LC ISSUER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS GUARANTY OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT IN A COURT IN CHICAGO, ILLINOIS.
16. SUBJECT TO THE PROVISIONS OF PARAGRAPH 14, EACH GUARANTOR HEREBY WAIVES 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 THE GUARANTY, ANY OTHER LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
17. Guarantors acknowledge that the rights and responsibilities of Administrative Agent under this Guaranty with respect to any action taken by Administrative Agent or the exercise or non-exercise by Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guaranty shall, as between Administrative Agent and Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between Administrative Agent and Guarantors, Administrative Agent shall be conclusively presumed to be acting as agent for Lenders with full and valid authority so to act or refrain from acting, and Guarantors shall not be under any obligation or entitlement to make any inquiry respecting such authority.
18. Pursuant to Section 7.11 of the Credit Agreement, additional Subsidiaries shall become obligated as Guarantors hereunder (each as fully as though an original signatory hereto) by executing and delivering to Administrative Agent a supplemental guaranty in the form of Exhibit A attached hereto (with blanks appropriately filled in), together with such additional supporting documentation required pursuant to Section 7.11 of the Credit Agreement.
IN WITNESS WHEREOF these presents are executed as of January 28, 2005.
GUARANTORS:
RICHMOND AMERICAN HOMES OF
CALIFORNIA, INC.
RICHMOND AMERICAN HOMES OF
MARYLAND, INC.
RICHMOND AMERICAN HOMES OF
NEVADA, INC.
RICHMOND AMERICAN HOMES OF
VIRGINIA, INC.
RICHMOND AMERICAN HOMES OF
ARIZONA, INC.
RICHMOND AMERICAN HOMES OF
COLORADO, INC.
RICHMOND AMERICAN HOMES OF WEST
VIRGINIA, INC.
RAH OF FLORIDA, INC. (formerly known as Richmond American Homes of California (Inland Empire), Inc.)
RICHMOND AMERICAN HOMES OF UTAH,
INC.
RICHMOND AMERICAN HOMES OF TEXAS,
INC.
RICHMOND AMERICAN HOMES OF
FLORIDA, LP.
By: RAH OF FLORIDA, INC. (formerly known
as Richmond American Homes of California
(Inland Empire), Inc.), its general
partner
RICHMOND AMERICAN HOMES OF
DELAWARE, INC.
RICHMOND AMERICAN HOMES OF
ILLINOIS, INC.
RICHMOND AMERICAN HOMES OF
NEW JERSEY, INC.
RICHMOND AMERICAN HOMES OF
PENNSYLVANIA, INC.
M.D.C. LAND CORPORATION
RICHMOND AMERICAN CONSTRUCTION,
INC.
RAH TEXAS HOLDINGS, LLC
RAH OF TEXAS, LP
By: Richmond American Homes of Texas, Inc.,
its general partner
EXHIBIT A TO GUARANTY
FORM OF SUPPLEMENTAL GUARANTY
[Date]
JPMorgan Chase Bank, N.A., as Administrative Agent for Lenders
Ladies and Gentlemen:
Reference is hereby made to (i) that certain Amended and Restated Credit Agreement dated as of January 28, 2005, among M.D.C. Holdings, Inc., the Lenders from time to time parties thereto ("Lenders"), and JPMorgan Chase Bank, N.A., as Administrative Agent ("Administrative Agent") for Lenders (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") and (ii) that certain Amended and Restated Guaranty, dated as of January 28, 2005 , executed and delivered by the Guarantors parties thereto in favor of Administrative Agent, for the benefit of Lenders (as amended, restated, supplemented or otherwise modified from time to time, the "Guaranty"). Terms not defined herein which are defined in the Credit Agreement shall have for the purposes hereof the respective meanings provided therein.
In accordance with Section 7.11 of the Credit Agreement and Paragraph 18 of the Guaranty, the undersigned, [GUARANTOR] ____________, a corporation [limited partnership/limited liability company] organized under the laws of ___________, hereby elects to be a "Guarantor" for all purposes of the Credit Agreement and the Guaranty, respectively, effective from the date hereof.
Without limiting the generality of the foregoing, the undersigned hereby agrees to perform all the obligations of a Guarantor under, and to be bound in all respects by the terms of, the Guaranty, to the same extent and with the same force and effect as if the undersigned were a direct signatory thereto.
This Supplemental Guaranty shall be construed in accordance with and governed by the internal laws of the State of Illinois (but otherwise without regard to the conflict of laws provisions).
IN WITNESS WHEREOF, this Supplemental Guaranty has been duly executed by the undersigned as of the ____ day of ______, 200__.
[GUARANTOR]
By: ______________________________________
Name:
Title:
EXHIBIT B
PROMISSORY NOTE
$______________ _______________, 2005 Chicago, Illinois
FOR VALUE RECEIVED, M.D.C. HOLDINGS, INC., a Delaware corporation ("Maker"), hereby promises and agrees to pay to the order of __________________________________ ("Payee"), the principal sum of _____________________________________ DOLLARS ($_____________) in lawful money of the United States of America, or, if less than such principal amount, the aggregate unpaid principal amount of all Advances made to Maker by the Payee pursuant to the Credit Agreement hereinafter referenced. Such payment shall be made on the Facility Termination Date, as defined in the Credit Agreement.
Maker shall pay interest from the date hereof on the unpaid principal amount of this Note from time to time outstanding during the period from the date hereof until such principal amount is paid in full at the rates, determined in the manner, and on the dates or occurrences specified in the Credit Agreement (as hereinafter defined).
This promissory note is one of the Notes referred to in the Amended and Restated Credit Agreement dated as of January 28, 2005, among Maker, JPMorgan Chase Bank, N.A., as Administrative Agent, and Lenders that are parties thereto (as the same may be amended, modified, replaced, or renewed from time to time, the "Credit Agreement") and is entitled to the benefits of the Credit Agreement and the Loan Documents. Capitalized terms used in this Note without definition shall have the same meanings as are ascribed to such terms in the Credit Agreement.
Both principal and interest are payable to Administrative Agent for the account of Payee pursuant to the terms of the Credit Agreement. All Advances made by Payee pursuant to the Credit Agreement and all payments of the principal amount of such Advances, shall be endorsed by the holder of this Note on the schedule attached hereto. Failure to record such Advances or payment shall not diminish any rights of Payee or relieve Makers of any liability hereunder or under the Credit Agreement. This Note is subject to prepayment and its maturity is subject to acceleration, in each case upon the terms provided in the Credit Agreement.
This Note may not be modified or discharged orally, by course of dealing or otherwise, but only by a writing duly executed by the holder hereof.
In the event that any action, suit or proceeding is brought by the holder hereof to collect this Note, Maker agrees to pay and shall be liable for all costs and expenses of collection, including without limitation, reasonable attorneys' fees and disbursements.
Maker and all sureties, guarantors and/or endorsers hereof (or of any obligation hereunder) and accommodation parties hereon (all of which, including Maker, are each hereinafter called a "Surety") each: (a) waive any homestead or exemption laws and right
thereunder affecting the full collection of this Note; (b) waive any and all formalities in connection with this Note to the maximum extent allowed by law, including (but not limited to) demand, diligence, presentment for payment, protest and demand, and notice of extension, dishonor, protest, demand and nonpayment of this Note; and (c) consent that Holder may extend the time of payment or otherwise modify the terms of payment of any part or the whole of the debt evidenced by this Note, at the request of any other person liable hereon, and such consent shall not alter nor diminish the liability of any person hereon.
In addition, each Surety waives and agrees not to assert: (a) any right to
require the holder hereof to proceed against any other Surety, to proceed
against or exhaust any security for the Note, to pursue any other remedy
available to the holder hereof, or to pursue any remedy in any particular order
or manner; (b) the benefit of any statute of limitations affecting its liability
hereunder or the enforcement hereof; (c) the benefits of any legal or equitable
doctrine or principle of marshalling; (d) notice of the existence, creation or
incurring of new or additional indebtedness of Maker to the holder hereof; or
(e) any defense arising by reason of any disability or other defense of Maker or
by reason of the cessation from any cause whatsoever (other than payment in
full) of the liability of Maker for payment of this Note. Until payment in full
of this Note and the holder hereof has no obligation to make any further
advances of the proceeds hereof, no Surety shall have any right of subrogation
and each hereby waives any right to enforce any remedy which the holder hereof
now has, or may hereafter have, against Maker or any other Surety, and waives
any benefit of, and any right to participate in, any security now or hereafter
held by the holder hereof.
Maker agrees that to the extent any Surety makes any payment to the holder hereof in connection with the indebtedness evidenced by this Note, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by Holder or paid over to a trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (any such payment is hereinafter referred to as a "Preferential Payment"), then the indebtedness of Maker under this Note shall continue or shall be reinstated, as the case may be, and, to the extent of such payment or repayment by the holder hereof, the indebtedness evidenced by this Note or part thereof intended to be satisfied by such Preferential Payment shall be revived and continued in full force and effect as if said Preferential Payment had not been made.
This Note has been delivered in the City of Chicago and State of Illinois, and shall be enforced under and governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within said state, without references to any choice or conflicts of law principles.
M.D.C. HOLDINGS, INC., a Delaware corporation
By: _______________________________ Name: John J. Heaney Title: Senior Vice President
EXHIBIT 10.6
M.D.C. HOLDINGS, INC.
EMPLOYEE EQUITY INCENTIVE PLAN
NON-STATUTORY OPTION AGREEMENT
THIS AGREEMENT is made on and as of ______________________, 200__ (the "Date of Grant") between M.D.C. HOLDINGS, INC., a Delaware corporation (the "Company"), and _______________________ (the "Participant") pursuant to the provisions of the Company's Employee Equity Incentive Plan (the "Plan"). The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. Capitalized terms not otherwise defined in this Agreement shall have the meaning specified in the Plan.
Section 1.1 - Option
"Option" shall mean the non-statutory option to purchase Common Stock, $.01 par value (the "Common Stock"), of the Company granted under this Agreement.
Section 1.2 - Termination of Employment
"Termination of Employment" shall mean the time when the employee-employer relationship between the Participant and the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death or retirement but excluding terminations where there is a simultaneous re-employment by the Company or a Subsidiary.
ARTICLE II
GRANT OF OPTION
Section 2.1 - Grant of Option
For good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, on the date hereof, the Company irrevocably grants to the Participant the option to purchase any part or all of an aggregate of ____________________ shares of its Common Stock upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
The purchase price of the shares of Common Stock covered by the Option shall be $__________ per share without commission or other charge.
Section 2.3 - No Right to Continued Employment
Nothing in this Agreement or in the Plan shall confer upon the Participant any right to continue in the employ of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are hereby expressly reserved, to discharge the Participant at any time for any reason whatsoever, with or without good cause.
Section 2.4 - Adjustments in Option
In the event that the outstanding shares of the Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend, combination of shares, rights offering, issuance of warrants or otherwise, the Committee shall make a reasonable, appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Participant's proportionate interest shall be maintained as before the occurrence of such event. Such adjustment in the Option shall be made without change in the total price applicable to the Option or the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding off of share quantities or prices) and with any necessary corresponding adjustment in the price per share of the shares of Common Stock covered by the Option. Any such adjustment made by the Committee shall be final and binding upon the Participant, the Company and all other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
(a) The Option shall not become exercisable in whole or in part prior to the expiration of the six-month period commencing after the Date of Grant.
(b) Subject to the other provisions of this Section 3.1, the Option granted hereunder shall be exercisable in whole or in part as follows:
(c) Notwithstanding any other provisions of this Section 3.1, the Option shall not be exercisable unless the holder thereof shall have been an Employee of the Company or a Subsidiary for a period of at least six months prior to such exercise; provided, however, that a Participant need not be an Employee at the time of exercise.
(d) Notwithstanding any other provisions of this Section 3.1, no portion of the Option which is not exercisable at Termination of Employment shall thereafter become exercisable unless the Committee so determines.
Section 3.2 - Duration of Exercisability
The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a) The expiration of one year from the date of the Participant's Termination of Employment by reason of the Participant's death or Disability; or
(b) The expiration of six years from the Date of Grant if the Participant is not an Officer or Director; or
(c) The expiration of five years from the Date of Grant if the Participant is an Officer or Director; or
(d) The date of the Participant's Termination of Employment if such Termination of Employment was for cause as reasonably determined by the Board.
Section 3.4 - Acceleration of Exercisability
(a) Notwithstanding Sections 2.4, 3.1(b) and 3.1(c) but subject to Sections 3.1(a), 3.4(c) and 3.4(d), the Option, or any portion thereof, granted under this Agreement that is not yet exercisable shall become exercisable immediately prior to the occurrence of a merger or consolidation of the Company with or into another corporation, the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock or the liquidation or dissolution of the Company (each, a "Transaction"). At least ten days prior to the effective date of such Transaction, the Company shall give the Participant holding the Option notice of such event if the Option has not been fully exercised. During this ten-day period, the Participant electing to exercise his or her Options shall comply with all of the requirements of Sections 4.3 and 4.4 of this Agreement. In the event that such Transaction becomes effective, the Option so exercised shall be deemed to have been exercised immediately prior to the effective date of such Transaction. In the event that such Transaction fails to transpire, the Participant's election under this paragraph shall be of no effect and the Participant's Option shall remain subject to the restrictions to which it was originally subject.
(b) In the event that a Transaction occurs, the Option, or any portion thereof, that is not exercised prior to the occurrence of a Transaction shall be canceled, and the Participant holding such canceled Option shall receive in exchange therefor a cash payment equal to the greater of (i) the Fair Market Value (as determined under Section 1.13 of the Plan) of a share of Common Stock measured on the date immediately prior to such Transaction less the per share exercise price set forth in the Participant's Option, multiplied by the number of shares of Common Stock purchasable under the Option; or (ii) the fair market value, as determined by the Board in its reasonable discretion, of the cash, securities or other consideration into which a share of Common Stock is to be exchanged pursuant to the Transaction, less the exercise price set forth in the Participant's Option, multiplied by the number of shares of Common Stock purchasable under the Option.
(c) Notwithstanding the foregoing, Options that are not exercisable
on the date of a Transaction shall only become exercisable as described in
subsection (a) hereof or canceled and settled for cash or other
consideration as described in subsection (b) hereof to the extent that
such exercise and issuance of shares of Common Stock or payment with
respect to the Participant continues to be deductible by the Company
pursuant to Section 280G of the Code. All determinations in applying this
Section 3.4 shall be made by the Board in its reasonable discretion, and
all such determinations shall be final and binding on the Participant, the
Company and any interested party.
(d) Notwithstanding the foregoing, no such acceleration of exercisability described in subsection (a) hereof or cancellation and settlement described in subsection (b) hereof shall take place if:
(i) The Participant's Option becomes unexercisable under
Section 3.3; or
(ii) In connection with a Transaction, provision is made for an assumption of the Participant's Option or a substitution therefor of a new Option by the resulting or acquiring corporation or a parent or subsidiary of such corporation under similar terms and conditions as reflected in this Agreement.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Participant, only the Participant may exercise the Option or any portion thereof. After the death of the Participant, any exercisable portion of the Option may, prior to the time when such portion expires or becomes unexercisable under Sections 3.3 or 3.4, be exercised by his personal representative or by any person empowered to do so under the deceased Participant's will or under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Sections 3.3 or 3.4; provided, however, that each partial exercise shall be for not less than 100 shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Director of Stockholder Relations of all of the following prior to the time when the Option or such portion becomes unexercisable under Sections 3.3 or 3.4:
(a) Notice in writing signed by the Participant or other person then entitled to exercise the Option or portion, stating that the Option or portion is exercised, such notice complying with all applicable rules established by the Committee and in such form as determined by the Secretary of the Company; and
(b) (i) Full payment (by check) for the shares with respect to which the Option or portion is thereby exercised; or
(ii) Full payment by delivery to the Company of shares of the Common Stock owned by the Participant duly endorsed for transfer to the Company by the Participant or other person entitled to exercise the Option or portion thereof, with a Fair Market Value on
the date of delivery equal to the purchase price of the shares with respect to which such Option or portion thereof is thereby exercised; or
(iii) Full payment in any other form approved by the Committee, consistent with applicable law and the Plan; or
(iv) Any combination of the consideration provided in the foregoing subsections (i), (ii) and (iii); and
(c) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option or portion thereof.
Section 4.4 - Conditions to Issuance of Stock Certificates
(a) The Common Stock shall not be issued in respect of the Option granted hereunder unless the exercise of the Option and the issuance and delivery of shares of Common Stock pursuant thereto shall comply with all relevant provisions of law, including the law of the Company's state of incorporation, the Securities Act, the Exchange Act, the rules and regulations thereunder and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of the Company's counsel with respect to such compliance.
(b) The Plan, this Agreement and the grant and exercise of the Option to purchase shares of Common Stock hereunder, and the Company's obligation to sell and deliver shares upon the exercise of rights to purchase shares, shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency which may, in the written opinion of counsel for the Company, be required.
Section 4.5 - Rights as Stockholder
The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to the holder.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee reasonably and in good faith shall be final and binding upon the Participant, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Option, and all members of the Committee shall be fully protected by the Company with respect to any such action, determination or interpretation. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement, excepting those rights and duties that may only be performed by a Committee of Disinterested Directors under Rule 16b-3 of the Exchange Act.
Section 5.2 - Option Subject to Terms of Plan
This Option Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. Any inconsistency between this Option Agreement and the Plan shall be resolved in favor of the Plan.
Section 5.3 - Option Not Transferable
Neither the Option nor any interest or right therein or part thereof shall be subject to the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.3 shall not prevent transfers by will or by the applicable laws of descent and distribution.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Director of Stockholder Relations, and any notice to be given to the Participant shall be addressed to the Participant at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Participant shall, if the Participant is then deceased, be given to the Participant's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given when (i) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service, (ii) upon deposit with a private overnight delivery service guaranteeing next day service, or (iii) upon receipt of a facsimile indicating confirmation of receipt.
Section 5.5 - Tax Withholding
The Company shall be entitled to require payment or deduction from other compensation payable to the Participant of any sums required by federal, state or local tax law to be withheld with respect to the grant or exercise of the Option or any portion thereof. The Participant may elect to have the Company withhold shares of Common Stock (or allow the return of shares of Common Stock) having a Fair Market Value equal to the sums required to be withheld. If the Participant elects to advance such sums directly, written notice of that election shall be delivered on or prior to such exercise and, whether pursuant to such election or pursuant to a requirement imposed by the Company, payment by check of such sums for taxes shall be delivered within two days after the date of exercise. If the Participant elects to have the Company withhold shares of Common Stock (or allow the return of shares of Common Stock) having a Fair Market Value equal to the sums required to be withheld, the value of the shares of Common Stock to be withheld (or returned as the case may be) will be equal to the Fair Market Value of such shares on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). An election by the Participant to have shares of Common Stock withheld for this purpose will be subject to the following restrictions: (1) the election must be made on or prior to the Tax Date; (2) the election must be irrevocable; (3) the election shall be subject to the disapproval of the Committee; and (4) if the Participant is an officer of the Company within the meaning of Section 16 of the Exchange Act, the election shall be subject to such additional restrictions as the Committee may impose in an effort to secure the benefits of any regulations thereunder. The Committee shall not be obligated to issue shares to the Participant upon exercise of the Option or portion thereof until such payment has been received or shares have been so withheld, unless withholding (or offset against a cash payment) as of or prior to the date of such exercise is sufficient to cover all such sums due or which may be due with respect to such exercise.
Section 5.6 - Loans
[Intentionally deleted.]
Section 5.7 - Compliance with Rule 16b-3
With respect to persons subject to Section 16 of the Exchange Act, transactions under this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan, this Agreement or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
Section 5.8 - Titles
Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
Section 5.9 - Construction
This Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Option Agreement to be executed to be effective as of the Date of Grant.
M.D.C.HOLDINGS, INC.
By:_____________________________
Name:________________________
Title:_______________________
EXHIBIT 10.10
M.D.C. HOLDINGS, INC.
2001 EQUITY INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION CERTIFICATE
This Non-Qualified Stock Option Certificate (the "Option Certificate") is made as of this _____ day of __________, ____, between M.D.C. Holdings, Inc., a Delaware corporation (the "Company"), and ___________________ (the "Option Holder").
WHEREAS, pursuant to the M.D.C. Holdings, Inc. 2001 Equity Incentive Plan, established effective March 26, 2001 (the "Plan"), the Company wishes to grant the Option Holder an option to purchase shares of the $0.01 par value common stock of the Company (the "Stock") on the terms and conditions set forth in this Option Certificate.
NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS AND CONFLICTS.
Capitalized terms used and not otherwise defined herein shall have the meanings given thereto in the Plan. The terms and provisions of the Plan are incorporated herein by reference. Except as specifically otherwise provided herein, in the event of a conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Option Certificate, the terms and provisions of the Plan shall govern and control.
2. GRANT OF OPTION.
The Company hereby grants to the Option Holder the right and option (the "Option") to purchase up to ______ shares of Stock, subject to the terms and conditions of this Option Certificate and subject to adjustment from time to time to reflect changes in the Stock (through merger, consolidation, reorganization, recapitalization, stock split, liquidating dividend, combination of shares, exchange of shares, changes in corporate structure or otherwise), as provided in Article IV of the Plan.
3. OPTION PRICE AND GRANT DATE.
The purchase price of each share of Stock covered by the Option shall be $_____ (the "Option Price"). The date of the grant of the Option is ______________, ____ (the "Date of Grant").
4. VESTING OF OPTIONS.
Subject to the terms and conditions hereof and the terms of the Plan, the Option shall vest and become exercisable in increments, if the Option Holder is still in the employ of the Company, on the dates indicated in the following schedule:
PERCENTAGE OF OPTION THAT SHALL BECOME VESTED EMPLOYMENT AND EXERCISABLE ON EACH VESTING DATE DATE ------------------------ --------------------------- ------------------------ --------------------------- ------------------------ --------------------------- ------------------------ --------------------------- ------------------------ --------------------------- |
Except as set forth in Section 8 hereof, the Option shall not be exercisable as to any shares of Stock as to which the vesting requirements of this Section 4 shall not be satisfied, regardless of the circumstances under which the Option Holder's employment by the Company shall be terminated. The number of shares of Stock as to which the Option may be exercised shall be cumulative, so that once the Option shall become vested and exercisable as to any shares of Stock it shall continue to be vested and exercisable as to such shares, until expiration and termination of the Option as provided in Section 5 hereof. If at any time the number of shares of Stock that are covered by the vested and exercisable portion of the Option includes a fractional share, the number of shares of Stock as to which the Option shall be actually vested and exercisable shall be rounded down to the next whole share of Stock.
5. EXPIRATION AND TERMINATION OF THE OPTION.
The Option shall expire on the tenth (10th) anniversary of the Date of Grant (the period from the Date of Grant to the expiration date is the "Option Period") or prior to such time as follows:
(a) If the employment of the Option Holder is terminated within the Option Period for "cause", as determined by the Committee, the Option shall thereafter be void for all purposes. "Cause" shall mean willful misconduct, a willful failure to perform the Option Holder's duties, insubordination, theft, dishonesty, conviction of a felony or any other willful conduct that is materially detrimental to the Company or such other cause as the Committee in good faith reasonably determines provides cause for the discharge of the Option Holder.
(b) If the Option Holder becomes Disabled, the Option may be exercised by the Option Holder within one year following the Option Holder's termination of employment on account of Disability (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's termination of employment because of Disability.
(c) If the Option Holder dies during the Option Period while still employed by the Company or within the one year period referred to in subsection (b) above or within the one year period referred to in subsection (d) below, the Option may be exercised by those entitled to do so under the Option Holder's will or by the laws of descent and distribution within one year following the Option Holder's death (provided that such exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's death.
(d) If the employment of the Option Holder with the Company is terminated within the Option Period for any reason other than cause, Disability, or death, the Option may be exercised by the Option Holder within one year following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of employment.
6. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Option Certificate, the Option may be exercised by written notice to the Company, Attention: General Counsel. Such notice shall state the election to exercise the Option, the number of shares of Stock with respect to which the Option is being exercised, and shall be signed by the person or persons exercising the Option. If the Option is exercised by any person or persons other than the employee to whom the Option was originally granted, appropriate proof of the right of such person or persons to exercise the Option or portion thereof shall be provided. The purchase of the Stock pursuant to the Option shall take place at the principal office of the Company within 3 days following delivery of such notice, at which time the Option Price of the Stock shall be paid in full.
Payment of the Option Price may be made in any of the following methods or in
any combination of such methods, at the election of the Option Holder, or by any
other method approved by the Committee upon the request of the Option Holder:
(a) cash; (b) certified check, cashier's check, or other check acceptable to the
Company, payable to the order of the Company; (c) delivery to the Company of
certificates representing the number of shares of Stock then owned by the Option
Holder, the Fair Market Value of which (determined as of the date of the
delivery of the certificates for the Stock to be used as payment for the Option
Price) equals the price of the Stock to be purchased pursuant to the Option,
properly endorsed for transfer to the Company; provided, however that no Option
may be exercised by delivery to the Company of certificates representing Stock
unless such Stock has been held by the Option Holder for more than six months;
or (d) delivery to the Company of irrevocable instructions to a broker (to the
extent permissible under applicable law) to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the Option Price of the Stock (a
"cashless exercise" or "same-day sale" transaction).
Upon notice to the Company of exercise of the Option and payment of the Option Price, the exercise of the Option shall be deemed to be effective, and a properly executed certificate or certificates representing the Stock so purchased shall be issued by the Company and delivered to the Option Holder.
7. TRANSFERABILITY OF OPTIONS.
In general, an Option Holder may not voluntarily or involuntarily pledge, hypothecate, assign, sell or otherwise transfer the Option except by will or the laws of descent and distribution, and during the Option Holder's lifetime, the Option is exercisable only by the Option Holder (or in
the event of Disability or incapacity, by his or her guardian or legal representative). Notwithstanding the preceding sentence, the Committee may provide at the time of grant of an Option or thereafter that the Option Holder may transfer an Option to a member of the Option Holder's immediate family, a trust of which members of the Option Holder's immediate family are the only beneficiaries, a partnership of which members of the Option Holder's immediate family or trusts for the sole benefit of the Option Holder's immediate family are the only partners, a corporation in which members of the Option Holder's immediate family are the only shareholders, a limited liability company in which members of the Option Holder's immediate family are the only members, or any other entity which is solely owned by members of the Option Holder's immediate family (the "InterVivos Transferee"). Immediate family member means the Option Holder and the Option Holder's spouse, children (by birth or adoption), stepchild, grandchild, parents, stepparents, grandparents, siblings, nieces, nephews, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in - law. No transfer shall be effective unless the Option Holder has notified the Company of the transfer in writing and has furnished a copy of the documents that effect the transfer to the Company. The InterVivos Transferee will be subject to all of the terms of the Plan and the Stock Option Certificate, including but not limited to the vesting schedule, termination provisions, and the manner in which the Option may be exercised. The Committee may require the Option Holder and the InterVivos Transferee to enter into an agreement with the Company providing for, among other things, the satisfaction of required tax withholding with respect to the exercise of the transferred Option.
8. CORPORATE TRANSACTION/CHANGE OF CONTROL.
(a) In the event of a Corporate Transaction, as defined in Section 5.3 of the Plan, the Committee may take certain actions in connection with outstanding Options, including but not limited to: (1) providing that any or all Options shall become fully exercisable regardless of whether all conditions of exercise relating to length of service or otherwise have been satisfied; (2) providing for the assumption of the outstanding Options or the substitution of new options for the outstanding Options on terms comparable to the outstanding Options; (3) providing that any Options outstanding at the time the Corporate Transaction is closed will be canceled, and the Option Holder holding such cancelled Option shall receive in exchange therefor a cash payment equal to the greater of (i) the Fair Market Value (as determined under Section 2.1(k) of the Plan) of a share of Stock measured on the date immediately prior to such Corporate Transaction less the per share exercise price set forth in the Option Holder's Option Certificate, multiplied by the number of shares of Stock purchasable under the Option; or (ii) the fair market value, as determined by the Board of Directors of the Company, of the cash, securities or other consideration into which a share of Stock is to be exchanged pursuant to the Corporate Transaction, less the exercise price set forth in the Option Holder's Option Certificate, multiplied by the number of shares of Stock purchasable under the Option; or (4) making any other provision for outstanding Options as the Committee deems appropriate.
(b) Notwithstanding the foregoing, except as otherwise provided under a contract or agreement existing between the Option Holder and the Company, Options that are not otherwise exercisable at the time of a Corporate Transaction shall only
become exercisable or canceled and settled for cash or other consideration as described subsection (a) hereof to the extent that such exercise and issuance of shares of Stock or payment with respect to the Option Holder continues to be deductible by the Company under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code").
9. NO RIGHTS AS A STOCKHOLDER.
No Option Holder shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Option Holder becomes the holder of record of such Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Option Holder becomes the holder of record of such Stock, except as provided in Article IV of the Plan.
10. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES.
(a) Stock will not be issued with respect to the Option granted hereunder unless the exercise of the Option and the issuance and delivery of the shares of Stock pursuant thereto complies with all applicable provisions of law, including the laws of the Company's state of incorporation, the Securities Act of 1933, the Securities Exchange Act of 1934, the rules and regulations thereunder and the requirements of any stock exchange upon which the Stock may then be listed, and shall be further subject to the approval of the Company's counsel with respect to such compliance.
(b) The Plan, this Option Certificate and the grant and exercise of the Option to purchase shares of Stock hereunder, and the Company's obligation to sell and deliver shares upon the exercise of rights to purchase shares, shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency which may, in the opinion of the counsel for the Company, be required.
11. INCOME TAX WITHHOLDING.
The Company's obligation to deliver shares of Stock upon the exercise of any Option shall be subject to the Option Holder's satisfaction of all applicable federal, state and local income and other tax withholding requirements.
12. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in this Option Certificate or in the Plan confers upon the Option Holder any right to continue his or her employment with the Company or, subject to the terms of any separate employment agreement or other contract to the contrary, shall interfere with or restrict in any way the right of the Company to terminate the Option Holder's employment.
13. NON-QUALIFIED STOCK OPTION.
The Option granted hereunder is not intended to be an "incentive stock option" within the meaning of Section 422 of the Code.
14. ADMINISTRATION.
The Committee which administers the Plan has the power to interpret the Plan and this Option Certificate, including the power to correct any defect, supply any omission or reconcile any inconsistency in the Plan or in this Option Certificate, and to determine the rights of all Option Holders and other interested persons hereunder. All actions taken and interpretations and determinations made by the Committee in connection with the Plan and this Option Certificate shall be final and binding on the Option Holder, the Company, and all other interested persons.
15. BINDING EFFECT.
This Option Certificate shall be binding upon the heirs, executors, administrators and successors of the parties hereto.
16. GOVERNING LAW.
This Option Certificate shall be construed and interpreted in accordance with the laws of the State of Delaware.
17. HEADINGS.
Headings are for the convenience of the parties and are not deemed to be part of this Option Certificate.
18. EXECUTION.
This Option Certificate is voidable by the Company if the Option Holder does not execute the Option Certificate within 30 days of execution by the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Option Certificate as of the date and year first written above.
M.D.C. HOLDINGS, INC.
By: _________________________________________
Title: _________________________________________
OPTION HOLDER:
EXHIBIT 10.11
M.D.C. HOLDINGS, INC.
2001 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made as of the ______ day of ______________, ______, is between M.D.C. HOLDINGS, INC., a Delaware corporation (the "Company") and ____________________________ ("Employee").
1. AWARD.
(a) NUMBER OF SHARES. Pursuant to the M.D.C. Holdings, Inc. 2001 Equity Incentive Plan (the "Plan"), the Company hereby grants to the Employee (_________ number of shares) shares (the "Restricted Shares") of the Company's $0.01 par value common stock (the "Stock"), effective as of _________________ the ("Effective Date"). As of the Effective Date, the Stock had a value of $_______ per share, subject to the restrictions described in this Agreement.
(b) ISSUANCE OF RESTRICTED SHARES. The Restricted Shares shall be issued upon the Employee's acceptance of this Agreement and upon satisfaction of the conditions of this Agreement and the Plan.
(c) INCORPORATION OF PLAN. The Employee acknowledges receipt of a copy of the Plan and agrees that this award of Restricted Stock shall be subject to all of the terms and conditions of the Plan, which is incorporated in this Agreement by reference. Except as specifically otherwise provided herein, in the event of a conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Agreement, the terms and provisions of the Plan shall govern and control. Terms that are capitalized but not defined herein shall have the meanings assigned to such terms in the Plan.
2. RESTRICTIONS.
(a) FORFEITURE RESTRICTIONS. The prohibition against transfer and the obligation to surrender and forfeit the Restricted Shares upon termination of employment described below are referred to in this Agreement as "Forfeiture Restrictions." The Restricted Shares may not be sold, assigned, pledged, exchanged, hypothecated, or otherwise transferred, encumbered or disposed of to the extent then subject to Forfeiture Restrictions. If, prior to the lapse of the Forfeiture Restrictions the Employee resigns or is terminated for "cause" as defined in subsection 7.2(d) of the Plan, the Employee shall, for no consideration, forfeit to the Company the Restricted Shares that at that time remain subject to the Forfeiture Restrictions. The immediately preceding sentence shall not apply in the event of termination of employment on account of death Disability or retirement, as described in Section 2(b). The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of the Restricted Shares.
(b) VESTING: LAPSE OF FORFEITURE RESTRICTIONS. The Forfeiture Restrictions shall not begin to lapse until _____________ of the Effective Date and shall lapse as to the Restricted Shares in accordance with the following schedule, provided that the Employee has been continuously employed by the Company from the Effective Date through the date of incremental vesting:
Anniversary of the Lapse of Cumulative Effective Date Forfeiture Restriction Unrestricted Stock ------------------ ---------------------- ------------------- |
Notwithstanding the foregoing vesting schedule, the Forfeiture Restrictions shall lapse as to a portion of the Restricted Shares in the event of the Employee's termination of employment on account of death, Disability or retirement pursuant to the Company's then-current retirement policy, if any. In such event, the Forfeiture Restrictions shall lapse with respect to a pro rata part of the Restricted Shares based on the ratio between the number of full months of employment completed at the time of termination of employment from the grant of the Restricted Shares to the total number of months of employment required for such Restricted Shares to be fully nonforfeitable and free from the Forfeiture Restrictions. Also, the Forfeiture Restrictions shall lapse as to all of the Restricted Shares in the event Employee's employment is terminated by the Company other than for "cause" as defined in subsection 7.2(d) of the Plan.
Notwithstanding the foregoing provisions of this Agreement, if the Forfeiture Restrictions would lapse because of a Corporate Transaction upon a determination of the Committee in accordance with Article V of the Plan, such Forfeiture Restrictions shall lapse only if the income that would be recognized by the Employee upon such lapse, including any "parachute payments" (within the meaning of section 280G of the Code), continues to be deductible by the Company, taking into account only the income resulting from the lapse of the Forfeiture Restrictions under this Agreement, as it may be modified by the Committee and excluding income from any other source that may be treated as a "parachute payment".
3. CERTIFICATE. A certificate evidencing the Restricted Shares shall be issued in the name of the Employee. The Employee shall have the right to vote the Restricted Shares and to receive dividends with respect to the Restricted Shares unless and until the Restricted Shares are forfeited pursuant to the terms of this Agreement. The certificate shall bear a legend evidencing the nature of the restrictions and the Company shall cause the certificate to be delivered to the Secretary of the Company, or such other escrow agent as the Company may appoint, who shall retain physical custody of such certificate until the Forfeiture Restrictions lapse or the Restricted Shares are forfeited pursuant to this Agreement. Upon the request of the Company, the Employee shall deliver to the Company a stock power, endorsed in blank, relating to the Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of the Forfeiture Restrictions prior to the forfeiture of the affected Restricted Shares, the Company shall cause a new certificate or certificates to be issued in the name of the Employee that shall not bear a legend representing the number of shares as to which the Forfeiture Restrictions have then
lapsed. Notwithstanding any other provisions of this Agreement, the issuance or delivery of any shares of Stock, whether or not restricted, may be postponed until any required withholding taxes have been paid to the Company and for such period as may be required to comply with any applicable requirements of any national securities exchange or any requirements under any law or regulation applicable to the issuance or delivery of such shares. The Company shall not be obligated to issue or deliver any shares of Stock if the issuance or delivery thereof shall constitute a violation of any provision of any law or of any regulation of any governmental authority or any national securities exchange.
4. TAX WITHHOLDING. To the extent that the receipt of the Restricted Shares or the lapse of any Forfeiture Restrictions results in income to the Employee for federal, state, or local income or employment tax purposes, the Employee shall make arrangements with the Company, including but not limited to the delivery of the amount of money or number of unrestricted shares of Stock, as the Company may require to meet its withholding obligations under applicable tax laws and regulations. Any election by the Employee to have shares of Stock withheld shall be subject to the sole discretion of the Company, and shall otherwise be made in accordance with Section 17.2 of the Plan. If the Employee fails to do so, the Company is authorized to withhold from any cash or Stock remuneration then or thereafter payable to the Employee any tax required to be withheld by reason of such income.
5. SECURITIES LAWS. The Employee agrees that the Restricted Shares are not to be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws. Employee also agrees (i) that the certificates representing the Restricted Shares may bear such legend or legends as the Company deems appropriate in order to assure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the Restricted Shares on the stock transfer records of the Company if, in the opinion of counsel satisfactory to the Company, such proposed transfer would constitute a violation of any applicable securities law, and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the Restricted Shares.
6. EMPLOYMENT.
(a) EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, the Employee shall be considered to be in the employment of the Company as long as the Employee remains either an employee of the Company, any successor corporation, or a parent or subsidiary corporation (as defined in section 424 of the Code).
(b) NO GUARANTEE. Nothing contained in this Agreement shall confer upon the Employee any rights with respect to the continuation of his employment by the Company, or interfere with or restrict in any way the right of the Company at any time to terminate such employment (subject to the other terms of this Agreement and the terms of any other agreement between the Company and the Employee).
7. COMMITTEE'S POWERS. No provision contained in this Agreement shall in any way terminate, modify or alter, or be construed or interpreted as terminating, modifying, or altering any of the powers, rights, or authority vested in the Company's Board of Directors or the Committee or, to the extent delegated, in its delegate pursuant to the terms of the Plan, including
without limitation, the right to make certain determinations and elections with respect to the Restricted Shares. The Committee has the power to interpret the Plan and this Agreement, including the power to correct any defect, supply any omission or reconcile any inconsistency in the Plan or in this Agreement, and to determine the rights of the Employee hereunder. All actions taken and interpretations and determinations made by the Committee in connection with the Plan and this Agreement shall be final and binding on the Employee, the Company, and all other interested parties.
8. GENERAL.
(a) NOTICES. All notices under this Agreement shall be given by certified mail or personal delivery and shall be effective when delivered or, on the third day after deposit in the United States mails with adequate postage, addressed as follows:
(i) If intended for the Employee, to the Employee's home address as listed in the records of the Company.
(ii) If intended for the Company, to the address of the principal business office of the Company, at 3600 South Yosemite Street, Suite 900, Denver, Colorado 80237, Attention: Chief Financial Officer.
(b) ENTIRE AGREEMENT; AMENDMENTS. This document sets forth the entire agreement between the parties. No provision of this Agreement may be altered, amended, or revoked except by an instrument signed by the Employee and the Company.
(c) BINDING EFFECT. This Agreement shall extend to and be binding upon and inure to the benefit of the heirs, personal representatives, and successors of the parties.
(d) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument.
(e) GOVERNING LAW. This Agreement shall be governed by the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as set forth above.
M.D.C.HOLDINGS, INC.
By:____________________________________
THE EMPLOYEE
EXHIBIT 10.13
FIRST AMENDMENT
TO
M.D.C. HOLDINGS, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
Amendment to the M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors as approved by the Board of Directors of M.D.C. Holdings, Inc. on October 20, 2003:
RESOLVED, that the M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors (the "Plan"), which was approved by the Company's shareholders on May 21, 2001, is hereby amended pursuant to Section 6.2 of the Plan to terminate on May 21, 2011.
[End of Amendment]
EXHIBIT 10.14
M.D.C. HOLDINGS, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (the "Agreement") is made as of this_____ day of __________, 2001 between M.D.C. Holdings, Inc., a Delaware corporation (the "Company"), and__________ (the "Option Holder").
WHEREAS, pursuant to the M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors, established effective March 26, 2001 (the "Plan"), the Company wishes to grant the Option Holder an option to purchase shares of the $0.01 par value common stock of the Company (the "Stock") on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS AND CONFLICTS.
Capitalized terms used and not otherwise defined herein shall have the meanings given thereto in the Plan. The terms and provisions of the Plan are incorporated herein by reference. Except as specifically otherwise provided herein, in the event of a conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Agreement, the terms and provisions of the Plan shall govern and control.
2. GRANT OF OPTION.
The Company hereby grants to the Option Holder the right and option (the "Option") to purchase up to________shares of Stock, subject to the terms and conditions of this Agreement and subject to adjustment from time to time to reflect changes in the Stock (through merger, consolidation, reorganization, recapitalization, stock split, liquidating dividend, combination of shares, exchange of shares, changes in corporate structure or otherwise), as provided in Article IV of the Plan.
3. PURCHASE PRICE AND GRANT DATE.
The purchase price of each share of Stock covered by the Option shall be $ ____________(the "Purchase Price"). The date of the grant of the Option is ______________(the "Date of Grant").
4. EXPIRATION AND TERMINATION OF THE OPTION.
The Option shall expire on the tenth (10th) anniversary of the Date of Grant (the period from the Date of Grant to the expiration date is the "Option Period") or prior to such time as follows:
(a) If the Option Holder is removed as a director of the Company during the Option Period for cause (as determined by the Board of Directors of the Company in its absolute discretion), the Option shall be void thereafter for all purposes.
(b) If the Option Holder dies during the Option Period while serving as a director, the Option may be exercised by those empowered to do so under the Option Holder's will or by the then applicable laws of descent and distribution within twelve months following the Option Holder's death (if otherwise within the Option Period), but not thereafter.
5. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company, Attention: General Counsel. Such notice shall state the election to exercise the Option, the number of shares of Stock with respect to which the Option is being exercised, and shall be signed by the person or persons exercising the Option. If the Option is exercised by any person or persons other than the director to whom the Option was originally granted, appropriate proof of the right of such person or persons to exercise the Option or portion thereof shall be provided. The purchase of the Stock pursuant to the Option shall take place at the principal office of the Company within 3 days following delivery of such notice, at which time the Purchase Price of the Stock shall be paid in full.
Payment of the Purchase Price may be made in any of the following methods or in
any combination of such methods, at the option of the Option Holder: (a) cash;
(b) certified check, cashier's check, or other check acceptable to the Company,
payable to the order of the Company; (c) delivery to the Company of irrevocable
instructions to a broker (to the extent permissible under applicable law) to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the Purchase Price of the Stock (a "cashless exercise" or "same-day sale"
transaction) or (d) delivery to the Company of certificates representing the
number of shares of Stock then owned by the Option Holder, the Fair Market Value
of which (determined as of the date the notice of exercise is delivered to the
Company) equals the price of the Stock to be purchased pursuant to the Option,
properly endorsed for transfer to the Company. No Option may be exercised by
delivery to the Company of certificates representing Stock unless such Stock has
been held by the Option Holder for more than six months.
Upon notice to the Company of exercise of the Option and payment of the Purchase Price, the exercise of the Option shall be deemed to be effective, and a properly executed certificate or certificates representing the Stock so purchased shall be issued by the Company and delivered to the Option Holder.
6. TRANSFERABILITY OF OPTIONS.
In general, an Option Holder may not voluntarily or involuntarily pledge, hypothecate, assign, sell or otherwise transfer the Option except by will or the laws of descent and distribution, and during the Option Holder's lifetime, the Option shall be exercisable only by the Option Holder. Notwithstanding the preceding sentence, the Board of Directors of the Company may provide at the time of grant of an Option or thereafter that the Option Holder may transfer an Option to a member of the Option Holder's immediate family, a trust of which members of the Option Holder's immediate family are the only beneficiaries, a partnership of which members of the Option Holder's immediate family or trusts for the sole benefit of the Option Holder's immediate family are the only partners, a corporation in which members of the Option Holder's immediate family are the only shareholders, a limited liability company in which members of the Option
Holder's immediate family are the only members, or any other entity which is solely owned by members of the Option Holder's immediate family (the "InterVivos Transferee"). Immediate family member means the Option Holder and the Option Holder's spouse, children (by birth or adoption), stepchild, grandchild, parents, stepparents, grandparents, siblings, nieces, nephews, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law. No transfer shall be effective unless the Option Holder has notified the Board of Directors of the transfer in writing and has furnished a copy of the documents that effect the transfer to the Board of Directors. The InterVivos Transferee will be subject to all of the terms of the Plan and the Stock Option Agreement.
7. CORPORATE TRANSACTION/CHANGE OF CONTROL.
(a) In the event of a Corporate Transaction, as defined in
Section 5.3 of the Plan, the Board of Directors of the Company may
take certain actions in connection with outstanding Options,
including but not limited to (1) providing for the assumption of the
outstanding Options or the substitution of new options for the
outstanding Options on terms comparable to the outstanding Options,
(2) providing that any Options outstanding at the time the Corporate
Transaction is closed will be canceled, and the director holding
such cancelled Option shall receive in exchange therefor a cash
payment equal to the greater of (i) the Fair Market Value (as
determined under Section 6.5 of the Plan) of a share of Stock
measured on the date immediately prior to such Transaction less the
per share exercise price set forth in the director's Option,
multiplied by the number of shares of Stock purchasable under the
Option; or (ii) the fair market value, as determined by the Board of
Directors of the Company, of the cash, securities or other
consideration into which a share of Stock is to be exchanged
pursuant to the Corporate Transaction, less the exercise price set
forth in the director's Option, multiplied by the number of shares
of Stock purchasable under the Option, or (3) making any other
provision for outstanding Options as the Board of Directors of the
Company deems appropriate.
(b) Notwithstanding the foregoing, actions may be taken pursuant to subsection (a) hereof only to the extent that any payments made with respect to the director continue to be deductible by the Company under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code").
8. NO RIGHTS AS A STOCKHOLDER.
The Option Holder shall have no rights as a stockholder with respect to any shares of Stock until the date of issuance to the Option Holder of a certificate evidencing such shares of Stock. No adjustments, other than as provided for in Article IV of the Plan, shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions for which the record date is prior to the date the certificate for such shares of Stock is issued.
9. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES.
(a) Stock will not be issued with respect to the Option granted hereunder unless the exercise of the Option and the issuance and delivery of the shares of Stock pursuant thereto complies with all relevant provisions of law, including the laws of the Company's state of incorporation, the Securities Act of 1933, the Securities Exchange Act of 1934, the rules and regulations thereunder and the requirements of any stock exchange upon which the Stock may then be listed, and shall be further subject to the approval of the Company's counsel with respect to such compliance.
(b) The Plan, this Agreement and the grant and exercise of the Option to purchase shares of Stock hereunder, and the Company's obligation to sell and deliver shares upon the exercise of rights to purchase shares, shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency which may, in the opinion of the counsel for the Company, be required.
10. INCOME TAX WITHHOLDING.
The Company may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld, if any, with respect to the exercise of the Option and the issuance of the Stock, including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Option Holder, or requiring the Option Holder to pay to the Company the amount required to be withheld or to execute such documents as the Company deems necessary or desirable to enable it to satisfy any withholding obligations.
11. NO RIGHT TO CONTINUED MEMBERSHIP ON THE BOARD.
Nothing in this Agreement or in the Plan confers upon a director any right to continue as a director of the Company or shall interfere with or restrict in any way the rights of the Company and its stockholders to remove any director at any time for any reason whatsoever, with or without cause.
12. NON-QUALIFIED STOCK OPTION.
The Option granted hereunder is not intended to be an "incentive stock option" within the meaning of Section 422 of the Code.
13. ADMINISTRATION.
The Board of Directors of the Company has the power to interpret the Plan and this Agreement, including the power to correct any defect, supply any omission or reconcile any inconsistency in the Plan or in this Agreement, and to determine the rights of all directors and other interested persons hereunder. All actions taken and interpretations and determinations made by the Board of Directors in connection with the Plan and this Agreement shall be final and binding on the director to whom the Option is granted, the Company, and all other interested persons.
14. BINDING EFFECT.
This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.
15. GOVERNING LAW.
This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware.
16. HEADINGS.
Headings are for the convenience of the parties and are not deemed to be part of this Agreement.
17. EXECUTION.
This Agreement is voidable by the Company if the Option Holder does not execute the Agreement within 30 days after the Agreement is sent to the Option Holder by the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above.
M.D.C. HOLDINGS, INC.
By: _________________________________________
Title:_________________________________________
OPTION HOLDER:
EXHIBIT 10.26
INDEPENDENT CONTRACTOR AGREEMENT
THIS AGREEMENT (the "Agreement") is effective as of the 1st day of January 2005 and is between MIZEL DESIGN AND DECORATING COMPANY ("Consultant") and M.D.C. HOLDINGS, INC. (the "Company").
1. ENGAGEMENT. The Company hereby engages Consultant as an independent contractor to perform the services specified in Paragraph 3 below for the Company.
2. TERM. The term of this Agreement shall be for a period beginning on January 1, 2005 and ending December 31, 2005, unless previously terminated pursuant to Paragraph 8 below. This Agreement shall be automatically renewed on January 1 of each successive year for a one-year term unless previously terminated by either party pursuant to Paragraph 8 below.
3. RESPONSIBILITIES. Commencing on January 1, 2005, Consultant shall perform consulting services as are reasonably requested by the Company in those areas described on Exhibit A attached hereto and incorporated by this reference. Consultant shall be responsible and report to the Company's Chief Operating Officer at the Company's Denver, Colorado headquarters. The Company agrees that, because of the reduction in Consultant's compensation to the level set forth in Paragraph 6 below, Company will not request Consultant to provide consulting services totaling more than 20 hours per week.
4. BEST EFFORTS. Consultant shall use its best efforts to competently and expeditiously perform its responsibilities under this Agreement. Consultant shall, while on Company premises, and at all other times while performing its responsibilities under this Agreement, observe, abide by and comply with all corporate policies and procedures of the Company. Consultant shall not commit any act or make any statements that would be damaging to the reputation and good will of the Company.
5. OBLIGATIONS OF THE COMPANY. During the term of this Agreement, the Company shall reimburse Consultant for all reasonable business expenses incurred by Consultant's personnel in connection with performance of Consultant's services. Reimbursement of such expenses shall be made and documented in accordance with Company's normal expense reimbursement policies and procedures.
6. COMPENSATION. Subject to paragraph 8.d. below, Consultant shall be paid $10,000.00 per month for the term of this Agreement. Payments hereunder shall be made semi-monthly, two weeks in arrears.
7. CONFIDENTIALITY OF INFORMATION. Consultant recognizes and acknowledges that it will have access to certain confidential information of the Company, its subsidiaries and affiliated companies, and that such information constitutes valuable, special and unique property of the Company, its subsidiaries and
affiliated companies. Consultant agrees that, during its engagement by the Company and after the termination of such engagement (voluntarily or involuntarily), it will not use, disclose or otherwise permit, and will take all reasonable precautions to prevent any person, firm, corporation, or other entity, access to the confidential information of the Company, except to authorized representatives of the Company, its subsidiaries and affiliated or related companies, and except as authorized by the Company.
8. TERMINATION.
a. The Company shall have the right to terminate Consultant's engagement hereunder immediately, without liability or damages, upon the occurrence of any one of the following:
(i) In the event Consultant engages in fraud, dishonesty or any other act of misconduct; or
(ii) In the event of a material breach by Consultant of any of the terms of this Agreement.
b. The Company or Consultant may terminate this Agreement for any reason, with or without cause, upon thirty days prior notice.
c. In the event of termination pursuant to this Paragraph 8, Consultant's compensation for the month in which termination occurs shall be pro rated to the date of actual termination.
9. DISPUTE. In the event of a dispute, controversy or claim arising out of or relating to this Agreement, such matter shall be settled by arbitration in Denver, Colorado, such arbitration to be conducted before a panel of three arbitrators, one of whom shall be appointed by the Company, one by Consultant, and the third to be appointed by the first two arbitrators. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators that shall be conducted as provided for in this Paragraph 9. Judgment upon the award rendered by the arbitrators shall be final and binding on the parties and may be entered in any court having jurisdiction thereof. The arbitrators shall divide all costs incurred in conducting their arbitration in their final award in accordance with what they deem just and equitable under the circumstances. In an appropriate case, the arbitrators shall be entitled to order equitable remedies.
10. INDEPENDENT CONTRACTOR STATUS. The relationship of the Consultant to the Company shall be that of an independent contractor. Nothing in this Agreement is intended or shall be construed to create an employer-employee relationship, joint venture relationship or partnership, expressly or by implication. It is expressly understood and agreed that the payments contemplated by this agreement are to be considered and treated as payment for services rendered to the Company by Consultant as an independent contractor and the Company shall have no responsibility whatsoever to Consultant with
respect to vacation pay, sick leave, medical benefits, retirement benefits, disability benefits, unemployment benefits or any other employer or fringe benefit. Consultant shall be responsible for all local, state, federal and self-employment taxes on the payments made to Consultant by the Company.
11. MISCELLANEOUS.
a. Consultant may not assign any of its rights or obligations under this Agreement.
b. Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provision or any other provision hereof.
c. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision.
d. As to the subject matter of this Agreement, there are no oral agreements or understandings that limit, expand, or otherwise pertain to these matters. This Agreement includes the entire agreement between the parties hereto relative to the subject matter hereof and supersedes all prior understandings and agreements with respect thereto.
e. Any notice which is required or permitted to be given under this Agreement shall be given by personal delivery or certified mail, return receipt requested, and directed to the respective party at its last known address. Unless and until changed, the address of the parties shall be as follows:
TO: Company
M.D.C. Holdings, Inc.
3600 S. Yosemite Street, #900
Denver, Colorado 80237
Attention: Chief Operating Officer
TO: Consultant
Mizel Design and Decorating Company
Suite 810
3600 S. Yosemite Street
Denver, Colorado 80237
Attention: Carol Mizel
All notices shall be deemed given on the date of personal delivery or, if mailed postage prepaid by certified mail, return receipt requested, on the date of delivery appearing on the return receipt therefor.
f. This Agreement cannot be changed or modified except by a written instrument executed by both parties.
g. This Agreement shall be deemed to have been made and shall be construed and interpreted in accordance with the laws of the state of Colorado.
h. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and permitted assigns.
IN WITNESS WHEREOF, the undersigned parties have caused this agreement to be executed as of the day and year first above written.
Signed:
CONSULTANT:
MIZEL DESIGN AND DECORATING COMPANY
By: /s/ CAROL MIZEL Date: February 14, 2005 --------------------------- ---------------------- Title: --------------------------- |
M.D.C. HOLDINGS, INC.
By: /s/ MICHAEL TOUFF Date: February 14, 2005 --------------------------- ---------------------- Title: Senior Vice President --------------------------- |
EXHIBIT A.
Consultant's responsibilities shall include services with respect to the following:
1. Corporate and Consumer Marketing
2. Merchandising
3. Interior Design and Space Planning
4. Human Resources Development
5. Product
6. Design Center/Home Gallery
7. Meetings
8. Such other matters as may be requested by the Company's
Senior Management
.
.
.
EXHIBIT 12
M.D.C. HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2004 2003 2002 2001 2000 --------- --------- --------- --------- --------- Earnings $ 675,748 $ 389,940 $ 301,072 $ 286,228 $ 232,034 --------- --------- --------- --------- --------- Fixed Charges $ 43,011 $ 43,977 $ 27,453 $ 28,782 $ 30,844 Earnings to Fixed Charges 15.71 8.87 10.97 9.94 7.52 ========= ========= ========= ========= ========= EARNINGS: Pretax Earnings from Continuing Operations 636,914 348,223 274,044 255,387 203,201 Add: Fixed Charges 43,011 43,977 27,453 28,782 30,844 Less capitalized interest (32,879 (26,779) (21,116) (22,498) (24,367) Add amortization of previously capitalized interest 28,702 24,519 20,691 24,557 22,356 --------- --------- --------- --------- --------- Total Earnings 675,748 389,940 301,072 286,228 232,034 ========= ========= ========= ========= ========= FIXED CHARGES: Homebuilding and corporate interest expense 0 0 0 0 0 Mortgage lending interest expense 1,946 1,967 1,822 2,666 3,115 Interest component of rent expense 5,462 3,897 2,812 2,253 2,177 Amortization and expensing of debt expenses (1) 2,724 11,334 1,703 1,365 1,185 Capitalized interest 32,879 26,779 21,116 22,498 24,367 --------- --------- --------- --------- --------- Total Fixed Charges 43,011 43,977 27,453 28,782 30,844 ========= ========= ========= ========= ========= |
(1) 2003 includes $9,315 of expenses related to debt redemption.
EXHIBIT 21
SUBSIDIARIES OF M.D.C. HOLDINGS, INC.
AHT REINSURANCE, INC.
ALLEGIANT INSURANCE COMPANY, A RISK RETENTION GROUP
AMERICAN HOME INSURANCE AGENCY, INC
AMERICAN HOME TITLE AND ESCROW COMPANY
ASFC-W, INC.
ASW FINANCE COMPANY
DOVE CANYON PROPERTIES, INC.
ENERWEST, INC.
FINANCIAL ASSET MANAGEMENT CORPORATION
HOMEAMERICAN MORTGAGE CORPORATION
LION INSURANCE COMPANY
LION WARRANTY CORPORATION
M.D.C. ACCEPTANCE CORPORATION
MDC.COM, INC.
M.D.C. FINANCIAL CORPORATION
M.D.C. HOME FINANCE CORPORATION
M.D.C. INSTITUTIONAL RESIDUALS, INC.
M.D.C. LAND CORPORATION
M.D.C. MORTGAGE FINANCE,INC.
M.D.C. MORTGAGE FUNDING CORPORATION II
M.D.C. RESIDUAL HOLDINGS, INC.
MDC/WOOD, INC.
RAH OF FLORIDA, INC. [FORMERLY RICHMOND AMERICAN HOMES OF
CALIFORNIA (INLAND EMPIRE), INC.]
RAH OF TEXAS, LP
RAH TEXAS HOLDINGS, LLC
RICHMOND AMERICAN CONSTRUCTION, INC.
RICHMOND AMERICAN HOMES CORPORATION
RICHMOND AMERICAN HOMES OF ARIZONA, INC.
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC.
RICHMOND AMERICAN HOMES OF COLORADO, INC.
RICHMOND AMERICAN HOMES OF DELAWARE, INC.
RICHMOND AMERICAN HOMES OF FLORIDA, LP
RICHMOND AMERICAN HOMES OF ILLINOIS, INC.
RICHMOND AMERICAN HOMES OF MARYLAND, INC.
RICHMOND AMERICAN HOMES OF NEVADA, INC.
RICHMOND AMERICAN HOMES OF NEW JERSEY, INC.
RICHMOND AMERICAN HOMES OF NORTHERN CALIFORNIA, INC.
RICHMOND AMERICAN HOMES OF PENNSYLVANIA, INC.
RICHMOND AMERICAN HOMES OF TEXAS, INC.
RICHMOND AMERICAN HOMES OF UTAH, INC.
RICHMOND AMERICAN HOMES OF VIRGINIA, INC.
RICHMOND AMERICAN HOMES OF WEST VIRGINIA, INC.
RICHMOND AMERICAN HOMES TWO, INC.
RICHMOND AMERICAN HOMES THREE, INC.
RICHMOND AMERICAN HOMES FOUR, INC.
RICHMOND AMERICAN HOMES FIVE, INC.
RICHMOND AMERICAN HOMES SIX, INC.
RICHMOND AMERICAN HOMES SEVEN, INC.
RICHMOND HOMES LIMITED
RICHMOND REALTY, INC.
RICHMOND SHELF, INC.
STARAMERICAN INSURANCE LTD.
YOSEMITE AMERICAN MORTGAGE CORPORATION
YOSEMITE FINANCIAL, INC.
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-117319), Form S-3 (No. 333-117310), Form S-8 (No. 333-103154), Form S-8 (No. 333-103192), Form S-8 (No. 333-67894), Form S-8 (No. 333-60330), and Form S-8 (No. 333-22167) of M.D.C. Holdings, Inc., and in the related Prospectuses, of our report dated February 15, 2005, with respect to the consolidated financial statements of M.D.C. Holdings, Inc., M.D.C. Holdings, Inc. management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of M.D.C. Holdings, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2004.
/s/ ERNST & YOUNG LLP Denver, Colorado February 15, 2005 |
EXHIBIT 31.1
CERTIFICATIONS
I, Larry A. Mizel, certify that:
1. I have reviewed this report on Form 10-K of M.D.C. Holdings, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 17, 2005 /s/ Larry A. Mizel ------------------------------------ Chairman of the Board of Directors and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Paris G. Reece III, certify that:
1. I have reviewed this report on Form 10-K of M.D.C. Holdings, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 17, 2005 /s/ Paris G. Reece III ------------------------------------ Executive Vice President, Chief Financial Officer and Principal Accounting Officer |
EXHIBIT 32.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of M.D.C. Holdings, Inc. (the "Company") hereby certifies that the Report on Form 10-K of the Company for the period ended December 31, 2004, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 17, 2005. /s/ Larry A. Mizel ------------------------- Larry A. Mizel Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Title 18, United States Code, and is not being filed as part of the report or as a separate
disclosure document.
EXHIBIT 32.2
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of M.D.C. Holdings, Inc. (the "Company") hereby certifies that the Report on Form 10-K of the Company for the period ended December 31, 2004, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 17, 2005. /s/ Paris G. Reece III ------------------------------ Paris G. Reece III Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Title 18, United States Code, and is not being filed as part of the report or as a separate
disclosure document.